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New
Crowdfunding Rules Coming Soon |
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According to new rules being drafted
by the Securities and Exchange Commission (SEC) private
companies will be allowed to raise up to $1,000,000 a year
from unaccredited investors.
Currently private companies are allowed to solicit
only accredited investors (those with a networth with at
least $1,000,000, excludign the value of their homes or
annual income of more than $200,000).
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Investors, over the course of a 12-month period, would be
permitted to invest up to:
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$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.
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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.
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As mandated by Title III of the JOBS Act, securities
purchased in a crowdfunding transaction could not be resold
for a period of one year. Holders of these securities
would not count toward the threshold that requires a company
to register with the SEC under Section 12(g) of the Exchange
Act.
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Consistent with Title III of the JOBS Act, the proposed
rules would require companies conducting a crowdfunding
offering to file certain information with the SEC, provide
it to investors and the relevant intermediary facilitating
the crowdfunding offering, and make it available to
potential investors.
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In its offering documents, among the things the company
would be required to disclose:
- Information about officers and directors as well as
owners of 20 percent or more of the company.
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A description of the company’s business and the use of
proceeds from the offering.
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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.
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Certain related-party transactions.
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A description of the financial condition of the company.
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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.
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One of the key investor protections Title III of the JOBS
Act provides for
crowdfunding is the requirement that crowdfunding
transactions take place through an SEC-registered
intermediary, either a broker-dealer or a funding portal.
Under the proposed rules, the offerings would be conducted
exclusively online through a platform operated by a
registered broker or a funding portal, which is a new type
of SEC registrant.
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The rule being drafted was a
requirement under the Jobs Act.
The public will have 90 days to comment on the rule.
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Sources:
SEC 2013-227
By Owen
Daniels
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