About the JOBS Act & The New Regulations

 

With the passing of the JOBS ACT in 2012, the SEC changed how capital is raised by allowing companies to use the Internet and social media to sell securities via general solicitation.  Equity crowdfunding under these new regulations is used to facilitate financing online that has changed how capital is raised forever. Below is a brief overview of the new rules that permit selling securities online. CrowdEngine fully supports all of these new regulations:

Regulation D 506(c)

(Unlimited Raise Amounts – Simple Form)

Regulation D provides the most common regulatory exemption used by crowdfunding portals today. It exempts private placement offerings under 506(c), which was adopted on September 23, 2013.  Companies relying on the Rule 506 exemptions can raise an unlimited amount of money from the general public using advertising, but can only sell to accredited investors (Reg. D 506b can have a max of 35 unaccredited investors per offering).

Regulation A+

(Tier 2 – Up to $50 Million – Requires Prior Approval)

Regulation A+ exempts a securities offering that does not exceed $20 million from SEC registration if certain requirements are met. However, businesses still must file an offering statement that includes an offering circular and financial statements with SEC, and SEC staff review filings for consistency with applicable rules and accounting standards.

Regulation A+ offers two tiers of offerings: the first tier for offerings of up to $20 million and the second tier for offerings of up to $50 million, each within a 12-month period.

Pros: The new regulation lets Issuers:

  • Streamline the government approval process by eliminating state filing requirements and allowing electronic filing
  • Increase the funding maximum from $20 million in a 12-month period under original Tier 1 offerings, up to $50 million in a 12-month period (subject to individual investor limitations based on income)
  • Permit general solicitation
  • Allow Canadian investors to invest
  • Offer tradable, non-restricted securities, unlike the other previously discussed regulations
  • Preempt state securities laws that regulate the offering inside their borders

Cons:

  • Companies would still face significant pre-sale disclosure, on-going reporting obligations and audited financial requirements
  • Excludes asset-back securities

For a lot more information, see the official SEC website here.

Title III (Regulation Crowdfunding)

(Up to $1 Million annually, requires FINRA approved Funding Portal)

The SEC has issued crowdfunding legislation known as Title III of the JOBS Act. The legislation has three key differentiators 1) provide an easy, low-cost way for startups to raise money online; 2) protect investors from new forms of fraud; and 3) create incentives for financial firms to run crowdfunding websites.

Pros:

  • Companies would be able to reach accredited and non-accredited investors alike (subject to a total investment limit of up to 10% of an investors’ income based on the non-accredited investor’s income and net worth).

Cons: Companies would be restricted to:

  • A limited annual raise per issuer ($1,000,000)
  • Must complete pre-sale information on each investment
  • Submit audited financials for raises over $500,000.

To learn more, view our webinars here or check out the SEC website here.

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