Crowdfunding: what is it?

Crowdfunding is a way for large groups of people to give small sums of money for a certain cause. Websites like Kickstarter and IndieGoGo allow individuals to donate to something, a company or a project, usually in exchange for gifts, free products or other related benefits. The Federal JOBS Act, adopted in March 2012, legalized equity crowdfunding, subject to a number of legal requirements and regulations, which are currently being prepared by the Securities Exchange Commission. Prior to the JOBS Act, it was illegal or very impractical to receive securities in exchange for small contributions.

Crowdfunding creates a new financing structure for issuers seeking up to $ 1 million, and it is expected that there will be restrictions on the amounts an investor will be able to invest according to their annual income and net worth. The issuer will need to submit a comprehensive business plan to the SEC, how the securities are valued and financial reports. The issuer will have annual filing requirements with the SEC.

It is expected that Crowdfunding will largely be Internet-based, and using a structure will have a financing portal broker or broker who must register with the SEC and FINRA. The portal will not be able to offer investment advice or recruit buyers. The portal must ensure that every investor understands the investment. The portal will be subject to the SEC reporting requirements for each issuer. The portals will be tasked with implementing investor protection in accordance with SEC guidelines.

Foreign entities will not be able to use crowdfunding, as it will only be available to entities organized in the United States. Issuers and intermediaries will be subject to disqualification from using crowdfunding for past bad actions.

To find a balance between enabling issuers to raise small amounts of capital and protecting investors’ rights, an issuer may sell a total amount to any investor over a 12-month period up to:

(i) the higher of $ 2,000 or 5 percent of such investor’s annual income or net worth, as applicable, if either the investor’s annual income or net worth is less than $ 100,000; and

(ii) 10% of the annual income or net worth of such investor, as applicable, in order not to exceed a maximum total amount of $ 100,000, if either the investor’s annual income or net worth is equal to or greater than $ 100; 000 USD. The net value does not include the investor’s home.

The issuer will be responsible for any inaccuracies, and the law requires the issuer to submit information and financial reports to the Securities Exchange Commission and provide investors and the Internet broker or financing portal and make certain information available to potential investors, including without limitation:

1) the issuer’s name, legal status, physical address and web address;

2) the names of the board members and salaried employees (and all persons who have a similar status or perform a similar function), and each person who holds more than 20 percent of the shares in the issuer;

3) a description of the issuer’s activities and the issuer’s expected business plan;

4) a description of the issuer’s financial position, including for offers that, together with all other offers from the issuer during the previous 12-month period, have a total bid amount of $ 100,000 or less;

In addition, 5) income tax returns filed by the issuer for the most recently completed year (if any); and the issuer’s financial statements, offered as $ 100.00 or less, shall be “certified” by the issuer to be true and complete in all material respects, and as if the issuer has offered more than $ 100,000, but not more than $ 500,000 , financial statements are “reviewed” by an auditor independent of the issuer, using professional standards and if the issuer has offered more than $ 500,000 (or such other amount as the SEC may determine, as a rule), audited financial statements;

6) a description of the stated purpose and intended use of the revenue from the offer that the issuer seeks with respect to the target offer; the measurement bid amount,

7) the deadline for reaching the target bid amount and regular updates on the issuer’s progress in reaching the target bid;

8) the price to the public of the securities or the method of determining the price, provided that each investor is provided with the final price and all necessary information in writing prior to the sale, with a reasonable possibility of terminating the commitment to purchase the securities.

The buyer is obliged to hold the purchased securities for at least one year after the date of purchase. The JOBS Act required the SEC to adopt the final rules for crowdfunding by December 31, 2012, but there are strong indications that the SEC will not have such rules in place by that date. Until the SEC publishes its final rules, equity crowdfunding is illegal.

Leave a Reply 0

Your email address will not be published. Required fields are marked *