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.