Crowdfunding: One Step Closer to Reality

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On Tuesday, March 27, the House of Representatives passed the JOBS (Jumpstart Our Business Startups) Act (H.R. 3606) by an overwhelming majority of 380-41. With this vote, the JOBS Act has passed the final congressional hurdle before going to the President to be signed into law, which is expected to occur as early as the end of the week. Among the various elements of the bill, which is actually a package of bills aimed at easing the regulatory burdens on private and newly public businesses, the JOBS Act contains a crowdfunding provision that may be transformative in the way entrepreneurs and early-stage companies raise small amounts of first round capital.

While crowdfunding will eventually provide a new method for early-stage businesses to raise their initial capital, it will not be as frictionless to use as initially intended by its proponents. First, the SEC will have 270 days to issue rules before crowdfunding becomes available for companies. Second, the Senate amendments to the initial House bill have added significant regulatory and disclosure requirements that are likely to inhibit the rapid and widespread use of this new capital raising tool.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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