Resources/ Updates


Crowdfunding of Securities Made Possible ~ SEC Adopts Title III Final Rules

In a landmark decision, on October 30, 2015, the SEC adopted final equity crowdfunding rules, mandated by Title III of the JOBS Act, giving smaller firms a big boost in their ability to raise funding through the sale of securities online. Till now, securities investments could not be gotten from the average Joe…rather limited to only “accredited investors” having in excess of $1 million separated from their primary residence or a steady income of more than $200 thousand over two years.  The SEC also voted to propose amendments to facilitate intrastate and regional securities offerings.

Regulation Crowdfunding Overview 

“Regulation Crowdfunding” is the group of rules adopted under new Section 4(a)(6) of the Securities Act of 1933 (“Securities Act”) to govern the offer and sale of securities by eligible issuers. Companies qualifying for this federal exemption will be able to raise capital via the Internet by issuing, offering, and selling unregistered securities to many investors.

Securities of issuers sold pursuant to Regulation Crowdfunding, Section 4(a)(6), are exempt from the SEC securities registration requirements of Section 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”).  However, issuers relying on the Regulation Crowdfunding exemption may not offer and sell directly to investors.  The new rules establish a framework for regulating the sale of unregistered securities and their designated crowdfunding intermediaries.

Two SEC registration categories are approved for issuers to use as crowdfunding intermediaries: registered broker-dealers, and a new category “registered funding portals.” These registered intermediaries are the designated gatekeepers to the online portals in both directions.  Any startup can knock on their portal door, but intermediaries will determine which get in, in accordance with SEC guidelines.  And any investor can try to buy, but intermediaries are entrusted to determine whether individual investors are not exceeding their 12-month investment limits.

To qualify for a 4(a)(6) exemption, crowdfunding transactions by an issuer must meet specific fund requirements, including:

  • A limit on the capital an eligible issuer can raise, over a 12-month span, through crowdfunding offerings under this exemption: A company may raise a max aggregate of $1 million. And equity crowdfunding transactions must take place through an SEC-registered intermediary
  • A limit on the funds individuals may invest in equity crowdfunding, over a 12-month span:  For annual income or net worth less than $100,000—the greater of $2,000 or 5 percent of the lesser of annual income or net worth. And for annual income and net worth combined are equal to or more than $100,000: 10 percent of the lesser of annual income or net worth.  Also, the aggregate amount of securities sold to an investor through all crowdfunding offerings may not exceed $100,000.

Qualified issuers may concurrently offer crowdfunding exempt offerings and other offerings compliant with general solicitation/advertising under Rule 506(c) and private placement offering under Rule 506(b) of Regulation D.  The funds raised under Regulation D exemptions do not factor into the $1 million max of funds limit in a 12-month span under Regulation Crowdfunding.

Effective Dates

  • Regulation Crowdfunding will be effective 180 days after Federal Register posting.
  • SEC funding portal registration forms will be effective Jan. 29, 2016.  

More Regulation Crowdfunding Info


Ineligible Issuer Companies:

Certain issuers are not eligible for this exemption, including:

  • Non-U.S. companies
  • Exchange Act reporting companies and certain investment companies
  • Companies that are subject to disqualification under Regulation Crowdfunding
  • Companies that have failed to comply with the annual reporting requirements under Regulation Crowdfunding during the two years immediately preceding the filing of the offering statement
  • Companies without a specific business plan
  • Companies with a business plan to engage in a merger or acquisition with an unidentified company or companies.

Disclosures by Eligible Issuers:

Crowdfunding Regulation requires an issuer to disclose to the SEC, intermediaries, and investors in its offering document:

  • Info on the business structure, financial condition, and intended use of proceeds
  • Info on the officers, directors, and owners of 20 percent or more
  • Price of the offering to the public, the target funding amount, the potential to exceed the target, and the funding deadline
  • Certain related-party transactions

Reporting by Eligible Issuers:

Securities issuers targeting to raise capital through crowdfunding must comply with reporting requirements as follows:

  • $500,000–$1 million (the max) must provide upfront CPA auditedfinancial statements
    • Note first time issuers are excluded form this requirement to accommodate startups with no revenue.
  • $100,000 to $500,000 must provide upfront financial statements reviewed by an independent accountant
  • $100,000 or less must provide upfront its most recent annual tax return and financial statements approved by a firm principal

Issuers selling securities via the crowdfunding exemption must also file an annual report with the SEC and make this report available to investors.  However, an audit or review of the financial statements is not required to be included in ongoing annual reporting.

Also such issuers must comply with progress update requirement:

  • Issuers may satisfy the progress update requirement by relying on their registered intermediary to publicly post updates about the issuer’s progress in hitting its target offering amount.
  • If the intermediary does not provide such an update, the issuer must file the interim progress updates.
  • An issuer relying on its intermediary posting progress updates must still file a Form C-U at the end of the offering to disclose the total amount of securities sold in the offering. (See Rule 203(a)(3)(iii) of Regulation Crowdfunding,)


Some Funding Restrictions:

Crowdfunding investors may not:

  • Invest in foreign projects, specified types of investment firms, and firms already reporting to the SEC
  • Resell their crowdfunding investments for one year, though several exceptions do apply
  • Receive recommendations—for or against any investments—from the crowdfunding intermediary portal, however investor opinions may be shared among the crowd.


A “platform” is “an Internet website or similar electronic medium through which a registered BD or registered funding portal acts as an intermediary in a transaction involving the offer or sale of securities in reliance on Section 4(a)(6).” All crowdfunding transactions must be conducted via a registered intermediary’s platform.

  • An issuer must conduct its offering exclusively through one registered intermediary platform (“intermediary”) at a time.
  • An intermediary will need to register with the SEC as a “funding portal” by filing new Form Funding Portal. This new form will require info on the business, legal organization, activities, affiliates, and the website.
  • Crowdfunding intermediaries are not required to register as an exchange or as an alternative trading system.  Section 3(h) to the Exchange Act requires the SEC to “exempt, conditionally or unconditionally, an intermediary operating a funding portal from the requirement to register with the SEC as a broker…A funding portal will be subject to the SEC’s examination, enforcement, and rulemaking authority and must become a member of FINRA.”

Registered Funding Portals must:

  • Make offering accessible to the public with channels enabling public discussions
  • Take measures to reduce fraud risk, including “having a reasonable basis for believing” an issuer complies with Regulation Crowdfunding and keeps accurate records of securities holders.  Measures should include:
    • Checking whether issuers are eligible
    • Checking whether investors comply with investment limits
    • Conducting a background and securities enforcement checks on issuer officers, directors and 20 percent owners
    • Denying intermediaries platform access to suspect issuers
    • Implementing written policies and procedures
    • Make info an issuer must disclose publicly available on its platform during the offering period and for at least 21 days before any security may be sold in the offering
    • Disclosure to investors the compensation received by the intermediary
    • Accept investment commitments only after that investor has opened an account
    • Provide investors notices after commitments
    • Provide investors confirmations at or before completion of a transaction
    • Comply with maintenance and transmission of funds requirements and
    • Comply with completion, cancellation, and reconfirmation of offerings requirements
    • Provide investors with educational materials covering investment process, types of securities being offered, and info a company must provide to investors, resale restrictions, and investment limits

Registered Funding Portals must not:

  • Give platform access to companies they reasonably believe have the potential for fraud
  • Have a financial interest in a company offering/selling securities on its platform unless the financial interest is received as compensation for the services
  • Compensate any person for providing the intermediary with personally identifiable information of any investor or potential investor
  • Offer investment advice or make recommendations
  • Solicit purchases, sales or offers to buy securities
  • Compensate promoters for solicitations or based on the sale of securities
  • Hold, possess, or handle investor funds or securities
  • Operate without keeping proper books & records on their transactions and business

On Intrastate and Regional Offerings

At the October 30th Open Meeting, the SEC also agreed to draft Securities Act amendments to enable intrastate and regional securities offerings by:

  • Amending Act Rule 147 to:
    • modernize the rule for intrastate offerings to further facilitate capital formation, including through intrastate crowdfunding provisions.
    • Amending Rule 504 to:
      • up the aggregate amount of money that may be offered and sold from $1 million to $5 million, and
      • apply bad actor disqualifications to Rule 504 offerings to provide additional investor protection.

The SEC is seeking public comment on the proposed rule amendments for a 60-day period.

Related Documents

SEC Adopts Crowdfunding Rules and Proposes to Amend Existing Rules to Facilitate Intrastate and Regional Securities Offerings ~ Release 2015-249 ~ October 30, 2015

SEC Final Crowdfunding Rules ~ October 30, 2015

Final Title III Crowdfunding Rules: Five Major Developments ~ Nov 2, 2015

SEC Rules for Crowdfunding Securities ~ Is Crowd Control Possible? ~ Nov 2013

FINRA’s Crowdfunding Portal Page



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