Final Crowdfunding Rules Issued by SEC
On October 30, 2015, the Securities and Exchange Commission (“SEC”) issued final rules that will allow private companies to use crowdfunding platforms to offer and sell securities (i.e., “interests” or “shares” in their companies) to investors. As I wrote in a past blog post (when the rules were merely proposed), Regulation Crowdfunding (“Reg. C”) has the potential to significantly change or expand crowdfunding going forward. Reg. C implements key provisions of the Jumpstart Our Business Startups Act (“JOBS Act”).
Reg. C allows qualifying private issuers to raise up to $1 million in a 12 month period through online crowdfunding using “regulated intermediaries” (platforms like Kickstarter or IndieGoGo that have met the various requirements of Reg. C). Individual investors are subject to tiered ceilings on how much they can contribute/buy in a given 12 month period. There are rules and restrictions on how much an issuer can sell to one investor in the 12 month period, pertaining to how an issuer can advertise the issuing, and resale of securities. Certain companies are not eligible to issue securities through crowdfunding and there are reporting and disclosure requirements for issuers.
Reg. C will likely become effective sometime in May, 2016. In the meantime, if your business is interested in offering a crowdfunding campaign under Reg. C, now is the time to begin conducting a thorough analysis of whether such a venture is ultimately in the company’s best interest.
I suspect, though time will tell, that most new start ups will not find undertaking this type of campaign viable. This type of crowdfunding campaign may be more viable for established companies looking to grow capital quickly for expansion.
If your company is interested in a securities crowdfunding campaign, contact Burger Legal at info@burgerlegal.com or 336.705.1016. Burger Legal can assist you in navigating the rules and reporting requirements as you determine whether a campaign is in your best interest.
