The Securities and Exchange Commission adopted final rules Friday to allow companies to offer and sell securities through crowdfunding.
The long-awaited rules will make it easier for startup companies to attract financing in accordance with the JOBS Act, the Jumpstart Our Business Startups Act, of 2012.
The SEC also voted Friday to propose amendments to existing Securities Act rules to facilitate intrastate and regional securities offerings. The new rules and proposed amendments are designed to help smaller companies attract capital while giving investors additional protections.
Crowdfunding is an evolving method of raising capital that has been used to raise funds through the Internet for a variety of projects. Title III of the JOBS Act created a federal exemption under the securities laws so that this type of funding method can be used to offer and sell securities.
“There is a great deal of enthusiasm in the marketplace for crowdfunding, and I believe these rules and proposed amendments provide smaller companies with innovative ways to raise capital and give investors the protections they need,” said SEC Chair Mary Jo White in a statement. “With these rules, the Commission has completed all of the major rulemaking mandated under the JOBS Act.”
The final rules, Regulation Crowdfunding, permit individuals to invest in securities-based crowdfunding transactions subject to certain investment limits. The rules also limit the amount of money an issuer can raise using the crowdfunding exemption, impose disclosure requirements on issuers for certain information about their business and securities offering, and create a regulatory framework for the broker-dealers and funding portals that facilitate the crowdfunding transactions.
The new crowdfunding rules and forms will be effective 180 days after they are published in the Federal Register. The forms enabling funding portals to register with the Commission will be effective Jan. 29, 2016.
The SEC also proposed amendments to existing Securities Act Rule 147 to modernize the rule for intrastate offerings to further facilitate capital formation, including through intrastate crowdfunding provisions. The proposal also would amend Securities Act Rule 504 to increase the aggregate amount of money that may be offered and sold pursuant to the rule from $1 million to $5 million and apply bad actor disqualifications to Rule 504 offerings to provide additional investor protection.
The SEC is seeking public comment on the proposed rule amendments for a 60-day period following their publication in the Federal Register.
The rules include a number of requirements of particular interest to accountants and auditors. Companies that rely on the recommended rules to conduct a crowdfunding offering need to file certain information with the SEC and provide this information to investors and the intermediary facilitating the offering, including among other things, to disclose:
• The price to the public of the securities or the method for determining the price, the target offering amount, the deadline to reach the target offering amount, and whether the company will accept investments in excess of the target offering amount;
• A discussion of the company’s financial condition;
• Financial statements of the company that, depending on the amount offered and sold during a 12-month period, are accompanied by information from the company’s tax returns, reviewed by an independent public accountant, or audited by an independent auditor. A company offering more than $500,000 but not more than $1 million of securities relying on these rules for the first time would be permitted to provide reviewed rather than audited financial statements, unless financial statements of the company are available that have been audited by an independent auditor;
• A description of the business and the use of proceeds from the offering;
• Information about officers and directors as well as owners of 20 percent or more of the company; and
• Certain related-party transactions.
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