Posted by: Pierson W. Backes | Posted on: April 15th, 2014 | 0 Comments
In these days of Facebook, LinkedIn, Twitter and large numbers of contacts it may seem natural to use this means to publicize your business launch and perhaps invite investment. Beware!
In general, federal and state securities laws do not permit businesses to offer or sell interests in that business without “registration” of the securities or an exemption. There are piecemeal exemptions that have various limitations and requirements – such as, that all of your investors are financially sophisticated and able to bear the loss of their entire investment; that they have been provided access to the type of information that would be included in a registration statement; and so on. Other exemptions apply only to offerings within a certain state.
In proposed rules published on October 23, 2013, the United States Securities and Exchange Commission is opening up the possibility of raising capital from investors through a process known as “crowdfunding.” This describes raising small amounts of money from broad groups via the Internet. There would be a limit of $1 million raised within a 12 month period, and caps on how much each investor could invest depending on their financial situation. Certain facts about the company and its management and owners would have to be provided to the SEC, and the offering would have to be done through a registered “portal”. President Obama in 2012 signed into law the “JOBS Act” which, among other things, ordered the SEC to propose rules for this practice. The rules are now subject to a 90-day comment period, then will likely be revised.
The accompanying press release states in part:
Washington D.C., Oct. 23, 2013 —