Crowdfunding is a new and evolving method to raise money for businesses using the Internet. It serves as an alternative source of capital to support a wide range of ideas and ventures. An entity or individual raising funds through crowdfunding typically seeks small individual contributions from a large number of people.
In 2012, Congress enacted the Jumpstart Our Business Startups Act (the “JOBS Act”). The Jobs Act makes it easier for an entrepreneur or company to find investors and raise capital. By easing various securities regulations, it encourages small business funding. The Securities and Exchange Commission (SEC) has promulgated Rules under Title II (Access to Capital for Job Creators) removing the prohibition on general solicitation or general advertising for securities offerings relying on Rule 506 (considered a “Safe Harbor” for the private offering exemption of Section 4(a)(2) of the securities Act of 1993) provided that sales are limited to accredited investors and an issuer takes reasonable steps to verify that all purchasers of the securities are accredited investors. The SEC is expected to finalize its November 5, 2013 proposed Title III (Crowdfunding) Rule this October. Until that Rule is finalized and promulgated, nationwide general solicitation is illegal.
A growing list of states is also allowing the general solicitation of in-state investors through crowdfunding internet platforms. Governor Rick Scott of Florida is expected to sign the Florida Intrastate Crowd Finance Act amending the Florida-based entrepreneurs, small business owners, and others can use web-based crowdfunding platforms as intermediaries for their intrastate funding campaigns. This law amends Florida’s securities transactions law. A Florida entrepreneur or business person will no longer be limited to soliciting financing support from Florida “accredited” or high-net-worth individuals.
Due to the strict requirements and limitations of state and federal laws, advice counsel is necessary for businesses to assure full compliance before crowdfunding activities commence on the internet.
To better understand how crowdfunding can help your business, speak to one of our attorneys by calling 800-743-9900 or visit our website today!