Crowdfunding Regulation: What to know. 6/17
Crowdfunding Regulations: What to know
Crowdfunding is a method of raising capital in which funds are raised from a large number of people, typically through the internet. Regulation Crowdfunding enables eligible companies to offer and sell securities through crowdfunding. The rules for Regulation Crowdfunding require all transactions to take place online through an SEC-registered intermediary, either a broker-dealer or a funding portal.
Who gets protected?
These rules are designed to protect investors by providing them with information about the companies offering securities and the intermediaries facilitating the transactions. In addition, the rules place limitations on how much money can be raised and how often a company can offer securities. As with all securities offerings, there are risks associated with investing in crowdfunded securities. However, by understanding the rules and risks associated with this type of investment, investors can make more informed decisions about whether or not to participate.
In 2015, the SEC adopted Regulation Crowdfunding, allowing individuals to invest in securities-based transactions subject to certain investment limits. This new regulation has opened up opportunities for businesses to raise money from a larger pool of investors. However, there are also some important compliance requirements that issuers need to meet. This blog post will discuss the basics of Regulation Crowdfunding and what businesses need to know about it.
What do the requirements do for investors?
Under Regulation Crowdfunding, issuers are limited to raising a maximum of $5 million from investors. They must also meet certain disclosure requirements about their business and the securities offering. These requirements are designed to protect investors and ensure that they have access to information about the risks involved in investing. Businesses need to be aware of these regulations when they are planning their crowdfunding campaigns. Failure to comply with the SEC’s rules could result in penalties, fines, or a halt to the offering.
Encouraging funding for small businesses
In July of 2010, President Obama signed the JOBS Act into law. The act was designed to encourage funding for small businesses in the United States by making it easier for them to go public. One of the act’s key provisions was lifting the ban on general solicitation by startups. Prior to the introduction of the JOBS Act, startups were only able to fundraise privately. This meant that they could only solicit investors who were accredited, and they could not advertise their investment opportunities to the general public.
The change was made through Title II of the JOBS Act in September 2013, which split the previously existing Rule 506 of Regulation D into 506(b) and 506(c). The new rules went into effect in early 2014 and have had a major impact on startup funding. Crowdfunding platforms like StartEngine and Wefunder have become popular fundraising methods for startups, and many companies have successfully raised capital through these platforms. The JOBS Act has had a major impact on the startup ecosystem in the United States, and it is likely that we will see even more changes in the years to come.
