United States

SEC adopts crowdfunding rules


The SEC recently adopted Regulation Crowdfunding to prescribe rules governing the offer and sale of securities in crowdfunding transactions. Under the final rules:

  • An issuer is permitted to raise a maximum aggregate amount of $1 million through crowdfunding offerings in a 12-month period; however, certain companies, such as non-U.S. companies, companies that already are Exchange Act reporting companies and certain investment companies, are not eligible to use the Regulation Crowdfunding exemption
  • Offerings must be conducted exclusively through an SEC registered intermediary, either a registered broker or a funding portal
  • Individual investors, over the course of a 12-month period, are permitted to invest in the aggregate across all crowdfunding offerings up to:
    • If either their annual income or net worth is less than $100,000, then the greater of: (a) $2,000 or (b) five percent of the lesser of their annual income or net worth
    • If both their annual income and net worth are equal to or more than $100,000, then 10 percent of the lesser of their annual income or net worth
  • During the 12-month period, the aggregate amount of securities sold to an investor through all crowdfunding offerings may not exceed $100,000
  • Securities purchased in a crowdfunding transaction generally cannot be resold for one year

The final rules require issuers conducting an offering pursuant to Regulation Crowdfunding to file certain information with the SEC and provide this information to investors and the relevant intermediary facilitating the crowdfunding offering. Among other matters, in its offering documents, the issuer is required to disclose:

  • Information about officers and directors as well as owners of 20 percent or more of the issuer
  • A description of the issuer’s business and the use of proceeds from the offering
  • The price to the public of the securities or the method for determining the price, the target offering amount, the deadline to reach the target offering amount and whether the issuer will accept investments in excess of the target offering amount
  • Certain related-party transactions
  • A discussion of the issuer’s financial condition
  • Financial statements of the issuer that are, depending on the amount offered and sold during a 12-month period, accompanied by information from the issuer’s tax returns, reviewed by an independent public accountant, or audited by an independent auditor. To qualify as independent of the issuer, a public accountant or auditor would be required to comply with the SEC’s independence rules.

In addition, issuers relying on the Regulation Crowdfunding exemption are required to file an annual report with the SEC and provide it to investors. The final rules are effective 180 days after publication in the Federal Register.