Equity Crowdfunding 101- Going Public Lawyers

Equity Crowdfunding 101 - Securities Lawyer 101
Securities Lawyer 101 Blog

On April 5, 2012, President Obama signed the Jumpstart Our Business Startups Act (the “JOBS Act”), which is intended to help smaller and emerging growth companies access the U.S. capital markets. The JOBS Act amends, and adds new sections to, the Securities Act of 1933 (the “1933 Act”) and the Securities Exchange Act of 1934 (the “1934 Act”), as well as the Sarbanes-Oxley Act of 2002.  The SEC had 270 days to enact the rules necessary to allow for crowdfunding. Once the SEC rules concerning equity crowdfunding are enacted, both private and public companies will be able to raise money from a broad range of investors using the Internet and social media.

Equity crowdfunding significantly impacts the securities laws governing private and public companies, and those that use traditional IPOs. The creation of the equity crowdfunding exemption from 1933 Act registration will not only provide a way for public and private companies to raise capital inexpensively, but will also ease the burden for many private companies seeking to go public directly by enabling them to more easily obtain the number of shareholders required to obtain a stock trading symbol.

The Crowdfunding Exemption

Equity crowdfunding allows companies to sell up to $1 million worth of securities to non-accredited investors as long as no individual investor invests more than: (i) $2,000 or 5% of the investor’s annual income in any 12-month period (for investors with annual income or net worth less than $100,000); or (ii) 10% of the investor’s annual income or net worth up to $100,000 in any 12-month period (for investors with annual income or net worth in excess of $100,000).

The securities issued pursuant to the crowdfunding exemption may be offered and sold through registered broker-dealers as well as Internet “funding portals” that comply with new requirements.

Going Public Direct l Equity Crowdfunding

Private companies that go public directly typically file a registration statement with the SEC under the 1933 Act. Once the registration statement is deemed effective, the company will be subject to the SEC’s reporting requirements but it will not yet have a trading symbol.  In order to receive its ticker, the company must comply with the requirements of the Financial Industry Regulatory Authority (“FINRA”) which include demonstrating that there will be an active market for the company’s securities. The only way to demonstrate a potentially active market is for the company to have a meaningful shareholder base consisting, by definition, of at least 25 shareholders. For private companies going public, obtaining the required 25 number of shareholders, like raising capital, can be a challenge.

One benefit of the crowdfunding exemption will be to provide private companies with the opportunity to raise capital and obtain the number of shareholders required by FINRA to obtain a stock ticker symbol. Easing the burden of acquiring shareholders will make going public directly much easier, and will reduce the number of private companies who resort to reverse merger transactions. The bottom line is that the JOBS Act will lighten the burden for companies seeking seed capital and provide a relatively quick and cost effective method for companies to go public directly, making a reverse merger – with its many perils- a less appealing option.

For more information about the JOBS Act please visit:


For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit  www.securitieslawyer101.com.   This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855