Passed in April 2012, the JOBS Act was heralded as a bill that would help startups raise capital by changing securities laws and allowing crowdfunding to be used to sell equity shares. Republican lawmakers have criticised the implementation of the bill by the SEC, however, saying that the rules are “too restrictive for small firms.”
The current implementation of the JOBS Act’s equity crowdfunding bill includes the following requirements:
$1 million fundraising cap in any one year period
Cap on how much can be invested – 10 percent of income or net worth for those with annual income of more than $100,000, 5 percent for those with less
Audited financial statements for those raising more than $500,000
Disclosure document filed with SEC 21 days prior to first sale of securities
Must go through a funding portal to raise money
Small business owners have criticized the low funding limit and the necessary disclosures as being over-burdensome. The penalties for non-compliance, as well, can prevent an issuer from using equity crowdfunding in the future.
Changes proposed in Patrick McHenry’s new bill:
Republican congressman Patrick McHenry has now offered a draft bill to repeal and correct this section of the JOBS Act, entitled the “Equity Crowdfunding Improvement Act of 2014.” The billmakes the following changes:
$3 million limit in a one year period, rather than $1 million
Cap on investment is 10 percent of income or net worth, across the board (or $5,000, if that is greater than the other amounts)
Less onerous financial statement disclosure requirements, particularly for those raising under $500,000
Allows the crowdfunding intermediaries to choose whether or not to list a fundraising opportunity, without it being seen as a recommendation or investment advice
Securities are still restricted for one year, but can be sold back to the issuer or to an accredited investor
It remains to be seen whether or not these changes will be passed, but it most likely won’t happen any time this year. The Wall Street Journal believes that, with the current Democrat-led Congress, the likelihood of “further roll[ing] back securities laws” is quite low.
In the meantime, if you are planning to raise funds or start development, feel free to contact a lawyer for a free consultation on your business startup.