It’s been over four years since the JOBS Act was signed be President Obama and in a few weeks, starting May 16, you will actually be able to raise money under the federal crowdfunding exemption that the JOBS Act created.
Here are some things to know to help you decide whether it’s right for you!
Fun Fact! What does the CROWDFUND Act stand for?
Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act.
Do I have to have a U.S. company?
Yes, only U.S. companies can take advantage of the crowdfunding exemption.
How much can I raise?
You can raise up to $1 million in any one year period.
Do I have to use an online platform?
Yes. You can only raise money under the Crowdfunding Exemption by posting your offering on an online platform that has been licensed by the Securities and Exchange Commission. In fact, all of the communications with potential investors must take place through the platform.
What is the per-investor cap?
(i) If either the investor’s annual income or net worth is less than $100,000, the greater of $2,000 or 5% of the lesser of the investor’s annual income or net worth; or
(ii) If both the investor’s annual income and net worth are equal to or more than $100,000, 10% of the lesser of the investor’s annual income or net worth, not to exceed $100,000.
Note that this is a cap on what an investor can invest in all crowdfunding campaigns in a year.
How am I supposed to know if an investor is within the per year cap?
You can rely on the efforts of the crowdfunding intermediary to ensure that the aggregate amount of securities purchased by an investor will not cause the investor to exceed the limits, provided that you don’t know that the investor has exceeded the investor limits or would exceed the investor limits as a result of purchasing securities in your offering.
Are state level filings required?
Only the state of your principal place of business and the state where more than 50% of your investment comes from can require a notice filing and a fee.
Can I be raising in a different way at the same time?
Yes! Unlike many other capital raising strategies, you are allowed to raise money under the crowdunding exemption at the same time that you are raising money in another way, such as through a private placement.
What filings are required?
When you set up your offering on a platform, you have to complete a form that provides detailed information about your company and your offering.
If you’re raising $100,000 or less, you have to provide tax returns. If you’re raising more than $100,000 you have to provide financials reviewed by a CPA. Reviewed financials can cost several thousand dollars.
You also have to file an annual report which is required to be posted on your web site.
Can people who buy securities in my offering re-sell them to someone else?
Yes, but not before one year after the initial purchase.
What else do I need to know?
Be sure to subscribe to my newsletter to get up to date information as the crowdfunding exemption starts to get tested in the real world!
If you are interested in working together, send us an inquiry and we will get back to you as soon as we can!
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