U.S securities-based crowdfunding under Title III of the JOBS Act created a new exemption from registration for internet based securities offerings of up to $1 million over a 12 month period. The SEC adopted securities-based crowdfunding rules on October 30, 2015. Issuers were able to use the new exemption beginning May 16, 2016, when the final rules became effective. Regulation Crowdfunding enables eligible companies to offer and sell securities trough crowdfunding.
Who are eligible issuers? Only U.S companies not registered with SEC are allowed. Investment and blank check companies are restricted. On the other hand there are no restrictions on eligible investors, both accredited investors and retail investors can participate but they have maximum limits per investor depending on their income and net worth. They have annual limits, if their income or net worth is less than $100,000 than limit is 5% of it and if it is above $100,000 it is 10%. Very limited resales of securities are permitted for one year. Regulation crowdfunding permit a company to raise a maximum aggregate amount of $1,070,000 through crowdfunding offerings in a 12-month period so the typical number of investors is around one thousand.
It is required that all transactions under Regulation Crowdfunding to take place online trough a SEC-registered intermediary, either a broker-dealer or a funding portal. Marketing and general solicitation is permitted but only through the portal that is hosting the offering and publicity anywhere else including social media is restricted. Any issuer conducting Reg CF offering must electronically file its offering statement on Form C through EDGAR system. the instructions to Form C indicate the information that issuer must disclose. The financial statements requirements are based on the amount offered and sold.
For issuers offering $107,000 or less, financial statement and some information from federal income tax return of the issuer. For issuers offering more than $107,000 but not more than $535,000 – financial statements reviewed by a public accountant. Issuers offerings more than $535,000 – financial statements reviewed by public accountant or financial statements audited by public accountant depending if they are first-time issuers or not. Regulation Crowdfunding is ideal for startups , venture capitalist and angel investors.
