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Title III – Equity / Debt Crowdfunding – Regulation CF

As explained in other posts, the JOBS Act created essentially five (5) types of crowdfunding mechanisms.  The final type implemented by the Securities and Exchange Commission was Title III which become effective on May 16, 2016, six (6) months after the SEC issued final rules called Regulation CF.  Regulation Crowdfunding (CF), permits individuals to invest in securities-based crowdfunding transactions subject to certain investment limits.  The rules also limit the amount of money an issuer can raise using the crowdfunding exemption, impose disclosure requirements on issuers for certain information about their business and securities offering, and create a regulatory framework for the broker-dealers and funding portals that facilitate the crowdfunding transactions.  More specifically, Regulation Crowdfunding permits the following:

  • Permits a company to raise a maximum aggregate amount of $1 million through crowdfunding offerings in a 12-month period;
  • Allows General Solicitation of Title III securities, but only through a licensed internet portal and some limited advertising.
  • Creates a low cost, relatively fast mechanism to offer securities to both accredited and non-accredited investors, but requires substantial up-front sales information and moderate reporting after issuance of shares / notes.
    • Furthermore, even though Title III does not require a pre-sale audit for the first Title III issuance, it does not allow "Testing the Waters," which is allowed under Regulation A+ and a Title II Rule 506(c) offering.
  • Permits individual investors, over a 12-month period, to invest in the aggregate across all crowdfunding offerings up to:
    • If either their annual income or net worth is less than $100,000, than the greater of:
      • $2,000 or
      • 5 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, 10 percent of the lesser of their annual income or net worth; and
  • During the 12-month period, the aggregate amount of securities sold to an investor through all crowdfunding offerings may not exceed $100,000.

Davis Law represents a wide range of entrepreneurs and small businesses during all stages of growth and various capital raising ventures.  If you would like to discuss your business needs in particular, Davis Law can be reached at 404.901.2500 and 770.922.8500, or send us a message from our website - Contact Davis Law.

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