SEC Issues Some Rules on Crowd-Funding

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One of the biggest barriers to raising capital from unrelated investors is the ban on general solicitation.  Under this ban, a start-up company is not permitted to make a mass mailing, radio or TV broadcast or email solicitation to reach potential investors.  This ban has made it difficult if not impossible for some start-ups to find the investment dollars necessary to launch their business venture.

In an attempt to jump-start the US economy, Congress passed the JOBS Act in early 2012.  One part of the JOBS Act was a provision mandating the SEC to ease the rules governing how start-ups and small businesses can raise capital from investors.  While the SEC has not rushed to adopt new rules authorizing full-blown crowd-funding, the SEC is moving in that direction and has recently proposed certain exceptions to the ban on general solicitation.

In about 60 days, startups will legally be allowed to advertise, market, and publicly disclose the fact that they are fundraising to accredited investors.  But the use of crowd-funding to solicit and obtain funding from non-accredited investors is not yet permitted.  There is no time table for that phase.  Permitting the use of crowd-funding to solicit funds from non-accredited investors is viewed as more controversial since unsophisticated investors with limited net worth and income could lose their retirement savings by investing in questionable investments.  As the SEC moves forward and develops rules on crowd-funding, we will keep you updated.

If you have any questions about crowd-funding or private placement security offerings please contact me at Jsenney@pselaw.com or 937-223-1130.

AND ONE MORE THING.  We are starting to get inquiries from clients about the effect of same-sex marriages on estate planning, income taxation, asset protection, etc.  If you would like to know more about these matters contact one of our tax or estate planning attorneys at 937-223-1130 or Jsenney@pselaw.com.