The SEC released the proposed rules for Title III in October, 2013. A summary of the proposed rules follows. Public comments were encouraged and concluded. The SEC will now review the suggestions and it is anticipated that they will release the final rules during 2014. Once the final rules are issued, entrepreneurs will be legally permitted to conduct a Title III crowdfunding campaign among all Americans.
- Crowdfunding caps an amount an issuer can raise to $1 million in any 12-month period.
- Crowdfunding caps the amount a person can invest in all crowdfundings over a 12-month period at 10% of annual income or net worth (incomes of $100,000 or more) or the greater of $2,000 or 5% of annual income or net worth (incomes of less than $100,000).
- Crowdfunding must be done through a registered broker-dealer or registered “funding portal.” Broker-dealers and funding portals may not solicit investments, offer investment advice or compensate employees based on sales. Traditional investment banks have shown little interest in crowdfunding, leading to speculation that crowdfunding will be facilitated by lesser-known financial institutions with little or no retail investment track record.
- Crowdfunding requires a disclosure document to be filed with the SEC at least 21 days prior to first sale, and requires scaled financial disclosure, including audited financial statements for raises of over $500,000.
- Unlike Regulation D Rule 506 private placements to accredited investors following the JOBS Act, crowdfunding does not allow advertising except solely to direct investors to the appropriate broker/funding portal.
- Annual reports must be filed with the SEC by a company which completes a crowdfunding round.
Read the full summary from the SEC Title III in this PDF.
In the interim, 12 states have legalized crowdfunding among Americans, wealthy and not, and many more states have legislation in the works to do the same. In many cases, the state laws are more cost effective for the entrepreneur.