NJ Joins the CrowdFunding Race


The race is on between the New Jersey Legislature and the Securities and Exchange Commission (SEC). Both are considering legislation to permit entrepreneurs to raise funds through equity crowdfunding.

Crowdfunding, which gained the attention of the public through websites like Kickstarter and Indiegogo, allows budding entrepreneurs to raise money from a large pool of ordinary investors. While companies and individuals are allowed to provide investors with free products, special access and other small tokens in exchange for their funds, they were not allowed to sell shares of their business to everyday investors until Congress passed the Jumpstart Our Businesses Act in 2012. The law created an exemption to existing securities laws that allows companies to raise up to $1 million in any 12-month period from an unlimited number of “unaccredited” investors.

While the JOBS Act’s crowdfunding provisions were championed as a job creator and potential game changer, concerns about protecting investors from fraud have bogged down the SEC’s rulemaking process. After months of delays, the agency announced its proposed rules on October 23, more than a year and a half after the bill was signed.

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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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