On October 30, the SEC announced its final vote on Title III of the JOBS Act. The rule will be noticed in the Federal Register shortly and will go into effect on January 29, 2016. The SEC also announced proposals updated two other regulations that work in concert with the JOBS Act. One will ease the registration requirements for intrastate capital raises and the other increases the amounts of money a company can raise using crowdfunding. However, the Title III material is of special note because it is creating what many call ‘true crowdfunding’ and is a long-awaited portion of the JOBS Act.
The highlights of the rule for Title III include:
- Investor/Investment Limits
- Permit a company to raise a maximum aggregate amount of $1 million through crowdfunding offerings in a 12-month period;
Permit individual investors, over a 12-month period, to invest in the aggregate across all crowdfunding offerings up to:
If either their annual income or net worth is less than $100,000, than the greater of:
- $2,000 or
- 5 percent of the lesser of their annual income or net worth.
- If both their annual income and net worth are equal to or more than $100,000, 10 percent of the lesser of their annual income or net worth; and
- If either their annual income or net worth is less than $100,000, than the greater of:
- During the 12-month period, the aggregate amount of securities sold to an investor through all crowdfunding offerings may not exceed $100,000.
- Companies that use a crowdfunding platform – Companies that rely on the recommended rules to conduct a crowdfunding offering must file certain information with the Commission and provide information to investors and the intermediary facilitating the offering. The information required is defined in the rule and is similar to what would be necessary for an audit or other financial reporting. There are ongoing reporting requirements for companies that have used a crowdfunding platform to complete a capital raise.
- Crowdfunding Platforms - A funding portal would be required to register with the Commission on new Form Funding Portal, and become a member of a national securities association (currently, FINRA). A company relying on the rules would be required to conduct its offering exclusively through one intermediary platform at a time.