The JOBS Act authorized an entirely new way for small companies to raise money: Crowdfunding.
The full legal title of this part of the Act is Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2012 or the CROWDFUND Act. Wonder how long it took to think up that anacronym?
Crowdfunding is basically getting a large group of people to finance a project by using a website or other online tool to solicit funds. Crowdfunding started as a way for independent musicians to fund their record projects. The United States based company ArtistShare (2000/2001) is documented as being the first crowdfunding website for music followed later by sites such as Sellaband (2006), IndieGoGo (2008), Pledge Music (2009), Kickstarter(2009), RocketHub (2009), GoFundMe (2010), Rock The Post (2011) and in the UK Sponsume (2010) and PleaseFund.Us (2011) and Peerbackers (2008).
Because of the way federal securities laws were written, however, you could not fund your business by selling stock. You could only offer people some kind of gifts for contributing to your cause.
Congress changed all this with the JOBS Act. Under the Act, you can now raise money from investors by selling your stock in a Crowdfunding transaction if:
- the aggregate amount sold to all investors by the issuer, including any amount sold in reliance on the exemption provided under this paragraph during the 12-month period preceding the date of such transaction, is not more than $1,000,000;
- the aggregate amount sold to any investor by an issuer, including any amount sold in reliance on the exemption provided under this paragraph during the 12-month period preceding the date of such transaction, does not exceed-
- (i) the greater of $2,000 or 5 percent of the annual income or net worth of such investor, as applicable, if either the annual income or the net worth of the investor is less than $100,000; and
- (ii) 10 percent of the annual income or net worth of such investor, as applicable, not to exceed a maximum aggregate amount sold of $100,000, if either the annual income or net worth of the investor is equal to or more than $100,000.
- the transaction is conducted through a broker or funding portal that complies with the requirements of the JOBS Act [See our next post]
- the issuer provides the information required in the JOBS Act.
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