The New Equity Crowdfunding Law

Hot off the presses, as if they use “presses” to publish online: my article for Entrepreneur.com: “What the New Equity Crowdfunding Rules Mean for Entrepreneurs.”

Some highlights, if you don’t have 6 minutes to read the whole thing:

“For those who have run out of Ambien, the hundreds of pages of new rules will provide a welcome sleep aid. But for professionals who plan to use these rules to help companies raise new capital, it is required reading. Bring on the Red Bull.”

“Despite the hopes of many of us that the SEC would pull a regulatory rabbit out of a hat and raise the ceiling to $5 million, the limit on what a company can raise through Title III equity crowdfunding remains at $1 million.”

“The SEC actually tightened up the amounts that can be invested by each individual, which is not good news for entrepreneurs.”

“If a company using the new equity crowdfunding law does not raise the full amount of their funding goal, they do not get to keep any of the money raised, and they lose the out-of-pocket up-front costs. This important provision means setting a realistic goal will become an important part of the equity crowdfunding process for entrepreneurs.”

“Equity crowdfunding involves the sale of securities, and not just pre-selling a gadget like on Kickstarter. There are federal and state laws that govern the sale of securities, and if you do something wrong, your company (and its officers and directors) can be sued, and in some cases, could go to jail. The bottom line is simple: Tell the truth. Under most securities laws including the equity crowdfunding law, being 100 percent truthful and not making misrepresentations of any kind are the keys to not having to bang out license plates in the prison yard with Bernie Madoff.”

“Much like most shares sold through private placements, the shares of stock sold in equity crowdfunding cannot be sold (in most circumstances) for at least one year. There is no marketplace or exchange for these shares, and in all likelihood, never will be unless a company registers with the SEC and becomes a public company.”

If you do have six minutes and want to read the whole thing: here’s the link: http://www.entrepreneur.com/article/252315

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