THIS OUTLINE is intended to flag a number of things about Crowdfunding that counsel should consider and in guiding entrepreneurial clients and small issuers with this developing capital formation exemption from the registration provisions of the Securities Act. There are many articles, outlines, and summaries that will provide the how-to that practitioners seek, not the least important and useful of which will be the SEC’s Release announcing Regulation Crowdfunding, when it is issued.

1. A Short Definition. Crowdfunding involves the use of the internet and social media to raise capital, typically from a large number of people and in relatively small amounts from each. Crowdfunding seeks to enable small startup businesses that may not have easy access to traditional capital markets and methods of venture capital fundraising to raise capital. (Practical Law).

2. Crowdfunding is Illegal. Congress passed the JOBS Act and Section 4(a)(6) of the Securities Act became law in April 2012. It provides for Crowd-funding subject to SEC Rulemaking. The SEC proposed Regulation Crowdfunding (“Regulation C/F”) for comment in October 2013. The SEC staff is reviewing the many comments received. Until the SEC acts and adopts Regulation C/F it is illegal to engage in the sort of crowdfunding transactions contemplated by the JOBS Act. As noted below, other financing mechanisms widely referred to as crowdfunding are available and may yet crowd out capital-C Crowdfunding.