On May 16, 2016, Securities and Exchange Commission (SEC) regulations went into effect implementing Title III of the JOBS Act, which establishes an equity crowdfunding model involving non-accredited investors and an exemption from the requirement to register the issued securities with the SEC. To qualify for the exemption:
- The amount raised by the issuer may not exceed $1 million in any 12-month period (not including funds raised in offerings other than under the crowdfunding exemption);
- The crowdfunding offering must be conducted online through the online platform of a single intermediary that has registered as either a broker under the Securities Exchange Act of 1934 or as a funding portal under Title III and the regulations implementing Title III; The issuer may not advertise its crowdfunding offering except by way of notices that contain limited information with the intent that potential investors be directed to the intermediary's platform for more information; and
- Prior to commencing a Title III crowdfunding offering, the issuer must complete a Form C, which includes detailed financial and business disclosures about the issuer, file it with the SEC and make it available to the intermediary and the investors.
In addition, the Title III crowdfunding exemption (i) places limitations on the amounts that investors can invest in crowdfunding offerings, (ii) restricts the resale of securities for a period of one year except in certain limited circumstances, and (iii) requires the issuer to file annual reports with the SEC that contain similar information as required by Form C after the closing of the crowdfunding offering.
A more detailed discussion of the offering exemption and requirements can be found in last quarter's Technology Industry Newsletter or by clicking here.