The SEC Pulse

Small Entity Compliance Guide for Issuers

Posted by Jeffrey Morlend on May 31, 2016 at 1:48 PM

Earlier this month, the SEC released a small entity compliance guide for issuers regarding its recently passed crowdfunding regulation to help provide issuers with some additional clarity.  The guide presents a general description of the regulation and provides a step by step listing of the requirements issuers must meet in order to rely on the crowdfunding exemption.  In addition, the guide discusses disclosure requirements of issuers and other limits, restrictions and disqualifications under the regulation.

Find out more about crowdfunding:

Topics: crowdfunding

Plain English Guidance for Crowdfunding

Posted by Howard Berkenblit on March 2, 2016 at 3:50 PM

In mid-February, the SEC posted an investor bulletin designed to educate investors about the ins and outs of its crowdfunding rules that go into effect in mid-May.  The bulletin presents examples illustrating the investment limits based on income and net worth under the new rules.  The bulletin also contains guidance on how to make a crowdfunding investment and how to get information about companies seeking crowdfunding, and highlights some of the key risks involved with a crowdfunding investment, all in a fairly “plain English” format.

Read more about crowdfunding on our InhouseGo2 Blog

Topics: crowdfunding, crowdfunding investment

Crowdfunding – What You Need To Know

Posted by Jeffrey Morlend on November 12, 2015 at 12:02 PM

New Developments in Crowdfunding from the SEC

The SEC recently issued under the JOBS Act the long-awaited crowdfunding rules, whereby small businesses may raise capital from a large number of investors, each of whom contributes a small amount of money, without going through the trouble of filing a registration statement with the SEC.  However, it is important to understand the limits and filing requirements imposed by the SEC before moving forward with a crowdfunding transaction.  

  1. Limits.  As much as we’d each like to go collect $5 from every person we’ve ever met, the SEC has imposed several limits on crowdfunding in order to protect investors.  To qualify for the registration exemption, the aggregate amount of securities sold by a company to all investors in a crowdfunding transaction during a 12-month period cannot exceed $1 million.  In addition, the aggregate amount of securities sold by a company to any one investor in a crowdfunding transaction cannot exceed certain limits – if the investor’s annual income or net worth is less than $100,000, the limit is the greater of $2,000 or 5% of the lesser of the investor’s annual income or net worth, and if both the investor’s annual income and net worth are equal to or more than $100,000, the limit is 10% of the lesser of the investor’s annual income or net worth.  Still with me?  The SEC has also limited the aggregate amount of securities sold to one investor through all crowdfunding transactions to a maximum of $100,000.   In addition to these limits, a crowdfunding transaction must be done using one – and only one – intermediary (i.e., broker or funding portal).  So if you were thinking about crowdfunding through your website or by using multiple funding portals, sorry to be the bearer of bad news. 
  1. Issuer Requirements.  As mentioned above, the crowdfunding rules exempt a company from filing a registration statement with the SEC, but create a different obligation to file a new “Form C” with the SEC.  The Form C, despite not being as full-blown as a registration statement, still requires detailed disclosures.  As of the date of this post, the Form C was not available on the SEC’s website, but the crowdfunding rules tell us that it will require disclosures such as descriptions of the company, financial condition, intended use of proceeds, targeted amount of money to be raised and price per share.  Notably, a company will need to provide a complete set of financial statements that are, depending on the amount of securities offered and sold in a crowdfunding transaction during a 12-month period, accompanied by information from the company’s tax returns, reviewed by an independent public accountant or audited by an independent auditor.  A company that relies on these rules for the first time would be permitted to provide reviewed rather than audited financial statements, unless its audited financial statements are available.  The Form C will also require disclosures about the company’s officers, directors and any beneficial owners of 20% or more.  Each required disclosure has a specific description as to what needs to be included in the Form C, so be sure to read each rule and each instruction to each rule once the Form C becomes available. 
  1. Intermediary Requirements.  If you’re interested in crowdfunding from the perspective of the intermediary, this is where your ears perk up.  Any person acting as an intermediary in a crowdfunding transaction must register with the SEC as either a broker or funding portal.  These registration requirements are also very detailed and include registering with applicable self-regulatory organizations in addition to the SEC.  The crowdfunding rules also prohibit an intermediary’s directors, officers or partners from having any financial interest in any company using its services, so be careful to do your research before getting involved in a crowdfunding transaction. 

The crowdfunding rules are rather extensive and the above summary is intended only to give some quick answers to the questions we’ve received so far.  Remember that the crowdfunding rules, while making it easier for companies to raise capital, are designed with the intention of preventing fraud and protecting investors.  Stay tuned as these rules are put to the test. For more information about the JOBS Act, go to our portal below. 

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Topics: the JOBS Act, crowdfunding, SEC

SEC adopts rules permitting crowdfunding

Posted by Howard Berkenblit on October 30, 2015 at 5:04 PM

As mandated by the JOBS Act, the SEC today adopted rules that permit private companies to offer and sell securities through crowdfunding. The new rules (and additional proposed amendments to existing intrastate offering exemptions) are designed to assist smaller companies with capital formation and provide investors with additional protections. 

While the final rules have not yet been released, they will permit a company to raise up to $1 million through crowdfunding efforts in a 12-month period and permit individual investors over a 12-month period to invest in the aggregate across all crowdfunding offerings up to (a) if either their annual income or net worth is less than $100,000, the greater of $2,000 or 5% of the lesser of their annual income or net worth and (b) if both their annual income and net worth are equal to or more than $100,000, 10% of the lesser of their annual income or net worth. In addition, the rules will permit during the 12-month period, an aggregate amount of $100,000 of securities to be sold to an investor through all crowdfunding offerings. Securities purchased in a crowdfunding transaction generally will not be able to be resold for one year. Several disclosures regarding the use of crowdfunding will be required to be filed with the SEC by companies using crowdfunding efforts, including financial statements that must be audited or accompanied by tax returns if certain thresholds are exceeded, as well as annual reports.

Additional details regarding these rules are available here. The rules will be effective sometime next May (180 days after publication in the Federal Register, which should occur in the next week or two).

The rules also set forth requirements for crowdfunding portals. The forms enabling funding portals to register with the SEC will be effective January 29, 2016.

Topics: the JOBS Act, crowdfunding

About the Blog


The SEC Pulse provides updates and commentary from our Capital Markets Group on issues affecting publicly traded and privately owned businesses, investment banks and foreign companies who trade or raise capital in the United States, and boards of directors and company officers in securities transactions and corporate governance matters. 

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