This is an Advertisement

CLIENT UPDATE: SEC Takes First Step Toward Implementation of Equity Crowdfunding

SEC Takes First Step Toward Implementation of Equity Crowdfunding

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. 

 

For more information, contact Aaron Zibart in Louisville, Lee Harkavy or Jordan Reifler in Memphis.

Click here to read the previous Client Update: Major SEC Rule Change Opens New Era for Equity Fundraising.