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The SEC Crowdfunding Proposed Regulations: Platform for Offering Issuer’s Maximum Offering Size

Platform for Offering. The SEC is proposing to limit the availability of the crowdfunding exemption to offerings that are made through a registered intermediary on an Internet website or similar electronic medium, referred to in the proposed regulations as a “platform.” Accessibility through mobile devices is permitted. What the SEC wants to assure is that the offering occurs in a technology environment that will be accessible to the public and allow members of the crowd to share information and opinions. The JOBS Act does not require this limitation. It appears that the SEC is placing considerable emphasis on the benefits of the role of online discussion forums.

Issuer’s Maximum Offering Size. The JOBS Act provides that the crowdfunding exemption provided in Section4(a)(6) of the Securities Act is only available if the aggregate amount sold to all investors by the issuer (the company raising capital) during the 12-month period preceding the date of the transaction is not more than $1 million. This language in the statute left some ambiguity around the edges that the SEC addressed in the proposed regulation, as well as in its discussion.

The proposed regulation imposes the $1 million cap during the 12-month period only on capital raised in reliance on Section 4(a)(6) of the Securities Act (the crowdfunding exemption). The issuer may raise additional capital in reliance on other exemptions during the same 12-month period without jeopardizing the crowdfunding exemption. If the other exemption does not permit general solicitation of investors, in order to engage in a concurrent offering, the issuer would have to be extra cautious to make sure that the purchasers in the other offering are not solicited by means of the general solicitation occurring in the crowdfunding offering. It would be risky to engage in concurrent offerings of this sort. But a private placement preceding a crowdfunding offering would not present such a high level of risk. Concurrent donation based crowdfunding also should not present much risk.

The measurement is against the amount of capital actually sold, not the amount offered. So if an issuer engaged in a crowdfunding campaign that failed to hit the targeted offering amount, and as a result did not close, the earlier crowdfunding campaign would not count against the $1 million maximum.

In analyzing the $1 million maximum, the SEC will include not only the amount of capital raised by the issuer, but also capital raised by any predecessor of the issuer, any amounts raised by entities controlled by the issuer, and any amounts raised by entities under common control with the issuer during the preceding 12-month period.

Click here to read Part 1 of the series of posts regarding the Proposed Crowdfunding Regulations.

Please contact Iris Linder (517-371-8127 or ilinder@fosterswift.com) for more information.

Categories: Crowdfunding, Venture Capital/Funding

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