FUNDING YOUR PROJECT OR STARTUP NOW
By Current Crowdfunding (Private Placement) Rules
You can fund your Startup by:
• Pre-selling product.
• Pre-selling territory or software licenses.
• Selling finished goods and services.
• Getting loans from friends and family, SBA or Export-Import Bank Working Capital Guarantee Loans.
• You can get grants from various organizations or government agencies.
• Providing perk packages to backers (see Kickstarter and IndieGoGo for examples).
• If you are in California you can use the California Qualification By Permit Regulations to advertise your company to residents with over $75,000 in Assets (excluding their home – see more details below).
• You can do a Reg A or Reg D private placement and with proper filings with regulatory bodies can sell stock to up to 35 non-accredited investors and 499 accredited investors (over $1 million in assets). You need significant legal help to do this type of stock offering.
FUNDING YOUR START-UP IN THE NEAR FUTURE
By the rules expected be in place WHEN new Crowdfunding Bills recently passed by the House and that are currently in the Senate become Law – (Our Best Guess is Below). All of the above plus new rules below….
• You will be able to raise up to $1 million by selling equity (shares of your company in the form of stock) with reviewed financial statements and may be able to raise up to $2 million with audited financials.
• You will be allowed to have an unlimited number of investors.
• You will be able to use general solicitation advertising via social media and other means.
• Investments from low income people will be limited to $500 to $1000, mid income $2000, high income $4000 (see more detail below)
Cal-X Startup Pitch Challenge
Sponsored by The California Stock Exchange – The Crowdfunding Site for Serious StartUps www.calstockexchange.com
Posted by Howard J. Leonhardt
Cal-X News readers and site visitors have been working on some fantastic startups. We would love to feature your startup on the site and to select you to present at various Cal-X sponsored events including local and national Cal-X Chapter Meetings.
Submit your application – Click Here
Here’s how it works:
1. Build a slide deck with a maximum of 5 slides. Don’t include any animations in your deck.
2. Record your elevator pitch. This should be no longer than 3.5 minutes. Video quality isn’t a big deal (just use your built in webcam), but really polish your pitch.
3. Send us an email at firstname.lastname@example.org with “Cal-X StartUp Pitch Challenge” in the subject line with your slide deck and video attached (or a link to them). Include in the cover email all your contact information.
4. Do not mention anything about raising capital. By law you cannot make a general solicitation for funds.
We will feature the best startup pitches on Cal-X. We will send everyone feedback with links to helpful resources. We would really appreciate it if you helped to spread the word on Cal-X and this Cal-X StartUp Pitch Challenge (on Twitter, Facebook, etc.). Thank you and good luck!
1. Please complete the below simple 10 minute form.
2. CalX will send back to you a customized step by step suggested action plan with easy to follow links to help you increase your opportunity to successfully raise the funds you require.
3. If you complete the longer form Gust.com profile (link below – min. 45 minutes to complete) we can arrange a more comprehensive analysis of your business plan.
Save time with our Single Application Plan – Click Here for details[Form id=”8″]
California Qualification By Permit Information
Offering can only be to California investors.
In addition, to be exempt from federal regulation (which basically is not compatible), one of two scenarios has to be satisfied. To qualify for the “safe harbor” from federal regulation, the offering company must be a California entity with its principal place of business in California, and 80%+ of its assets, revenues and expenditures in/from California. The other alternative, which is in a grayer area, is that the offering company must be a California entity with its principal place of business in California and conduct a “predominant” amount of its “income-producing operations” within California.
Once the application is submitted, it usually takes the State approximately eight weeks to approve the application and issue the permit, although the State can ask for changes. Only after the permit is issued can the company start marketing and raising capital.
In terms of cost, because of the application, opinion letter, etc. in addition to the PPM, a California qualification by permit – assuming it is structured to avoid merit review (more on that below) — costs $16,000 to $18,000 in attorneys’ fees, plus up to $2,500 in State filing fees. If it is not structured to avoid a merit review, add an additional $5,000 because of all the additional items the State can require.
Down below I’ve provided the links to the State questions that form the application for a qualification by permit in California for an offering. I wanted to give you some background information before that though.
Basically there are two ways to do a qualification by permit in California.
Offering with $5 Million Limit and Certain Investor Requirements
The simpler way is to limit the offering to $5 million and require that each investor (which may be a husband and wife, counted together) either:
(1) has a minimum net worth of at least $75,000 and had minimum gross income of $50,000 during the last tax year and will have (based on a good faith estimate) minimum gross income of $50,000 during the current tax year, or
(2) in the alternative, has a minimum net worth of $150,000.
In either case, the investment may not exceed 10 percent of the net worth of the investor, and net worth is determined exclusive of homes, home furnishings and automobiles.
(Alternatively, the investor must be investing less than $2,500 total in the company, including any investments made during the prior 12 months.)
In addition, the stock price must be at least $2.00 a share.
The advantage of using this approach is that the Commissioner cannot conduct a “merit review’, meaning examine the price/terms of the offering for fairness, etc. – and so the approval process is pretty much guaranteed to succeed and it goes much faster.
Offerings Larger than $5 Million
The other alternative is to not have a $5 million limit on the offering. (One could also drop or reduce the financial qualifications for investors, but doing that would be likely to cause issues with the Commissioner; at the very least, if there are no suitability requirements at all, the offering must use an audited balance sheet unless the offering itself and money raised in the past 12 months is less than $500,000.)
If more than $5 million is being raised, the following additional items (among others) apply:
The company must reasonably anticipate profits in no less than two years. The Department may require that this analysis be done by an independent CPA.
The stock price must be at least $5.00 per share.
The Commissioner will review the offering to determine if it’s fair to the purchasers.
The purchasers must agree that they will hold the securities for a minimum of nine months.
Also, there must be only one-class of voting common stock in the offering, and immediately after the proposed sale and issuance there must be only one class of voting common stock outstanding.
In addition, the net proceeds from the offering must be expended in the operations of the business. Operations of the business does not include servicing or retiring any indebtedness where any part of the proceeds of the offering, directly or indirectly, is used to service or repay any debt or make any payment (other than reasonable salaries) to any officer, director or 10% or greater shareholder of the applicant, or any affiliate of the applicant.
Note that each “small business issuer” (basically current annual revenues of less than $12.5 million) must deliver to each prospective purchaser, at least five business days before a prospective purchaser’s offer to purchase securities is accepted by such issuer, a copy of “A Consumer’s Guide to Small Business Investments” prepared by the North American Securities Administration Association. This is available at:
One system or another needs to be set up to document that five days have passed for each investor.
Each advertisement must be filed with the Commissioner at least three days before being used – but this can be done at any time.
A restrictive legend must be placed on each actual ownership certificate that is issued.
Documents for the Application
In terms of an application, what you or your team will need to do is prepare responses to the following questions (along with any required exhibits). When you are answering these questions, it’s a good idea to include not only the question number but the title for the item as well. It’s best to use the specific word “inapplicable” (as opposed to some other word or phrase) as well in response to any questions that do not apply. Here are the documents needed:
Facing page: http://www.corp.ca.gov/
California Leads U.S. with Already Passed into Law Crowdfunding Legislation
Cal-X Your Expert Guide To California Qualification by Permit Offerings (Crowdfunding from people with net worth over $75,000)
• Limited to California only.
• General advertising is permitted to California residents only.
• $5 million offerings or less.
• Company must have less than $12.5 million in revenues.
• Investors must have net worth of $75,000 excluding home + vehicles.
• Investors must have minimum gross income of $50,000 annually.
• Investors cannot invest more than 10% of their income.
• No limit to the number of California investors.
• Requires a state permit. Ads must be filed with state three days before use.
Full advertising is allowed if the offering is restricted to California and the offering goes through a qualification by permit process.
The default is that California Commissioner of Corporation reviews the “fairness” of the offering and can impose additional restrictions on it. Still, the Commissioner cannot review the offering for “fairness” if if the offering is limited to $5 million or less, the company has annual revenues of less than $12.5 million, and some relatively low investor suitability standards are imposed (discussed below). The process still requires completing a California application for qualification by permit, among other things, and approval by the Commissioner may take approximately six weeks. Still, once approval is granted full public advertising is allowed, though the offering must be limited to California residents. (Advertisements do have to be filed with the California Commissioner of Corporations at least three days before they are used.)
To avoid a fairness review, the minimum investment standards (substantially less than that for a 25102(n) offering) for a California qualification by permit offering are as follows: The investor (including any spouse) must have, exclusive of homes, home furnishings and cars, either: (1) a minimum net worth of at least $75,000 and minimum gross income of $50,000 during the last tax year and (based on a good faith estimate) minimum gross income of $50,000 during the current tax year, or (2) in the alternative, a minimum net worth of $150,000. In either case, the investment cannot exceed 10 percent of the net worth of the investor.
There is no limit on the number of investors. The application requires answering a lengthy series of questions and providing all offering documents. The State must issue a permit before the offering can begin; review by the State takes 30-60 days, possibly more.
Guide to California Private Placement Regulations – Click Here
Put Your StartUp on the Map with the CalX Endorsed StartUps Across America Map Program
LIST A COMPANY – START HERE BY CREATING A STARTUP PROFILE
“THE MOST ACCEPTED INDUSTRY STANDARD FUNDING APPLICATION”
CalX Step by Step Guide to Funding for Entrepreneurs
supported by endorsed service providers
Fill out CalX Need Funds 10 minute form (above)
Complete Gust.com Entrepreneur Profile and Send invite to CalX Angel Network as well as other up to 30,000 applicable angel investor groups.
Additionally write directly to angel groups not found on Gust.com
Write Business Plan
Click logo above to start a FREE 7 Day Trial of the CalX Endorsed Funding Road Map Business Plan Software.
Register for friends and family convertible debt note financing round with
to complete private placement memorandum.
Private Placement Exemptions: Which One is For You?
Regulation D of the 1933 US Securities Act offers three clauses which each delineate a different class of exemption from SEC registration in the sale of securities. A private company trying to raise funds must be familiar with these three rules and understand if they will fall into one of the three categories they lay out. Although these rules permit an unlimited amount of funds to be raises, as the amount you are attempting to raise increases so do the restrictions and paperwork requirements.
Rule 504 offers exemption for raising funds of up to $1 million in a 12 month period. This exemption restricts reselling of the security unless the company meets specific requirements. For example, one way to remove this restriction is to sell the security only to accredited investors (sophisticated investors who meet at least one of 8 requirements given by the SEC).
This rule permits raising up to $5 million in a 12 month period, but carries further restrictions. Rule 505 securities can be sold to an unlimited number of accredited investors, but just 35 who do not meet accreditation requirements. These securities cannot be resold for at least six months. For non-accredited investors approached, significant disclosure documents are required which increase the level of paperwork involved almost to that of a registered offering. Therefore, it is highly recommended to seek only accredited investors. Significant financial statement requirements are introduced as well for Rule 505 offerings.
This rule permits an unlimited amount of cash to be raised. Like Rule 505, it allows selling to accredited investors and up to 35 non-accredited investors. However, even the non-accredited investors must be shown to be “sophisticated” on financial and business matters. The same disclosure and financial statement requirements as for Rule 505 are true for 506. The restriction on resale of the securities is extended to one year for this rule.
For any of these three types of exemptions, Form D must be filed with the SEC. This form, which includes just four pages to fill out, can also be filed online. Also, all of these rules (with some specific exceptions to Rule 504) do not permit public or general solicitation or advertising to sell the securities.
Visit the local start up business incubator or mentorship group in your area recommended by CalX
to optimize business plan and to reach out to additional investors
to increase your network of contacts and to reach out to additional investors
Register in the CalX Microloan Program to be bound with 14 other companies in your region to participate.
for microloan access.
Register your Private Placement Memorandum or Alternative Crowdfunding Plan with ..
Regarding the potential for a registered direct public offering.
Contact Toronto Venture Exchange about capital raising opportunities in Canada.
Contact London AIM program about capital raising opportunities in England.
Contact Frankfurt Stock Exchange about capital raising opportunities in Germany.
Contact Australia Stock Exchange about capital raising opportunities in Australia.
If you are a company with export sales, or desiring to develop export sales, register with the CalX Export Assistance Program to be introduced to full range of services to aide exporters including consultation on export oriented working capital and customer financing loan programs.
Q&A: Small Business and the SEC
A guide to help you understand how to raise capital and comply with the federal securities laws
California State Compliance Regulations for Small Capital Raises Under $1 million (for other states email us and we will send you the guidance information we have available in our database – you should seek your own legal counsel and should not rely on this guidance information alone).
If you have investors who live in the state of California you must file documentation with the California Secretary of State within 15 days of the date of the first sale to an investor in California. The sale is official when the investor signs his or her term sheet. Please see attached for a checklist of fees and documents, including instructions.
Compliance Regulations Guidance Documents & Links – Click Here
Private Placement Regulations – Click Here
Cal-X Crowdfund Rules Summary Review as of February 2012
- Only available to pre-qualified accredited investors via secured password protected sites such as MicroVentures and Gust.com.
- Intermediaries must be registered broker-dealers such as MicroVentures.
- Sites like Caplinked may be used only for organizing documents as an electronic due diligence room. All SEC rules must be followed regarding the offerings associated with the information. The issuer is responsible for meeting this regulations.
- Limited to substantial pre-existing relationships.
- No general solicitation.
- Offerings have to be filed with the SEC and state agencies and must meet all requirements.
- Limited to raising $5 million annually with appropriate filings with SEC and state regulators.
- No more than 499 shareholders or $10 million in assets before having to register as public.
Expected Crowdfunding Basic Rules When Pending Bills Become Law
- Offerings limited to $1 million and will likely require audited financial statements.
- Low income < $50,000 annual income investors limited to $500 per investment with overall cap $2000.
- Medium income >$50,000 <$100,000 annual income investors limited to $1000 with overall cap $4000.
- High income >$100,000 annual income investors limted to $2000 with overall cap $8000.
- Crowdfunding portal must be registered with the SEC and the state.
- Issuer must be incorporated.
- Crowdfunding portal must be open and accessible to public with public communication capability.
- Issue and portal must publish on portal site this information..
- Description of business and business plan.
- Purpose and intended use of offering.
- Ownership, capital structure.
- How the securities being offering are being valued.
- The rights of the securities and how the rights may be exercised.
- Crowdfund portal must provide educational materials to investors.
- Under $500,000 offerings require reviewed financial statements.
- Over $500,000 offerings require audited financial statements.
- The highly risky nature of investing in startups must be made clear to potential investors. They must be warned of high chance to lose all their investment.
- Investors must be warned of the illiquidity of their investment.
- Shares cannot be sold for two years and even then only to other accredited investors following SEC rules (unless the company later files as a public company).
- Shares are restricted and investors must be warned of what restrictions mean to them.
- Crowdfund portals must take reasonable measures to reduce risk of fraud.
- Crowdfund portal must provide SEC with full disclosure of information on all it’s officers, employees and over 20% shareholders.
- SEC will have full investor level access to Crowdfund portal and to issuer websites.
- The target offerings amount and deadline must be published with regular progress updates. No funds can be transferred to issuer from 3rd party funds custodian until 100% of target has been reached.
- Investors can cancel their commitments at anytime up to the full target being reached.
- Crowdfund portal must run background checks on principals of issuer.
- Crowdfund portal and issuer must provide pre-offering notice to the SEC.
- Crowdfund portal and issuer must provide SEC with notice of completion of offering.
- SEC and investors must receive quarterly financial reports from the company.
- Cash management is outsourced to a registered depository institution custodian (not handled by Crowdfund portal).
- Crowfund portal is required to maintain books and records of all transactions fully up to date and ready for SEC audit without prior notice.
- Crowdfund portal is required to make available on its website a method of communication that permits issuer and investors to communicate with one another.
- Crowfund portal cannot provide investment advice or recommendations.
- Investors must certify in writing their annual income and these records must be maintained by the Crowdfund portal and issuer.
- Shares purchased cannot be resold for two years. Certain exemptions will exist for resale to accredited investors as part of an offering registered with the SEC.
- Bad actors as qualified by Dodd-Frank Sec. 926 cannot participate as an issuer, investor, Crowdfund portal or custodian in crowdfunding.
- Crowdfund portal must do a SEC bad actors check on all principals of the issuer ahead of a posting.
- Covered securities should be filed with the state of incorporation of the issue and the state where more than 50% of the capital was raised, if applicable.
- State securities commissions will have jurisdiction to investigate and bring enforcement action with respect to fraud, deceit or unlawful conduct.
- Employees of the Crowdfund portal are prohibited from investing in offerings made through the portal or to have any financial interest in the companies posting offerings through the portal.
- Costs of the offering must be disclosed.
- All rights of investors must be posted.
- Risks to the investor must be disclosed.
- The Crowdfund portal needs to take steps to ensure the investor has the sophistication to understand the risks associated with this class of investment.
Cal-X Self Chosen Additional Requirements for Offering Postings on our future (pending bills becoming law) Cal-X Crowfund Site
- All firms must have a social good purpose as determined through an application process. Reviewed by a Cal-X panel.
- All firms must have at least one endorsing investor with experience in the field in question, that has done due diligence on the company prior to posting with us. The endorsing investor must agree to be identified as such with their photo and reputation posted alongside the issuer profile.
- All firms must agree to run their business plan through the Cal-X EquityNet Probability of Survival index scoring system. Any firms with less than 50% probability of survival score are not eligible to be posted with us. Potential investors will be given full access to this report.
- All firms must submit a pitch video for grading. Only firms with a pitch score greater than 50% (after mentoring sessions) will be permitted to list on our Cal-X Crowdfund site.
- All firms must submit to a test of “fire and in the belly” and ability to handle critics session with a Cal-X panel or a designated startup incubator or service provider. Only firms scoring higher than 50% will be permitted to be listed on our Cal-X Crowdfund site.
- All firms must agree to hold a minimum of two hours of open unfiltered questions from investors to their CEO and CFO every quarter and to record those sessions and post them on our web site and/or their web site.
- All firms must agree to have their board of directors elected by true open democratic voting by shareholders.
- All firms must agree to self audit for equal pay for equal work for women and minorities.
- All firms must agree to participate when held in their city local Cal-X Chapter meetings (maximum of once per year) where investors can meet the entrepreneurs in person.
- All firms must agree to enter into our independent 3rd party financial writers and coach mentors ranking poll.
President Obama signed the “Jumpstart Our Business Startups Act’’ (the JOBS Act) on April 5. Part of this Act authorizes crowdfunding for the first time. (Up until now, crowdfunding could only be done legally by a company effectively pre-selling its goods or services at a discount.)
That does not mean the crowdfunding provisions go into effect immediately, though. The Act gives the Securities & Exchange Commission 270 days to issue regulations for the crowdfunding offerings. No crowdfunding can be done prior to the SEC issuing those regulations. Still, the Act is expected to open up crowdfunding for a number of smaller companies.
The crowdfunding exemption applies to issuers who do not sell more than $1 million to investors under any exemption during any 12-month period. Companies that want to raise more than $1 million in 12 months will not be able to use crowdfunding.
To summarize, the amounts investors may invest is limited by their income and net worth. The crowdfunding must be done through “Conduits” registered with the Securities & Exchange Commission (SEC). Issuers may not advertise except for notices which direct investors to the Conduit. Issuers must also file annual reports with the SEC. In terms of financial disclosures, offerings of less than $100,000 in a year need only provide income-tax returns and financials certified by their CEO. With offerings between $100,000 and $500,000 in a year, the financials must be reviewed by a public accountant. For offerings between $500,000 and $1 million, the financials must be audited.
Investor Amount Restrictions
There are some restrictions on how much investors may invest. Investors who have either annual income of less than $100,000 or whose net worth (presumably excluding the principal residence) is less than $100,000 may only invest in any 12-month period the greater of $2,000 or 5 percent of the investor’s annual income or net worth. One thing companies using crowdfunding will need to consider is whether they want to set higher minimums for investment, given that the administrative time for a small investor is often as much as for a large investor. If $1,000,000 were raised by having 500 people invest $2,000 each, the administrative time per investor could be a substantial part of the $2,000 contributed by each investor.
If either the annual income or net worth (again, presumably excluding the principal residence) of the investor is equal to or more than $100,000, then the investor may invest 10 percent of the investor’s annual income or net worth in any 12-month period, not to exceed a maximum amount of $100,000.
(There is an inconsistency in the wording of the statute on these two categories. Presumably to fit within the second category the investor must have both income in excess of $100,000 AND (not “or”) net worth of more than $100,000. Expect the SEC to address this in its regulations.)
Use of Registered Conduits Required
For better or worse, the transaction must be conducted through a licensed securities broker or funding portal (either or which we’ll call a “Conduit”) that has registered with the SEC for crowdfunding. The Conduit must also register with any self-regulatory organization that is applicable, such as FINRA. (There are non-brokers who are required to register with FINRA.) Part of the Conduit’s duties are to: provide disclosures to investors related to risks; ensure that each investor reviews investor-education information; and confirm that the investor understands that the investor is risking the loss of the entire investment, that the investor could bear such a loss, that the investor understands the level of risk applicable to investments in startups, emerging businesses, and small issuers, and understands the risk of illiquidity.
The Conduit must also obtain a background and securities enforcement regulatory history check on each officer, director, and person holding more than 20 percent of the outstanding equity of every issuer whose securities are offered. In addition the Conduit must ensure that all offering proceeds are only provided to the issuer when the aggregate capital raised from all investors is equal to or greater than a target offering amount, and allow all investors to cancel their commitments to invest. (There are other requirements as well.)
Actions Required of Issuers
Issuers using crowdfunding have requirements to meet also. The issuer is required to make a filing with the SEC.
Further, an issuer using the crowdfunding exemption may not advertise the terms of the offering, except for notices which direct investors to the funding portal or broker, and not less than annually file with the SEC and provide to investors reports of the results of operations and financial statements of the issuer. This is unusual in that most private placement offerings do not require annual filings with the SEC.
In terms of non-financial disclosures to investors, the issuer must provide, among other things: a) the names of the directors and officers (and any persons occupying a similar status or performing a similar function), and each person holding more than 20 percent of the shares of the issuer; and b) the anticipated business plan of the issuer. There’s not much surprise there.
The issuer must also disclose, among other things,1) the target offering amount, the deadline to reach the target offering amount, and regular updates regarding the progress of the issuer in meeting the target offering amount; and 2) a description of the ownership and capital structure of the issuer. The later must include, in addition to other matters, (a) the terms of the securities of the issuer being offered and each other class of security of the issuer; (b) a description of how the exercise of the rights held by the principal shareholders of the issuer could negatively impact the purchasers of the securities being offered; and (c) how the securities being offered are being valued, and examples of methods for how such securities may be valued by the issuer in the future.
The financial description requirements depend on the amount being raised. For offerings that, together with all other crowdfunding offerings of the issuer within the preceding 12-month period, total $100,000 or less the issuer must provide: (i) the income tax returns filed by the issuer for the most recently completed year, if any, and (ii) financial statements of the issuer, which must be certified by the principal executive officer of the issuer to be true and complete in all material respects (but which do not need to be audited).
Where the current offering plus other crowdfunding offerings by the issuer total more than $100,000 but less than $500,000, the issuer must provide financial statements reviewed (but not audited) by a public accountant who is independent of the issuer.
When the total of the current offering and the crowdfunding offerings within the last 12 months total more than $500,000, audited financial statements are required. Given the expense of audited financial statements and the $1,000,000 limit on offerings, some issuers may decide not to take the crowdfunding approach.
Preemption of State Law
Thankfully, the crowdfunding provisions appear to preempt state law regarding state registration, documentation, and offering requirements. The provisions still allow the states to take enforcement actions. States are allowed to require notice filings (as is done with Rule 506 offerings) but not to charge filing fees. (Section 305.)
Much will depend on the regulations the SEC issues.
–Bruce E. Methven
The foregoing constitutes general information only and should not
be relied upon as legal advice.
You are welcome to copy and distribute this document for non-commercial purposes, but it may not be edited and the prior warning and the following must be left on it:
Bruce E. Methven, 2232 Sixth Street Berkeley, CA 94710
Phone: (510) 649-4019; Fax: (510) 649-4024
Copyright 2012 Bruce E. Methven, All Rights Reserved.
Under the JOBS Act, intermediaries will be required to:
(i) Register with the Commission as a broker, or a funding portal;
(ii) Register with any applicable self-regulatory organization (i.e. FINRA);
(iii) Provide detailed disclosures, including risks, to investors;
(iv) Ensure that each investor:
a. Review education information;
b. Positively affirm that the investor understands that he or she is risking the loss of the entire investment; and,
c. Can bear such loss;
(v) Obtain background and a securities enforcement regulatory history check on each officer, director, and person holding more than 20% of the outstanding equity;
(vi) Provide the SEC and investors with any information provided by the issuer within 21 days prior to the first day of sales;
(vii) Ensure that the issuer cannot access offering proceeds until the target offering amount is raise and allow all investors to cancel commitments;
(viii) Ensure that investors do not exceed the 12-month investing limitations on securities purchased under Section 4(6) of the Securities Act;
(ix) Protect the privacy of information collected from investors;
(x) Refrain from compensating promoters, finders, or lead generators for personal identifying information of any potential investor; and,
(xi) Prohibit directors, officers, or partners (or anyone similar person) from having any financial interest in the issuer using its services.
In addition to the restrictions and obligations placed upon intermediaries, the JOBS Act requires issuers to provide information to investors and the SEC that is typically required for registered offerings. Issuers will be required to provide:
(i) The name, legal status, address, and website of the issuer;
(ii) Names of directors, officers (or similarly situated persons) and investors owning more than 20% of the outstanding equity in the company;
(iii) A description of the issuer’s business and a business plan;
(iv) A description of the financial condition of the company, including:
a. If the target offering amount is $100,000 or less, then the most recent year’s income tax returns (if any); as well as financial statements of the issuer certified by the principal executive officer of the issuer as being true and complete in all material aspects;
b. If the target offering amount is over $100,000, but not more than $500,000, the issuer must provide financial statements reviewed by an independent public accountant; and,
c. If the target offering amount is over $500,000, the issuer must provide audited financial statements;
(v) A description of the offering sought by the issuer regarding the targeted offering amount, the deadline of the offerings, and regular updates regarding process in meeting the target offering amount;
(vi) Determination of the price of the securities, including a written disclosure of the final price of the securities with a reasonable opportunity to rescind the commitment; and,
(vii) A description of ownership and capital structure, including the terms and conditions of the offering and the risks to purchasers regarding minority ownership in the company. In addition, issuers are required to file with the Commission and provide investors annual reports of the results of operations and financial statements of the issuer. Finally, the JOBS Act does not entirely preempt state regulation, only prohibiting states from collecting fees in connection with a crowdfunding offering, except for the state of the issuer’s residence and the state where more than 50% of its shareholders reside. This suggests that the SEC and state securities regulators could develop a system similar to the current Regulation D state filings, still requiring disclosures be made in a timely manner to every state where an investor resides, despite the state’s inability to collect fees. For now, it is uncertain what additional steps or disclosures will be required by the SEC. Congress has given the SEC 270 days to conduct rule making, at which time crowdfunding should become available for issuers.
On April 5, 2012, President Obama signed into law the Jumpstart Our Businesses Startups Act (the “JOBS Act”). This bipartisan legislation is designed to stimulate job growth by making it easier and less costly for smaller companies to raise capital in the United States through a loosening of regulatory restrictions applicable to private offerings, initial public offerings and certain newly public companies.
To help you navigate the new regulations and understand how they apply to your business, this site serves as a dedicated resource for up to date and easy to find JOBS Act information, analysis and commentary.
Understanding the JOBS Act
- The JOBS Act: The Emerging Possibilities for Crowdfunding and Crowdfunding Basics Chart
- The JOBS Act: A New IPO Playing Field for Emerging Growth Companies and IPO Basics Chart
- The JOBS Act: Small Company Capital Formation and Small Company Capital Formation Basics Chart
- The JOBS Act and Other Recent Congressional Activity — Why REITs Should Care
- The JOBS Act: A Game Changer for Emerging Growth Companies
Laws and Regulations
- Legislation: Jumpstart Our Business Startups Act (H.R. 3606) (the “JOBS Act”) ~ signed into law April 5, 2012
- Legislative History of Bill: The Library of Congress – H.R. 3606 Bill, see also govtrack.us site for details on H.R. 3606 bill process
- SEC Notice: SEC Seeks Public Comment Prior to JOBS Act Rulemaking (4/11/2012)
- SEC FAQ: Jumpstart Our Business Startups Act Frequently Asked Questions: Generally Applicable Questions on Title I of the JOBS Act (4/16/2012) ~ these FAQs relate to the status of companies as “emerging growth companies” under Title I of the JOBS Act, and how EGCs may take advantage of the JOBS Act accommodations pending formal SEC rulemaking
- SEC FAQ: Jumpstart Our Business Startups Act Frequently Asked Questions: Changes to the Requirements for Exchange Act Registration and Deregistration (4/11/2012)
- SEC FAQ: Jumpstart Our Business Startups Act Frequently Asked Questions: Confidential Submission Process for Emerging Growth Companies (4/10/2012)
Capital Pool Company Presentation – Click Here
To Qualify for the broadest range of Cal-X financing network options please complete
Small Company Offering Registration Form (U-7) – Click Here
Improving Access to Capital Report
What is an IPO?
Cal-X is not a registered broker-dealer. Cal-X does not offer investment advice, advise on the raising of capital through securities offerings, receive compensation in connection with the purchase or sale of securities, or recommend or otherwise suggest that any investor make an investment in a particular company, or that any company offer securities to a particular investor. Cal-X takes no part in the negotiation or execution of transactions for the purchase or sale of securities.