Crowdfunding 101

As I recently blogged, the President has signed the Jobs Act including the much anticipated Crowdfunding bill.  Crowdfunding is a process whereby companies will be able to raise small amounts of money either directly off their own website or using intermediaries set up for the purpose.  The Securities Act of 1933, as amended, (Securities Act) prohibits the sale or delivery of any security unless such security is either registered or exempt from registration.  Crowdfunding will be an exemption from registration.  The exemption will likely be codified as a new and separate exemption likely under Regulation D and will include an overhaul of the current general provisions of Regulation D found in Rules 501-503.

Crowdfunding Exemption Possibilities

 

The exemption will likely be limited to $1 million in any twelve (12) month period, or up to $2 million if the company provides certain financial disclosure such as audited financial statements.  As proposed, each investor will be limited $10,000 or 10% of their annual income, whichever is less.  As crowdfunding is structured as an exemption, the Issuer remains private until, when and if, it embarks on a going public transaction, such as filing a registration statement on its existing shareholders, completing an IPO, competing a reverse merger, etc..

In addition to creating regulations for the raising of the funds, a new self regulatory organization (SRO) is being formed to regulate and oversee the intermediaries and portals which will serve the crowdfunding needs.  The new SRO is The Crowdfunding Intermediary Regulatory Association (CFIRA) and its formation is underway.  The CFIRA will be charged with ensuring investor protection and market integrity.  The CFIRA will have members from crowdfunding investor intermediaries as well as related industries such as venture capital firms.  In addition to regulating its members, the CFIRA will provide investors with information such as learning about crowdfunding and its risks.

CAPS Program

A new program initiative is also underway with the goal of educating and protecting investors, crowdfunding intermediaries and Issuers.  This program is the Crowdfunding Accreditation for Platform Standards (CAPS).  The CAPS program will, hopefully, provide funding and capital to assist in this new securities sector.  It will review the industry and provide feedback and qualification criteria.

There is so much information already available on this exciting new securities sector.  I feel as if I’m in school again, and I’ll share the knowledge as I go.

The Author

Attorney Laura Anthony,
Founding Partner, Legal & Compliance, LLC
Securities, Reverse Mergers, Corporate Transactions

Securities attorney Laura Anthony provides ongoing corporate counsel to small and mid-size public Companies as well as private Companies intending to go public on the Over the Counter Bulletin Board (OTCBB), now known as the OTCQB. For more than a decade Ms. Anthony has dedicated her securities law practice towards being “the big firm alternative.” Clients receive fast and efficient cutting-edge legal service without the inherent delays and unnecessary expense of “partner-heavy” securities law firms.

Ms. Anthony’s focus includes but is not limited to compliance with the reporting requirements of the Securities Exchange Act of 1934, as amended, (“Exchange Act”) including Forms 10-Q, 10-K and 8-K and the proxy requirements of Section 14. In addition, Ms. Anthony prepares private placement memorandums, registration statements under both the Exchange Act and Securities Act of 1933, as amended (“Securities Act”). Moreover, Ms. Anthony represents both target and acquiring companies in reverse mergers and forward mergers, including preparation of deal documents such as Merger Agreements, Stock Purchase Agreements, Asset Purchase Agreements and Reorganization Agreements. Ms. Anthony prepares the necessary documentation and assists in completing the requirements of the Exchange Act, state law and FINRA for corporate changes such as name changes, reverse and forward splits and change of domicile.

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