Road to Crowdfunding Gets Shorter with New Federal Rules
It’s been a long time coming—more than three-and-a-half years—but the Securities & Exchange Commission approved last week final rules for Regulation Crowdfunding, also known as Reg CF and the last remaining component of the JOBS Act of 2012.
The federal regulation aims to create a nationwide infrastructure for “retail crowdfunding,” so that companies can raise capital nationwide from a wide array of accredited and for the first time non-accredited investors, according to Ryan Schildkraut and Zach Robins, transaction attorneys at Winthrop & Weinstine law firm in Minneapolis.
Right now you can donate via the Internet to your favorite cause or business and get a t-shirt or all-you-can-drink beer, but you cannot invest in a startup and get a share of stock. Starting in 2016, that will change on the federal level.
On a state-by-state basis, people have already taken matters into their own hands. The pair of Winthrop & Weinstine attorneys mentioned above, for example, earlier drafted crowdfunding legislation for the state of Minnesota called MNvest, which was signed into law during the 2015 legislative session.
The first quarter of 2015 brought an explosion of legislation enabling crowdfunding within states, according to Anthony Zeoli, a Chicago attorney who tracks crowdfunding rules and wrote the Illinois bill that is now law. He reported in May that 21 states had filed proposed intrastate crowdfunding regulations and 19 states had currently enacted/effective intrastate crowdfunding regulations.
The SEC last Friday also proposed rules to modernize intrastate securities offerings. Proposed changes would eliminate cumbersome advertising constraints and increase the amount of securities that may be sold, Schildkraut and Robins wrote.
They added: “If you intend to utilize crowdfunding for your business, either under the SEC rules or under MNvest, it is wise to begin planning now, to take advantage of opportunities as soon as the rules are enacted.”