On October 30, 2015, the SEC completed final regulations implementing the JOBS Act, which was passed in April, 2012. Calling this final step Regulation Crowdfunding, the SEC will now permit Internet offerings of debt or equity securities to both accredited and non-accredited investors without filing and clearing first with the SEC. An issuer must make the offering only on a platform run by a registered broker-dealer or by a "funding portal".
The new Crowdfunding Regulation requires "funding portals" to register with the SEC and with FINRA. The Regulation takes effect six months after publication in the Federal Register to permit funding portals time to complete the registration process.
While the new regulations contemplate a potentially huge new source of investment capital for start-up businesses, they do place significant restrictions on issuers, on investors and on the platforms used for the offerings.
For example, issuers can only use this Regulation to raise up to $1 million in a 12 month period (gross amount, before taking into account the expenses of the offering). Investors can invest in all crowdfunding offerings in a 12 month period only up to 10% of the lesser of income or net worth (with a maximum of $100,000). In addition to being registered with the SEC and FINRA (which broker-dealers have to do anyway in the ordinary course of business), all platforms must have educational materials on their website carrying a Regulation Crowdfunding offering, and have evidence that potential investors have actually read and understood the materials (beyond a clickthrough "I accept").
These restrictions and related costs may render Regulation Crowdfunding a less attractive way to raise capital, compared to alternatives such as private placements, crowdfunding to accredited investors (unlimited in amount), or crowdfunding under a revised Regulation A which went into effect in June 2015 (up to $20 million in a Tier 1 offering and up to $50 million in a Tier 2 offering).
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