What Could Be More Fun Than A 585-Page Release on Proposed Crowdfunding Rules?


After about 18 months of eager anticipation, the SEC just published its proposed rules regarding Crowdfunding under the Title III of the JOBS Act. The release is 585 pages long so I’d suggest it may be an ideal time to buy stock in companies that supply paper to law firms across the country!
Unlike the recent changes under Rule 506 detailed in this prior post, which permit raising capital from accredited investors only using general solicitation (if you jump through all the right hoops to verify accredited status), the Crowdfunding rules, once finalized, will permit the raising of small sums of money from a large number of investors (whether accredited or not).
Unless you’ve been living in a cave, you know that companies have been crowdsourcing capital (on sites like Kickstarter and indiegogo ) for a while. Of course, this capital hasn’t come with any equity strings attached (maybe just a T-shirt or beta test promise). Title III of the JOBS Act is supposed to change all of this by permitting up to $1 million in equity capital to be raised in any twelve-month period from all types of investors.
Since these are only proposed rules (it took almost a year to get from proposed rules to final rules on the Rule 506 general solicitation), I haven’t yet dropped everything else on my desk to pour through all the details. A couple of key things to know that haven’t changed since I wrote about the crowdfunding provisions of Title III back when the JOBS Act was originally passed:

- These are still just proposed rules. You still cannot conduct a crowdfunded securities offering (general solicitation with unaccredited investors) until the final rules are adopted (likely a minimum of months from now). You don’t want to end up like the buy a beer company guys.

- There are still many requirements in the proposed rules that could limit the usefulness of crowdfunding for most companies. These include certain financial disclosures (depending on the amount of total capital being raised), other mandatory disclosures, the use of a broker or "funding portal,"  along with some ongoing reporting obligations to the SEC. The bottom line may be what I said in my original post:  “You won’t be able to do it without the assistance of a skilled securities lawyer (and, depending on the amount you’re raising, an independent CPA).”

- There’s still quite a bit unresolved about crowdfunded equity offerings. For example, state securities commissioners (like Ohio) appear openly hostile to equity crowdfunding.

As with every JOBS Act post, stay tuned for updates as the final Title III Crowdfunding rules develop.


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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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