{"id":5506,"date":"2016-04-04T10:48:01","date_gmt":"2016-04-04T15:48:01","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/smallbusiness\/starting-a-business\/sec-equity-crowdfunding-rules-an-introduction.html"},"modified":"2026-04-28T00:24:00","modified_gmt":"2026-04-28T05:24:00","slug":"sec-equity-crowdfunding-rules-an-introduction","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/smallbusiness\/starting-a-business\/sec-equity-crowdfunding-rules-an-introduction.html","title":{"rendered":"SEC Equity Crowdfunding Rules: An Introduction"},"content":{"rendered":"\n
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SEC Equity Crowdfunding Rules: An Introduction<\/h1>\n\n
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The impact of Regulation Crowdfunding<\/span> allows startup companies to raise funds from the general public<\/span> without an SEC registration. Regulation CF in Title III<\/span> of the JOBS Act<\/span> makes crowdfunding transactions<\/span> less costly and lets non-accredited investors<\/span> fund startups through crowdfunding intermediaries<\/span>.<\/p>\n\n <\/div>\n\n\n\n

May 16, 2016, will go down in securities law history as the day entrepreneurs first gained unprecedented access to capital to finance their business ventures and startups. On that day, for the first time since Congress began regulating investments under the Securities Act of 1933<\/a>, companies will be able to raise capital from the public without registration with the Securities and Exchange Commission (\u201cSEC\u201d). This expansion of the funding universe for cash-starved businesses is the heart and soul of the Jumpstart Our Business Startups (\u201cJOBS\u201d) Act of 2012, designed to spur job creation through development of new businesses made possible by fundamental changes in the regulation of securities offerings.<\/p>\n

Prior to the JOBS Act, the Depression-era federal securities laws made the prospect of raising capital from other than friends and family available only to those select few entrepreneurs who had existing relationships with financing sources or who could afford to engage expensive intermediaries, like investment bankers, to raise capital. Among other things, the JOBS Act enabled equity crowdfunding and private peer-to-peer lending, created a new regime for regulating \u201cmini-IPOs,\u201d and paved the way for the SEC to create new sources of liquidity for early-stage investors through secondary \u201cventure markets.\u201d The law already has spawned new and innovative financial companies dispensing capital to startup and growing businesses.<\/p>\n

The SEC\u2019s long-awaited \u201cRegulation Crowdfunding\u201d final rules, which take effect on May 16, 2016, implement the JOBS Act\u2019s final provision under Title III.1<\/a><\/sup> Suddenly everyday people will be able to join crowds of other small investors to directly fund startup businesses that pique their interest. The SEC\u2019s final rules reflect the agency\u2019s recognition of the importance of minimizing legal costs associated with early-stage financing. While not intended to be a DIY (do-it-yourself) solution, the rules are designed to reduce the cost of accessing capital by providing clear guidance to entrepreneurs and to their legal counsel.<\/p>\n

Today, the prospect of founding a startup and financing it with outside capital is the ambition of scores of young entrepreneurs. They will seek the counsel of general business practitioners who are not securities law specialists. General business-law practitioners and their entrepreneurial clients will need to familiarize themselves with the new methods and rules for raising capital under Title III of the JOBS Act. And they must be clear about the liabilities associated with these new offering methods \u2013 the JOBS Act did not change the sometimes draconian statutory remedies available to aggrieved investors under the old federal and state securities laws.<\/p>\n

In this Comentary and Analysis we will guide entrepreneurs and general business attorneys through a crowdfunding offering under the new Regulation Crowdfunding (\u201cRegulation CF\u201d). We will alert readers to those areas where general business legal counsel is advisable and those more complex securities-law issues where counsel with more specialized legal experience may be required. Finally, we provide insight into specific issues where entrepreneurs and their companies may be vulnerable to the risk of investor litigation.<\/p>\n

Crowdfunding has \u201cdemocratized\u201d access to capital by \u201cdisintermediating\u201d Wall Street from the process of raising capital. This \u201cuberization\u201d of capital markets2<\/a><\/sup> will have significant ramifications for entrepreneurs and those professionals who advise them. With a change of this magnitude comes different ways of doing business.<\/p>\n

1. Crowdfunding<\/i>, Release No.33-9974<\/a> (October 30, 2015) (the \u201cCrowdfunding Release\u201d)\u00a0\u21b5<\/a><\/sup><\/p>\n

2. The Uberization of Money<\/a><\/i>, Wall Street Journal, Nov. 4, 2015\u00a0\u21b5<\/a><\/sup><\/p>\n

Written by: Mark T. Hiraide, Partner, Mitchell Silberberg & Knupp LLP. Excerpted from Crowdfunding: Practical Guide to the SEC’s Final Rules for Raising Capital<\/a>, available for purchase on ThomsonReuters.com. This practical guide focuses on you, the entrepreneur, and your legal counsel and the information that will help you take full and safe advantage of the crowdfunding approach to raising capital.<\/i><\/small><\/p>\n\n\n

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