On May 16, 2016, Regulation Crowdfunding became effective. Ahead of this effective date on May 13, 2016, the U.S. Securities and Exchange Commission (the “SEC”) released a new set of Regulation Crowdfunding Compliance and Disclosure Interpretations (“C&DIs”) addressing, among other topics, public communications, investment limitations and balance sheet disclosures for recently formed issuers.
On October 30, 2015, the SEC adopted final rules under Title III of the Jumpstart Our Business Startups Act (the “JOBS Act”) permitting individuals to invest in U.S. companies via securities-based crowdfunding pursuant to Section 4(a)(6) of the U.S. Securities Act of 1933, as amended (the “Securities Act”) (“Regulation Crowdfunding”). Regulation Crowdfunding is not available to non-U.S. companies. Regulation Crowdfunding subjects individuals to investment limits, limits the amount of money an issuer can raise pursuant to the exemption, imposes issuer disclosure requirements and creates a regulatory framework for the broker-dealers and internet funding portals that facilitate crowdfunding.
The C&DIs clarified certain Regulation Crowdfunding concepts, including:
- prior to filing a Form C, the issuer may disseminate information not constituting an offer of securities. The SEC gives the example of “factual business information that does not condition the public mind or arouse public interest in a securities offering;”
- non-natural persons that invest in Regulation Crowdfunding offerings are subject to the investment limits; and
- a financial disclosure table is included in C&DI 201.01 to detail the balance sheet and other financial statement disclosure requirements.
Regulation Crowdfunding represents a major shift in how small U.S. companies can raise money in the securities market. It also recognizes a new type of entity, a funding portal, to allow Internet-based platforms or intermediaries to facilitate the offer and sale of securities without having to register with the SEC as brokers. It remains to be seen how helpful Regulation Crowdfunding will be to start-ups raising capital via private securities offerings and whether the SEC has struck the right balance between the removal of barriers to raising capital and the protection of investors.
For more information
See the Regulation Crowdfunding C&DIs (May 2016), here.
See the Regulation Crowdfunding Forum Update (November 2015), here.