Guidance on Crowdfunding & Jumpstart Our Business Startups (JOBS) Act

On April 5, 2012, the Jumpstart Our Business Startups (JOBS) Act was signed into law by President Barack Obama. The Act requires the SEC to write rules and issue studies on capital formation, disclosure and registration requirements.[1]

The simplest way is become familiar with the rule s and regulation are to start at the top by reading the JOBS ACT, specifically Title III (Click here for the Entire JOBS Act)

The one thing that crowdfunding could not do as a result of restrictions under the federal securities law was to offer an ownership interest, or a share in the profits of the business or venture, in other words a security. The JOBS Act creates a special exemption for crowdfunding so that companies can sell securities by way of crowdfunding.[2]

Generally, under the Act, companies will be limited to raising $1 million in any 12-month period using crowdfunding. Companies cannot crowdfund on their own, but will have to engage an intermediary that’s registered with the SEC as a broker or funding portal. These intermediaries will be required to do some vetting of the company seeking funding.

Individual investors will be limited in the amount they can invest by way of crowdfunding in any 12-month period to:

  • if your annual income or net worth is less than $100,000 – the greater of $2,000 or 5 percent of annual income or net worth, or
  • if your annual income or net worth is more than $100,000 – 10 percent of annual income or net worth up to a maximum of $100,000.

When calculating net worth, you should not count the value of your primary residence or any loans secured by the residence (up to the value of the residence).

The SEC and FINRA proposed rules on crowdfunding on October 23, 2013. Comments were due on February 3, 2014.[3]

FINRA’s proposed rules, which are designed to be consistent with the SEC’s proposal, seek to ensure that the capital raising objectives of the JOBS Act are advanced in a manner that is consistent with investor protection. Pending adoption of the SEC’s proposed rules, no JOBS Act crowdfunding is lawful.

Funding portals. Title III of the JOBS Act adds new Section 3(h) to the Exchange Act which requires the SEC to exempt, conditionally or unconditionally, an intermediary operating a funding portal from the requirement to register with the SEC as a broker. The intermediary, though, would need to register with the SEC as a funding portal and would be subject to the SEC’s examination, enforcement, and rulemaking authority. The funding portal also must become a member of a national securities association that is registered under Section 15A of the Exchange Act. (Source: SEC Website)

The SEC Website continues…

Responses to Frequently Asked Questions

Question 1.

I would like to operate a crowdfunding intermediary. Am I required to register with the SEC before doing so?


Yes. You must register with the SEC either as a broker or as a funding portal.

Please keep in mind that the SEC still has to write rules to implement the crowdfunding provisions of the JOBS Act. Until the SEC has completed this rulemaking, you cannot act as a crowdfunding intermediary, even if you are already a registered broker. The Division of Corporation Finance also has reminded issuers that any offers or sales of securities purporting to rely on the crowdfunding exemption would be unlawful under the federal securities laws until the SEC’s rulemaking is complete.[4]

In short, nothing has been set in stone by the SEC and thus making the sale of equity via a crowdfunding website a liability to the crowdfunding website, the issuer and the investor.  If you are looking for information about using The Crowdfunding Exception under The Jobs Act to sell equity, here is what the SEC says:

“On April 5, 2012, the Jumpstart Our Business Startups (JOBS) Act was signed into law. The Act requires the Commission to adopt rules to implement a new exemption that will allow crowdfunding. Until then, we are reminding issuers that any offers or sales of securities purporting to rely on the crowdfunding exemption would be unlawful under the federal securities laws”-

As writer for Inc Magazine, in an article published in February 2014, said “Long-awaited SEC rules clarify how entrepreneurs will one day raise money on crowdfunding portals. The process starts with disclosure. Lots of it.”…..just not yet….


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