Companies can Offer and Sell Securities Through Crowdfunding

The Securities and Exchange Commission (SEC) has given companies permission to offer and sell securities through crowdfunding under Title III of the Jobs Act. Companies that want to offer and sell via crowdfunding should speak with a business law attorney who can help them navigate the process.

Crowdfunding is a Growing Trend

Crowdfunding is a creative and innovative way for businesses to raise capital. Entrepreneurs can utilize the internet or social media to connect with investors. Startup companies and individuals can visit popular crowdfunding websites, such as Kickstarter, GoFundMe, and Indigogo and find investors who want to fund business projects that have a purpose or potential to succeed.

Crowdfunding is becoming more popular with both entrepreneurs and investors. Entrepreneurs are seeking other ways to find funding, and crowdfunding is the answer for many of them. Over the years, crowdfunding has proven to be a viable alternative to receiving or investing money. Trends show it is not going away no time soon, and many financial experts predict it will be the next major investment trend for many people in business.

SEC Recommendations for Offering and Selling Securities via Crowdfunding

The new SEC rules and provisions involving crowdfunding give startups and small business owners additional ways to grow their businesses and provide investors with protection. Businesses need to become familiar with the SEC recommendations of offering and selling securities through crowdfunding. The SEC has released new recommendations and rules.

The recommended rules would, among other things, enable individuals to purchase securities in equity crowdfunding offerings subject to certain limits, require companies to disclose certain information about their businesses and securities offerings, and create a regulatory framework for the intermediaries facilitating crowdfunding transactions. More specifically, the recommended rules would permit a company to raise a maximum aggregate amount of $1 million through crowdfunding offerings in a 12-month period. They would permit individual investors, over a 12-month period, to invest in the aggregate across all equity crowdfunding offerings up to:

  • If either their annual income or net worth is less than $100,000, than the greater of: $2,000 or 5% of the lesser of their annual income or net worth.
  • 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;
  • During the 12-month period, the aggregate amount of securities sold to an investor through all crowdfunding offerings may not exceed $100,000.

Under the recommended rules, certain companies would not be eligible to use the exemption. Ineligible companies would include:

  • Non-U.S. companies,
  • Exchange Act reporting companies,
  • Certain investment companies,
  • Companies that are subject to disqualification under Regulation Crowdfunding,
  • Companies that have failed to comply with the annual reporting requirements under Regulation
  • Crowdfunding during the two years immediately preceding the filing of the offering statement, and companies that have no specific business plan or have indicated that their business plan is to engage in a merger or acquisition with an unidentified company or companies.

(Source: SEC)

Get Better Understanding and Legal Advice

Companies that follow these recommendations to conduct an equity crowdfunding offer must file specific information with the SEC. In addition, companies are required to provide this information to potential investors and the intermediary facilitating the over. Before offering and selling securities, it is wise to seek the counsel of a well-versed business law attorney who understands the new laws regarding offering and selling securities through crowdfunding.