On October 30, 2015, the Securities and Exchange Commission (SEC) adopted Regulation Crowdfunding. The final rule permits companies to offer and sell securities through crowdfunding. The “Regulation Crowdfunding Exemption” is created under Section 4(a)(6), Title III of the JOBS Act.
The key features of the final rules
- Permit individuals to purchase securities in crowdfunding offerings subject to certain limits:
- A company is permitted to raise a maximum aggregate amount of $1 million through crowdfunding offerings in a 12-month period.
- Individuals are permitted, over a 12-month period, to invest in the aggregate across all crowdfunding offerings up to:
- The greater of $2,000 or 5% of the lesser of their annual income or net worth, if either their annual income or net worth is less than $100,000.
- 10% of the lesser of their annual income or net worth, if both their annual income and net worth are equal to or more than $100,000.
- The aggregate amount of securities sold to an investor through all crowdfunding offerings may not exceed $100,000.
- Require companies to disclose certain information about their business and securities offering and to file an annual report with the SEC and provide it to investors.
- Create regulatory framework for the broker-dealers and funding portals that facilitate the crowdfunding transactions. A funding portal is required to register with the SEC and become a FINRA member. A company relying on the Regulation Crowdfunding Exemption is required to conduct its offering exclusively through one intermediary platform at a time.
In addition, the SEC is proposing to amend the existing Securities Act Rule 147 and Rule 504. Rule 147 would be amended to, among other things, permit companies to raise money from investors within their state (intrastate offering) without registering the offers and sales with the SEC. Rule 504 would be amended to increase the aggregate amount of securities that may be offered and sold in any 12-month period from $1 million to $5 million. Bad actor disqualification would also apply in Rule 504 offerings.
A full copy of the final rules is available HERE.