Mat Sorensen


October 29, 2013


The SEC finally issued their proposed regulations for Crowdfunding last week in a 538 page proposed set of regulations. These regulations are open for comment for 90 days and will then go into effect in their present or modified form shortly thereafter.

Crowdfunding is the newest form of raising capital for small business or investments and it will eventually dominate as a primary method of raising capital in amounts under $1,000,000. Crowdfunding relaxes the current securities law restrictions, which make it nearly impossible for a small business or budding entrepreneur to raise capital from others. The basic premise of the Crowdfunding exemption to the securities laws is that the laws are loosened so long as the total amounts being raised are capped ($1M) and so long as each investor is only allowed to invest only a small portion of their income or net worth.

Here’s a summary of what we already knew.

  1. Total amount that may be raised in a Crowdfunding offering is $1,000,000.
  2. The company raising funds under the Crowdfunding rules must prepare disclosure and legal documents which comply with the rules.
  3. An investor may invest an amount between $2,000 and $100,000 depending on their annual income or net worth. This is a total for all Crowdfunding projects from that person annually.
  4. Crowdfunding deals must be processed through a Corwdfunding portal that acts like the title or escrow company in the transaction. Crowdfunding portals will be on-line companies registered with the SEC.

Here’s what is new in the regulations.

  1. Crowdfunding offerings up to $500,000 do not need to have audited financial records. Offerings over $500,000 must complete audited financials.
  2. Crowdfunding portals must be registered with the SEC and must also register with FINRA.
  3. Annual reports need to be filed with the SEC by any company that conducted a Crowdfunding offering.
  4. The income or net worth of an investor, which determines how much they can invest, does not have to be verified by the portal.

If you’re looking to raise capital from others in amounts under $1,000,000 you should consider a Crowdfunding offering. While the implementation process has taken nearly 2 years the end of the tunnel is in sight and Crowdfunding will be available soon.

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