The Latest Developments on Equity Crowdfunding

by: Smith and Howard

February 9, 2016

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On October 30, 2015, the Securities Exchange Commission (SEC) issued final rules under Title III of the JOBS Act of 2012. These new rules, effective on May 16, 2016, will continue to help develop equity crowdfunding. The rules will cover all parties involved in the transaction process, including issuers, investors and intermediaries (i.e., funding portals). Key rules you need to know are as follows:


  • Must be a private company in the U.S.
  • Allowed to raise up to $1 million in a 12-month period
  • Documentation required may vary based on the issuer’s fundraising goal. If the fundraising goal is:
    • < $100,000: The issuer may need to provide tax return data and/or financial statements certified by the issuer’s principal executive officer
    • $100,000 to $1 million: The issuer may need to provide financial statements that have been reviewed by a CPA firm
    • > $500,000, raised more than once: The issuer may need to provide financial statements audited by a CPA firm
  • Allowed to advertise certain offering terms and direct investors to the portal
  • Must file offering information with the SEC (see information below for additional details)


  • Investment amount is limited based on the individual’s annual income or net worth. If the investor’s annual income or net worth is:
    • < $100,000: The investor can invest up to the greater of:
      • 5% of their income or net worth (whichever is less) OR
      • $2,000
    • > $100,000: The investor can invest up to 10% of their income or net worth (whichever is less), but no more than $100,000
  • May self-certify their annual income/net worth thresholds
  • Must demonstrate that they understand the risks associated with their investment
  • Must hold any shares purchased for at least one year, unless the investor is selling the shares back to the issuer or an accredited investor (see the SEC’s Investor Bulletin: Accredited Investors for guidance on determining who is an accredited investor)

Intermediaries (i.e., funding portals):

  • Must register with the SEC and a registered national securities association (the only registered national securities association currently in existence is FINRA)
  • If the intermediary is not a broker-dealer, they may not offer investment advice or make recommendations to or solicit investments from individual investors
  • Allowed to establish criteria for accepting and rejecting issuers, which may be very important in relation to the next bullet item
  • May be liable if fraud or omissions are made by issuers
  • Must provide investor education content
  • Must conduct background checks on officers, directors and 20% owners of issuers

It also was recently announced that potential issuers interested in crowdfunding offerings under the new rules described above will be required to complete the new Form C on EDGAR, the SEC’s electronic document filing system. These companies are allowed to submit test filings which will be accepted until February 29, 2016. This will allow the prospective issuers to get comfortable with the filing requirements in advance. Filers need to identify the Form C as “test”, which will prevent the filing from being evaluated for compliance with the rules, reviewed by SEC staff, or viewed by the public. (View the official SEC announcement). 

For more information on the latest SEC rules on equity crowdfunding, please contact your Smith and Howard professional at 404-874-6244 and or simply fill out our form below and we’d be glad to help.

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