Last week the SEC voted to propose rules on Title III of the Jumpstart Our Business Startups Act or “JOBS Act” as it is most commonly referred to. Title III of the act has a focus on governing crowdfunding while also permitting new freedoms by allowing non-accredited investors to participate in crowdfunding. The proposal is currently in the 90-day comment period where those affected by the proposal can give their input which will be reviewed by the SEC. The proposed rules can be found here, but going through the 585 page report will be time consuming to say the least. Therefore, the highlights below will save you the time and get “to the point.”
For Crowdfunding Companies
1. Crowdfunding must be accomplished through a registered broker-dealer or registered “funding portal” and are required to disclose the following:
-For issuers offering $100,000 or less, most recently completed tax return (if any) and financial statements that are certified by the principal executive officer to be true and complete in all material respects.
-For issuers offering $100,000 to $500,000, financial statement reviewed by a certified public accountant.
-For issuers offering $500,000+, financial statement audited by a certified public accountant.
2. Disclose information about officers and directors as well as owners of 20 percent or more of the company.
3. Disclose intent or use of proceeds.
4. Disclose the target offering amount and whether the investments above the target amount will be accepted.
5. Limits the amount an issuer can raise to $1 million in a 12-month period.
6. Limits advertising to investors.
- Limits on Investments
-For investors with annual income below $100,000, investments are limited to the greater of $2,000 or 5% of annual income or net worth.
-For investors with income above $100,000, investments are limited to 10% of annual income or net worth up to a maximum of $100,000.
It will be interesting to see what changes the comment period will bring. After the 90 day period, the SEC will make revisions to the rulings and then vote on the final ruling. The final rulings are predicted to come into effect in April or May of 2014.
If you have any questions about the JOBS Act or any other concepts mentioned in this article, please contact your normal WithumSmith+Brown partner.