Crowdfunding was authorized by the JOBS Act enacted on April 5, 2012. The SEC adopted regulations implementing the crowdfunding portions of the Act on October 30, 2015, and those regulations became effective on May 16, 2016. The release adopting the regulations was 685 pages long but the rules adopted are not all that complicated. The following is a brief and general discussion of those regulations.

Crowdfunding will be of use to issuers who want to raise smaller amounts of capital (up to $1 Million in any 12 month period).

An individual’s investment in any 12 month period in all crowdfunding issuers is limited to:

(i) The greater of $2,000 or 5 % of the lesser of the investor’s annual income or net worth if either the investor’s annual income or net worth is less than $100,000; or

(ii) 10 % of the lesser of the investor’s annual income or net worth, not to exceed an amount sold of $100,000, if both the investor’s annual income and net worth are equal to or more than $100,000.

During any 12 month period, the aggregate amount of securities sold to an investor through all crowdfunding offerings may not exceed $100,000.

Certain companies are excluded from participating in in raising funds by crowdfunding,

Generally, securities purchased in a crowdfunding offer may not be resold for a period of one year.

The issuer must make disclosure about the business, use of proceeds, etc. similar to that which an issuer must make under Regulation D.   This is something that the company should not try at home; this disclosure is difficult and precise work. Disclosures of this sort have followed a pattern and it would be wise to follow that pattern.   The disclosures are an “insurance policy.”

The standard for financial statements depends upon the amount of the offering.

There are filing requirements and ongoing reporting requirements. Advertising is restricted.

Finally, the crowdfunding must be conducted exclusively through an SEC registered intermediary—either a SEC registered broker—dealer or a “portal.”   If you call, I can give you the names of several “portals.”

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