Issuer requirements for equity crowdfunding

Companies planning an equity crowdfunding offer must make a filing with the SEC and provide to potential and existing investors and the intermediary:

  • the name, legal status, physical address, and website address of the issuer;
  • the names of the directors and officers and any persons occupying a similar status or performing a similar function, and each person holding more than 20 percent of the shares of the issuer;
  • a description of the business of the issuer and the anticipated business plan of the issuer;
  • a description of the financial condition of the issuer, including, for offerings that, together with all other offerings of the issuer under the crowdfunding exemption within the preceding 12-month period, have, in the aggregate, target offering amounts of—
  • $100,000 or less—(I) the income tax returns filed by the issuer for the most recently completed year (if any); and (II) financial statements of the issuer, which shall be certified by the principal executive officer of the issuer to be true and complete in all material respects;
  • more than $100,000, but not more than $500,000- financial statements reviewed by a public accountant who is independent of the issuer, using professional standards and procedures for such review or standards and procedures established by the SEC, by rule, for such purpose; and
  • more than $500,000- audited financial statements;
  • a description of the stated purpose and intended use of the proceeds; § the target offering amount, the deadline to reach the target offering amount, and regular updates regarding the progress of the issuer in meeting the target offering amount;
  • the price to the public of the securities or the method for determining the price, provided that, prior to sale, each investor shall be provided in writing the final price and all required disclosures, with a reasonable opportunity to rescind the commitment to purchase the securities;
  • a description of the ownership and capital structure of the issuer, including—
  • terms of the securities of the issuer being offered and each other class of security of the issuer, including how such terms may be modified, and a summary of the differences between such securities, including how the rights of the securities being offered may be materially limited, diluted, or qualified by the rights of any other class of security of the issuer;
  • a description of how the exercise of the rights held by the principal shareholders of the issuer could negatively impact the purchasers of the securities being offered;
  • the name and ownership level of each existing shareholder who owns more than 20 percent of any class of the securities of the issuer;
  • how the securities being offered are being valued, and examples of methods for how such securities may be valued by the issuer in the future, including during subsequent corporate actions; and
  • the risks to purchasers of the securities relating to minority ownership in the issuer, the risks associated with corporate actions, including additional issuances of shares, a sale of the issuer or of assets of the issuer, or transactions with related parties; and
  • such other information as the SEC may, by rule, prescribe, for the protection of investors and in the public interest;
  • not advertise the terms of the offering, except for notices which direct investors to the intermediary’s web site
  • not compensate or commit to compensate, directly or indirectly, any person to promote the offerings without taking such steps as the SEC shall, by rule, require to ensure that such person clearly discloses the receipt, past or prospective, of such compensation, upon each instance of such promotional communication
  • not less than annually, file with the SEC and provide to investors reports of the results of operations and financial statements of the issuer, as the SEC shall, by rule, determine appropriate, subject to such exceptions and termination dates as the SEC may establish, by rule
  • comply with such other requirements as the SEC may, by rule, prescribe, for the protection of investors and in the public interest. Transferability: Securities issued pursuant to the crowdfunding exemption may not be transferred for one year after purchase except back to the issuer, to an accredited investor; as part of a registered offering; or to a family member Automatically becoming a public reporting company when a certain number of shareholders and asset amount is reached: securities acquired under the crowdfunding exemption will be exempted, conditionally or unconditionally depending on what the SEC does in its rulemaking, from this cap (which was increased from 500 investors to 2,000 by the JOBS Act – see future blog post on this subject!) State preemption: the states are not allowed to require registration of offerings that are exempt under the crowdfunding exemption; however the can require notice filings and fees in the state that is the issuer’s principal place of business and in any state in which purchasers of 50 percent or greater of the aggregate amount of the issue are residents Adjustment for inflation: Dollar amounts under the exemption will be adjusted not less frequently than once every 5 years to reflect any change in the Consumer Price Index


One response to “Issuer requirements for equity crowdfunding”

  1. […] Successful small business crowdfunding takes more than just a good idea. It will cost some money. The average cost is reportedly about $5,000 per successful offering. Much of this will be spent on professional marketing services. There are also accounting costs. The minimum requirement is a well-prepared business tax return. Offerings over $100,000 require an accountant’s statement. Other requirements are listed here. […]

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