Regulation Crowdfund For Investors

Crowdfund l Securities Lawyer 101

Securities Lawyer 101 Blog

On October 23, 2013, the Securities and Exchange Commission (“SEC”) proposed Regulation Crowdfund, setting forth the rules governing the offer and sale of securities through equity crowdfunded offerings, pursuant to Title III of the Jumpstart Our Business Startups Act (“JOBS Act”).

Within days, FINRA published its proposed rules for the licensing and regulation of “funding portals.”  The recent SEC and FINRA proposals have spurred an interest in crowdfunded securities offerings.  With equity crowdfunding under the JOBS Act coming closer to reality many investors are exploring the possibility of investing in crowdfunded offerings.  This blog post addresses the most common questions we receive about investments in crowdfunded offerings.

Investor Requirements

Anyone can invest in an Offering under proposed Regulation Crowdfunding. Unlike Rule 506(c) investors in crowdfunding offerings do not have to be accredited.  Unlike Rule 506(c) however, Regulation Crowdfunding limits the amounts that an investor may invest in the offering.  The limitations apply to both accredited and non-accredited investors and the limitations to apply to both U.S. and non-U.S. citizens or residents.

During the 12 months preceding any crowdfunded transaction, an investor may invest no more than: (i) the greater of $2,000 and 5 percent of its annual income or net worth, as applicable, if both the annual income and net worth of the investor is less than $100,000; or (ii) 10 percent of its annual income or net worth, as applicable, not to exceed a maximum aggregate amount sold of $100,000, if either the annual income or the net worth of the investor exceeds $100,000 (Proposed Rule 100(a)(2)).

Resales of Crowdfunded Securities

Securities purchased in crowdfunded offerings are restricted securities.  Regulation Crowdfunding restricts sales and transfers of crowdfund-issued securities during the first year after investment.  There are exceptions for sales and transfers to the issuer, accredited investors and family members or as part of a public offering.

Investor Disclosures

An issuer relying upon Section 4(a)(6) and Regulation Crowdfunding must provide specific disclosures to investors and file disclosures with the SEC.  The disclosures must be provided on the broker-dealer’s or funding portal’s website.  These disclosures include:

the issuer’s name, legal status, physical address and website address;

identity and background information of the issuer’s officers and directors as well as owners of 20 percent or more of the issuer’s securities;

a description of the issuer’s business, planned use of proceeds from the offering and financial condition;

the current number of employees;

material terms of any indebtedness of the issuer and any exempt offerings conducted within the past three years;

the proposed public offering price, target offering amount, deadline to reach the target amount and whether the company will accept investments in excess of the target amount;

a description of related-party transactions;

the issuer’s ownership and capital structure;

financial statements of the company;

information about the intermediary and its compensation; ♦ material risks associated with the investment; and

certain mandatory legends and notices.

In addition to disclosures required during the offering, issuers of successful crowdfunding offerings will be required to provide investors with an annual report and file the report with the SEC.

Issuers wishing to raise less than $100,000 may compile their own statement.  Issuers wishing to raise between $100,000 and $500,000 must have their statements reviewed by an independent accountant.  Issuers wishing to raise between $500,000 and $1 million must provide audited financial statements.

The disclosures must be available for at least 21 days prior to the first sale of securities, but the intermediary may accept indications of interest during this period.  The issuer must timely amend its offering document to reflect material changes and provide updates on its progress toward reaching the target minimum offering amount.  A notice to investors disclosing the total amount of securities sold must occur no later than five days after the closing of the offering.

Investors should remember that crowdfunded offerings are high risk investors and investors should undertake due diligence of the issuer and review all information provided as well as any intermediaries used in the crowdfunding process.

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   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 and compliance 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