When the United States Congress adopted Title III (“Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act” or “CROWDFUND”) of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act,” (Pub. L. No. 112-106), Congress added § 4(a)(6) and § 4A to the Securities Act of 1933 to implement crowdfunding. Congress also mandated that “[n]ot later than 270 days after the date of enactment of this Act [April 5, 2012], the Securities and Exchange Commission shall issue such rules as the Commission determines may be necessary or appropriate for the protection of investors to carry out section 4[(a)](6) and section 4A.”
The 270 days have long-since passed and the rules are languishing at the Commission. While the federal rules implementing Title III of the JOBS Act do not appear to be proceeding very quickly through the SEC’s rulemaking process, many states are jumping on the crowdfunding bandwagon. www.crowdcheck.com is a public site that is following the enactment of crowdfunding regulation throughout the states.
As of October 2014, these states include Alabama, Colorado, Georgia, Idaho, Indiana, Kansas, Maine, Maryland, Michigan, Tennessee, Texas, Washington, and Wisconsin. Crowdcheck.com has prepared a chart entitled Summary of Enacted Intrastate Crowdfunding Exemptions which discusses state laws permitting crowdfunding (although as of February 3, 2015, the chart does not identify Texas which enacted rules that became effective October 22, 2014 for intrastate crowdfunding).
The crowdfunding exemptions vary among the states. As a general matter, however, a permitted issuer may raise up to $1 million, or in some cases where an issuer has audited financial statements, up to $2 million, in a 12-month period. Certain “bad actor” issuer disqualifications may apply. The exemption is generally available only for equity offerings. Individual investment amounts are capped to an amount certain; $5,000 and $10,000 caps being most common. There are simplified disclosure requirements.
There is a filing requirement, although most intrastate crowdfunding exemptions do not require issuers to provide audited financial statements or any mandatory financial statements unless an issuer is raising more than $1 million. The offering may be required to be made using registered dealer or a qualifying “crowdfunding portal.” An escrow requirement is common, and a declaration or order by the administrator that the offering is exempt may be required. There are in some states post-offering disclosure requirements.