Crowdfunding Update - SEC Paves The Way For Small Investors

If the first images the letters S-E-C and the phrase "blue sky" bring to mind are of members of the (arguably) perennially strongest college football conference playing under ideal weather conditions, read on.

On Wednesday, the other SEC (U.S. Securities and Exchange Commission), issued a press release explaining the Final Rule highlights contained in the 450-page document containing an update of Regulation A.

The rules are mandated by Title IV of the Jumpstart Our Business Startups (JOBS) Act, and these modifications are sometimes referred to as "Regulation A+."

Here are a few key points that smaller companies and individual investors need to know.

Related Link: SEC Unanimously Approves Regulation A+ Rules

Crowdfunding – Spoiler Alert

Related Link: Pot Startup Crowdfunding Its Legal Fees

SEC – Background

"Under the Securities Act of 1933, when a company offers or sells securities to potential investors, it must either register the offer and sale or rely on an exemption from registration.

"Regulation A is a longstanding exemption from registration that permits unregistered public offerings of up to $5 million of securities in any 12-month period, including no more than $1.5 million of securities offered by security-holders of the company."

SEC – JOBS Act

The main intent of Title IV of the Jumpstart Our Business Act was to make it easier for smaller companies to raise equity, while at the same time providing protections for investors.

SEC – Tier 1 & Tier 2

Blue Sky Law – Preemption

While it may seem a bit counter-intuitive that smaller Tier 1 offerings are not made available to unaccredited investors, rule makers felt that "small, more localized offerings" should still be regulated by the states, under Blue Sky.

Related Link: Virginia Company To Lead Nation In Using Revolutionary Regulation A+

Rule Highlights – Companies

1. Companies offering securities less than $20 million may elect to file under either Tier 1 or Tier 2, which mandates a higher level of reporting requirements: annually, semi-annually and current event reports. 2. U.S. and Canadian companies must have a share float of less than $75 million; or revenues of $50 million or less to qualify under the new rules. 3. Companies that outgrow the share float and/or revenue threshold will have a two-year window to comply with applicable SEC rules.

Time Frame