JOBS Act Implementation Moves ForwardOctober 30, 2013
Last Wednesday, the U.S. Securities and Exchange Commission (SEC) issued its long-awaited proposed rules on crowdfunding, pursuant to Title III of the JOBS Act. The SEC Commissioners voted unanimously to issue the proposed rules, which, if properly implemented, will make it much easier for entrepreneurs and small businesses to raise capital and get new ideas off the ground. The following is a brief summary adapted from the SEC’s press release and fact sheet on the proposed rules.
“Under the proposed rules:
- A company would be able to raise the maximum aggregate amount of $1 million through crowdfunding offerings in a 12-month period.
- Investors, over the course of a 12-month period, would be permitted to invest up to:
- $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.
- 10 percent of their annual income or net worth, whichever is greater, if both 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.”
However, a subset of businesses would not be able to take advantage of these new rules. Those businesses include “non-U.S. companies, companies that already are SEC reporting companies, certain investment companies, companies that are disqualified under the proposed disqualification rules, companies that have failed to comply with the annual reporting requirements in the proposed rules, and companies that have no specific business plan or have indicated their business plan is to engage in a merger or acquisition with an unidentified company or companies.” It is also important to note that securities purchased via crowdfunding must be held for a period of one year and that “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.”
In addition to the foregoing limitations, a company conducting a crowdfunding offering is required to disclose in its offering documents:
- “Information about officers and directors as well as owners of 20 percent or more of the company;
- A description of the company’s business and the use of proceeds from the offering;
- 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;
- Certain related-party transactions;
- A description of the financial condition of the company; and
- 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.”
The SEC’s proposed rules also address a number of other issues such as amendments to offering documents, the required filing of annual reports with the SEC, and crowdfunding platforms, all of which could make it significantly easier for small firms and entrepreneurs to raise much-needed capital.
NSBA is in the process of reviewing the proposed rules and is planning on filing comments with the SEC.
Also, on Wednesday, Oct. 30, the U.S. Senate Committee on Banking, Housing and Urban Affairs Subcommittee on Securities, Insurance and Investment held a hearing titled: The JOBS Act at a Year and a Half: Assessing Progress and Unmet Opportunities. Those who are interested can watch an archived version of the webcast here.