BizTech Law Blog
As a reminder, under the JOBS Act, each investor is limited as to how much the investor can invest in an issuer (the company raising capital) using the crowdfunding exemption during a 12-month period of time. There were some ambiguities in the language of the Act. The SEC proposes to clarify the ambiguities such that the limitations are as follows:
- If the investor’s annual income and net worth are both less than $100,000, the investor may only invest the greater of $2,000 or 5% of the investor’s net worth during a 12-month period.
- If either the investor’s annual income or the investor’s net worth exceeds $100,000, the investor may only invest the greater of 10% of the investor’s net worth or 10% of investor’s annual income, but not to exceed $100,000 during a 12-month period.
The proposed regulation clarifies that an investor’s annual income and net worth may be calculated jointly with the annual income and net worth of the investor’s spouse. The proposed regulation also provides that the same methodology used to calculate annual income and net worth under Regulation D is to be used for calculating annual income and net worth for purposes of the crowdfunding exemption. Specifically:
- The $100,000 income threshold would have to have been met in each of the two most recent years with a reasonable expectation of reaching the same income level in the current year in order for the $100,000 in annual income criterion to be met.
- Net worth is the value of the investor’s assets minus the amount of the investor’s liabilities except that:
- the value of the investor’s primary residence may not be included in the calculation of the investor’s asset value;
- the amount of the investor’s indebtedness secured by the investor’s primary residence is not included in the calculation of the amount of the investor’s liabilities up to the estimated fair market value of the investor’s primary residence; and
- the amount of the investor’s indebtedness secured by the investor’s primary residence that exceeds the estimated fair market value of the investor’s primary residence, if any, is included in the calculation of the amount of the investor’s liabilities.
The limitation on investment amount applies to all types of investors, including retail, institutional or accredited investors, and both U.S. and non-U.S. citizens or residents.
We are particularly pleased to report that in the proposed regulations, the SEC provides that the issuer may rely on the efforts of the intermediary to ensure that no investor exceeds the maximum investment amount that investor is permitted to make (so long as the issuer does not have specific knowledge that an investor has exceeded the limitation). This will permit the issuer to delegate to the intermediary the monitoring of the investment amounts from each individual investor.
Please contact Iris Linder (517-371-8127 or ilinder@fosterswift.com) for more information.
