May 16, 2016 was a red-letter day in the U.S. capital markets. On that day, the SEC’s long-awaited equity crowdfunding regulations went into effect. And so we decided to start this website to keep our readers abreast of the developments in this game-changing method of raising capital for startups and other companies seeking capital to grow their businesses.
Mandated by Congress in the Jumpstart Our Business Startups Act (the “JOBS Act”), enacted on April 5, 2012, the new regulations do two things:
- First, a licensing and registration process for crowdfunding portals was established. Crowdfunding portals are on-line websites where companies seeking to rise capital can list their deals. The registration ans licensing requirements are similar to those for securities broker-dealers. The process is overseen by the SEC and FINRA, the Financial Industry Regulatory Authority. While the portals may advertise and promote their sites, they may not promote specific deals listed on their sites.
- Second, the terms of the securities offerings by listing companies must meet a number of requirements. The include restrictions on the dollar amount that may be invested by individual investors in any one deal, and a $1 million limit on the total funds that any one company may raise in a 12-month period.
In coming articles we will provide updates both on the regulations as well as developments in the equity crowdfunding markets.