Finally... Some Movement on Crowdfunding Rules

The SEC yesterday proposed rules that would allow startups to raise capital online from small investors.  Congress in 2012 passed the JOBS Act allowing for such fundraising once the SEC finalized rules governing the process, but the deadline set by Congress for issuing those rules has long passed.

The rules proposed yesterday will be subject to public comment for 90 days after their publication in the Federal Register.  A few highlights are provided below, but you can go to the SEC website to get more complete information,

A company would be able to raise a maximum aggregate amount of $1 million through crowdfunding offerings in a 12-month period.

Investors over a 12-month period could to invest up to:

• $2,000 or 5 percent of their annual income or net worth, whichever is greater, if both their annual income and net worth are less than $100,000.
• 10 percent of their annual income or net worth, whichever is greater, if either their annual income or net worth is equal to or more than $100,000.  During the 12-month period, these investors would not be able to purchase more than $100,000 of securities through crowdfunding.

Securities purchased through crowdfunding could not be resold for one year.

Among the things the company would be required to disclose in its offering are:

• Information about officers and directors as well as owners of 20 percent or more of the company.
• A description of the company’s business and the use of proceeds from the offering.
• The price to the public of the securities being offered, the target offering amount, the deadline to reach the target offering amount, and whether the company will accept investments in excess of the target offering amount.
• Certain related-party transactions.
• A description of the financial condition of the company.
• Financial statements of the company that, depending on the amount offered and sold during a 12-month period, would have to be accompanied by a copy of the company’s tax returns or reviewed or audited by an independent public accountant or auditor.

Remember, that as I have pointed out several times previously, just because you CAN raise equity through crowdfunding does not mean that you SHOULD do so.