On October 23, the SEC announced the long-awaited proposed rules on equity crowdfunding. The key points of the proposed rules include:
- $1 million limit on crowdfunding in any 12 month period
- Limits on what an investor may invest in crowdfunding offerings during a 12 month period:
- the greater of $2,000 or 5% of their annual income or net worth (for investors whose annual income and net worth are less than $100,000); or
- the greater of 10% of their annual income or net worth (for investors whose annual income or net worth is at least $100,000), with a $100,000 annual limit
A company using crowdfunding would be required to file with the SEC and disclose information to investors, including:
- Information about officers and directors as well as any 20% shareholders
- A description of the company’s business and the use of proceeds from the offering
- The offering price of the securities, the target offering amount and the deadline for closing the offering
- Transactions between the company and its officers, directors and other related parties
- Financial statements, which must include a copy of the company’s tax returns or be reviewed or audited by an independent public accountant (depending on the amount offered and sold during a 12-month period)
Companies may not do crowdfunding on their own, but must instead use either an SEC-registered broker-dealer or online “funding portal.” Portals are limited in what they are permitted to do and may not give investment advice or recommendations, solicit investors or handle investor funds.
Note: These proposed rules are subject to a 90 day public comment period, so equity crowdfunding is not yet the law. Stay tuned.
Click here to read the previous Client Update: Major SEC Rule Change Opens New Era for Equity Fundraising.