Congress’s passage last year of the popular and bipartisan Jumpstart Our Business Startups (JOBS) Act was met with expectations of imminent and fundamental changes to the financing environment for early-stage businesses. Those who saw the JOBS Act as a game changer focused on the act’s “crowdfunding for the masses” provisions. Specifically, Title III amends existing law to exempt certain crowdfunding activities—that is, the use of internet and social media to raise relatively small individual investments from a large number of investors—from registration with the U.S. Securities and Exchange Commission (SEC). While these provisions potentially create a much larger pool of startup investors, Title III also significantly restricts the scope of lawful crowdfunding and establishes new disclosure and other compliance requirements for crowdfunding issuers and intermediaries. Notably, Title III:
• Limits the total amount raised via crowdfunding to $1 million per issuer, per year;
• Limits the total amount sold to any individual investor to a percentage of the investor’s net worth or annual income (for example, an investor with an annual income of $50,000 and a net worth of $100,000 may only be issued $5,000 worth of securities during any 12-month period);
• Requires that crowdfunding transactions be conducted through a qualified broker or funding portal that complies with new disclosure, investor education, anti-fraud and privacy regulations; and
• Requires crowdfunding issuers to disclose detailed information about their finances, operations and uses of capital...
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