Equity Crowdfunding and Startups

Boulder Startup Lawyers on Equity Crowdfunding

The SEC proposed new rules regarding equity crowdfunding for business startups.  Previously, only wealthy or “accredited” investors were allowed to invest in companies in exchange for equity, such as stock. However, for those non-accredited folks, crowdfunding was utilized by various startups in a more donative sense–donate X amount of dollars to this company/project in exchange for say a t-shirt. There are many examples of these crowdfunding ventures on sites as Kickstarter and Indiegogo.

The new proposed SEC Crowdfunding Rules are similar to those under the JOBS act, namely:

• Startups can raise up to $1 million in any 12-month period
• Investors with annual incomes or new worth below $100,000 can only invest 5% of their income or net worth or $2000–whichever is greater
• Investors with annual incomes or net worth equal to or above $100,000 can only invest 10% of their income or new worth
• Transactions must be conducted through intermediary–either a registered broker or a “funding portal” as defined

Funding portals are defined as:

“as any person acting as an intermediary in a transaction involving the offer or sale of securities for the account of  others, solely pursuant to Securities Act Section 4(a)(6), that does not: (1) offer investment advice or recommendations; (2) solicit purchases, sales or offers to buy the securities offered or displayed on its platform or portal; (3) compensate employees, agents or other person for such solicitation or based on the sale of securities displayed or referenced on its platform or portal; (4) hold, manage, possess or otherwise handle investor funds or securities; or (5) engage in such other activities as the Commission, by rule, determines appropriate.”

These are not final rules promulgated by the SEC–they are just proposed rules that allow for comment from the public within a 90 day period. The SEC seems to have attempted to strike a balance with these proposed rules–looking for a “middle of the road” approach by toning down disclosure requirements in exchange for limitations on investments.

Boulder Startup Lawyers of LaszloLaw

Contact the Boulder startup lawyers of LaszloLaw to discuss your business and startup needs. Our attorneys are experienced in providing legal counsel to young companies on a number of issues, including business entity formation, risk management, and trademark issues.