Regulations expand attention on crowd investing nationwide.

by | Jun 10, 2016 | Crowdfunding |

May 16th, 2016 marks a milestone for crowdfunding with the JOBS Act Title III finally beginning. The biggest impact that this rule has is the inclusion of the millions of non-accredited investors to the pool of funds powering this new wave of crowd investments. Now people earning under $100,000 can invest a safe portion of their income in retail online investments. The ruling also brought many changes to issuers wishing to take advantage of this finance method, but also with it new regulations and restrictions to keep in mind.

The funding limit of a company fundraising under Title 3 cannot exceed 1 million dollars in a 12-month period. To start the funding process the first step is to file a Form C. This form requires extensive information but this is the SEC’s way of ensuring that investors have knowledge about the entirety of the business. A very useful document in here is the explanation of the business and the intended use of proceeds. The issuer must inform of officers, directors, and members owning in excess of 20% of the company. The issuer must also inform the price, amount of shares and deadline of the offering. Depending on the amount being raised the financial statements required will change.

If the issuer is looking for funding under $100,000 it will have to release some information on its federal income tax returns and an internal GAAP financial statement review signed of by the CEO. For funding between $100,000 and $500,000 GAAP financial statements must reviewed by a CPA and CEO. If the raise exceeds $500,000 then a 3rd party CPA must review the financial statements.

Once the issuer has submitted all relevant information and is ready to go on a platform it still has many rules to abide by. There are several limitations to the advertisement that the SEC considers acceptable. The issuer may not provide any information of the terms of the offering that include: amount, nature, price of securities and the deadline of the offering. When advertising an issuer should limit itself to a briefing about the business and information directing users to the platform.

After the funding has begun, the issuer must file a Form C-U at 50% and 100% of the funding target. Nonetheless it is important for issuers to be more consistent with there communication with investors. The only way to do this is through platform updates. In this way the SEC promotes all updates to be in one place for all shareholders to access. Issuers are not allowed to have email updates, interviews outside the platform, and even events as Demo Days may cause problems.

Even though Title 3 has opened the door to millions of people there are certain aspects that didn’t live up to the expectations for all stakeholders. The 1 million dollar cap is arguably one of its main constraints with many issuers often needing an average of 2 million. Investors also face problems from investing limits. Platforms now have to deal with communication channels. These are only some of the changes each party will face but this is not bad news. The transition towards a better experience can’t come without the hardships of regulation. In a world of increasing economic inequality providing better options for those once renegaded becomes increasingly paramount. As legislators address this in their own ways it is important for companies to provide the infrastructure needed to make this disruptive force a reality.


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There is no ready market for the sale of the securities acquired from this offering and it may be difficult or impossible for an investor to sell or otherwise dispose of this investment. An investor may be required to hold and bear the financial risks of this investment indefinitely; The securities have not been registered under federal or state securities laws and, therefore, cannot be resold unless the securities are registered or qualify for an exemption from registration under federal and state law; In making an investment decision, investors must rely on their own examination of the issuer and the terms of the offering, including the merits and risks involved; and No federal or state securities commission or regulatory authority has confirmed the accuracy or determined the adequacy of the Disclosure Statement or any other information on this Internet website.


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