It’s never been easier for a small or a start-up company to collaborate with investors to finance the expansion of their business by selling shares. The new regulations for crowd funding and the numerous platforms designed to facilitate crowd-funded funding, allow entrepreneurs and accredited investors to connect much more quickly and efficiently than they have ever.
If you are planning to raise money to start or grow a new business, it is imperative that you understand how new SEC regulations impact you, and how new investor-entrepreneur matching sites should be used, because these tools can save you time, money and frustration as you search for equity investment.
Regulation D Private Placements, Accredited Investors & General Solicitation
In 1933, the Securities Act of 1933 featured Regulation D. The Securities Act of 1933 contained Regulation D which offered a series of exemptions that were designed to allow entrepreneurs to raise funds to fund their businesses without having to comply with the costly and burdensome rules which govern public offerings purchase of shares on stock exchanges that are public. Initially , the goal was to permit an individual to accept investments from family members, friends or people they’d previously conducted business with previously. For instance, accepting the sum of $50,000 from three individuals to purchase the property that is worth $200,000 is quite different from a multi-billion-dollar firm that is raising millions through the sale of shares to thousands of individuals. If the same rules were applied to both types of businesses small businesses would never be able to get off the ground.
In order to comprehend Regulation D rules and how they’ve changed, it’s crucial to know two terms “accredited investor” and “general solicitation”.
An accredited investor is a person who has an estimated net worth of at minimum one million US dollars, not counting property value for their main residence, or has earned $200,000 every year over the past 2 years (or $300,000 when partnered with their spouse, if they are married) and is expected to earn the same this year.
The term “general solicitation” for an investment opportunity has been defined to be interpreted by the SEC to mean any advertisement, announcement, or other message that is published in any newspaper, magazine or similar medium or broadcast via television or radio; as well as any seminar or event whose participants are invited by a public solicitation, or any general advertisements. To determine if an entrepreneur has been illegally “solicited” investment, the SEC has examined whether the investor and the entrepreneur were in contact prior to discussing the investment possibility.
The majority of Regulations D rules have revolved around the investors who opportunities were being offered as well as how these opportunities were presented.
504, 505 & 506 Exemptions
Regulation D exemptions come in three types, 504 fifty5, 505 and 506. Entrepreneurs can raise up to $1M within 12 months using an exemption of 504, up to $5 million in 12 months by using an exemption of 505 or an amount that is unlimited over the course of 12 months with the Regulation D 506 exemption.
Each exemption number is accompanied by a set of guidelines that the business owner must adhere to when presenting an prospect to investors. They outline what information about the business should be made available, which government agencies should be notified and the way investors can verify that they have been accredited and therefore eligible to purchase shares within the company.
Certain states do not require registration for the Regulation D private placement, others require registration for those seeking to raise funds under the Reg 504 or 505 exempts. Additionally, certain States require registration to every Regulation D private offering created or offered to residents in their states. On a national scale there is a requirement that the SEC is a requirement to submit Form D every time you solicit funds in accordance with Regulation D, but this is a relatively simple and straightforward form that can be filed online.
Crowd Funding Rules Announced in 2012 Change Everything
As part of the Jobs Act of 2012 new regulations were introduced that permit entrepreneurs to market their investment opportunities on funding platforms that screen investors prior to allowing them to make sure they are accredited. There are currently numerous crowd-funding platforms where startups are seeking hundreds of thousands or millions to help them grow. It’s never been simpler for entrepreneurs to locate accredited investors, present them or take investment from them. Entrepreneurs can also market their ventures via general advertising and media methods , as long as they are only able to use accredited investors. permitted to purchase shares.
In February 2014, there are still some aspects of Jobs Act provisions have been implemented by the SEC.
This year, those who do not satisfy requirements for the “accredited investor” standard may be able to participate in private placements as Regulation D rules are further relaxed.
In Conclusion
If you are a founder of a new or small-sized company, invest the time needed to know how to raise funds through the Regulation D Private Placement and crowd-funding portals since it may be the quickest and least expensive method to get the capital that your business requires to expand.
The full details on how to use crowd funding and the modifications of Regulation D can be found on the United States Securities and Exchange Commission website.