1. Introduction –
a. “Jumpstart Our Business Startups Act” (Title I is called the “JOBS Act”, but Title III is called the “Crowdfund Act”);
b. The JOBS Act is quite extensive and was signed into law by President Obama in April 2012. It enables small businesses to solicit securities-based funding from the general public – also now known as Business Crowdfunding.
c. It may be compared to donation funding on Kickstarter, but the Crowdfund Act permits securities-based crowdfunding investors to receive a profit from equity, debt, or revenue-based securities.
d. How the JOBS Act was passed and codified was confusing because the amendments were spread across the two foundational securities acts of the 1933 and 1934. The JOBS Act 2012 was enacted as United States Public Law 112-106, on April 5, 2012; compiled at 126 Stat. 306; and codified (1) at 15 USC 77a et seq., the “Securities Act of 1933”; and (2) at 15 USC 78a et seq., the “Securities Exchange Act of 1934.”
2. The JOBS Act is composed of the following titles relating to crowdsource funding:
i. Title I–REOPENING AMERICAN CAPITAL MARKETS TO EMERGING GROWTH COMPANIES, §§101-108;
ii. Title II–ACCESS TO CAPITAL FOR JOB CREATORS, §§201 only; Title II into effect September 23, 2013;
iii. TITLE III—CROWDFUNDING, §§301-305; on October 30, 2015, the SEC adopted final rules allowing Title III equity crowdfunding which went into effect on May 16, 2016; This title may be cited as the ‘Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2012’ or the ‘CROWDFUND Act’.”
i. TITLE IV—SMALL COMPANY CAPITAL FORMATION, §§401-402;
ii. TITLE V—PRIVATE COMPANY FLEXIBILITY AND GROWTH, §§501-504;
iii. TITLE VI—CAPITAL EXPANSION, §§601-602;
iv. TITLE VII—OUTREACH ON CHANGES TO THE LAW, §§701;
3. Key Points of the JOBS / CROWDFUND ACTS >
i. A company will be able to crowdfund up to $1 million over a 12 month period.
ii. Individuals with annual income or net worth of less than $100,000 may invest up to $2,000 or 5 percent of their annual income or their net worth, whichever is greater, over a 12 month period. Individuals with annual income or a net worth of $100,000 or more may invest up to 10% of annual income or net worth, capped at $100,000 maximum amount, over a 12 month period.
iii. Investors can fund one company or several companies as long as they remain within these annual limits.
iv. Minimum Review & Checks: Companies that seek to crowdfund a securities-based round must have background checks done on all principles with 10% or greater ownership in the company and provide full and adequate disclosures with a business plan and a full description of their ownership and capital structure.
v. Crowdfunding portals, alongside the legally required background checks, must do a full review of the company and disclosures in order to approve a company prior to fundraising.
vi. An investor must wait a minimum of 12 months before selling her/his securities unless the sale is to a family member, the issuing company, or an accredited investor, in addition to other restrictions normally placed on the transfer of securities.
vii. A crowdfunding round does not prevent a company from raising capital through other legal channels.
Companies using crowdfunding are exempt from the 500 shareholder cap pursuant to rules and regulations of the SEC.
Action Cyber Times™ Quik-Act reference aide for US Law Parallel Citations:
| Jumpstart Our Business Startups Act of 2012, JOBS / Crowdfund Act, Pub. L. No. 112-106 | ||||
| Act Title & Section | Compiled at Stat | Codified at USC | Regulation | Description |
| Title I | ||||
| Sec 1 | 126 Stat 306 | 15 USC 78a Note | Short Title-JOBS Act | |
| Sec 101 | 126 Stat 307 | 15 USC 77b(a)(19)
15 USC 78c(a)(80) |
17 CFR 230 | Emerging Growth Company |
| 101 | 126 Stat 308 | 15 USC 78c Note, Definitions (2) | Initial Public Offering Date | |
| 102(a) | 126 Stat 308 | 15 USC 78n-1(e) | Executive compensation disclosure exemption | |
| 102(b) | 126 Stat 309 | 15 USC 77g(a)(2) | 2 years of audited financial statements | |
| 102(b) | 126 Stat 309 – 310 | 15 USC 78m(a) | Financial data exemption | |
| Title III | ||||
| 301 | Short Title–Crowdfund Act | |||
| 302(b) | 126 Stat 318 | 15 USC 77d-1(c) | Liability for misstatements and omissions | |
| 302(b) | 126 Stat 319 | (15 USC 77d-1(e)) | 1 year time restriction on resale | |
| 303(a) | 126 Stat 321 | 15 USC 78l(g)(6) | Securities exempt | |
| 304(a) | 126 Stat 321 | 15 USC 78c(a)(80) | 17 CFR Part 227, Subpart D – Funding Portal Regulation; 227.401 – 404 | Funding portal definition as an intermediary for sales of these securities |
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