Crowdfunding Title III of the JOBS Act and where we are Today

Eddie Edwards

Bu  Real Estate Investor Crowdfunding Consultant, CrowdFundBeat Guest post

So we are all excited and getting the word out about the new opportunity that the passing of Title III will have upon the capital formation and Investor protections as mandated by the signing of the April 5 2012 JOBS Act.

Title III is the last of these mandate to be signed and implemented by the SEC; Title II (Reg D) implemented September 23, 2013 and Title IV, (Reg A+) have been implemented March 25, 2015. This passing will shake up the financial world as it gives the  green light for non accredited investors to invest for a ROI. There are many more non accredited investors than there are accredited. This will bring more capital formation to Jump start the economy.

We hope that this new passage of Title III will level the playing field for the everyday citizens to raise funds and invest regardless of their, income level, personal wealth or connection to wealthy individuals or rich uncles.

However we still need to think about how this new rule will impact Minority business owner. It is a well established fact that seed capital is one of the most difficult challenges that face minority businesses. Let us hope that they will now cease to be under-participant in this market and become active in making full use of crowdfunding and Title III.

Title III now gives Minority business owners, start ups and emerging companies the green light to become more operational as this new capital formation and investor protection rule will give them more gains in expanding their efforts for access to capital by engaging the crowd. Minority and small businesses lack capital formation when compared to those of Publicly traded companies and other Private Companies. Often times they seek funding through savings, bank loans, family and friends, (now the crowd in crowdfunding). We now hope that Title III will change this.

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Crowdfunding as defined by the SEC is an evolving method of raising capital that has been used to raise funds, (now capital) through the Internet for a variety of projects, business ventures and worthy cause. Title III of the JOBS Act created a federal exemption under Section 5 of the securities Act so that this type of capital raising method can be used legally to offer and sell securities without SEC registration. This is subject to limitations on how much a investor can invest and how much an issuer can raise.

 

Title III now makes clear who the participants in the crowdfunding space should be; 1) a SEC-registered intermediary, described as either a broker or a 2) funding portal, 3) an issuer and 4) an investor.

A SEC intermediary is any person who is registered with the SEC as a broker or funding portal, they are described as financial professionals who will bring potential investors together ensuring that information and opinions are discussed while providing safe guard for investors.

A funding portal is a new type of SEC registrant. Funding portal as described by the Act, as any person acting as an intermediary in a transaction that involve the offer and sale of securities for the account of others relying on section 4(a)(6) of the Securities Act. A funding portal cannot offer financial advise, cannot solicit purchase sales or offers to buy securities offered, cannot pay anyone based upon the sale of the offer, (which is considered a security), they cannot hold or handle investors money and cannot engage in any other activities that the commission does not allow. Registration can be done through the internet. They must be registered with the SEC using the standard forms beginning January 29, 2016 and they must be members of FINRA..

An issuer is any one who is relying on Title III of the act to offer and sell securities, however they must file with the Commission 8 disclosures as outlined by the act under Section 4A(b)(1).

An investor is anyone who wants to purchase securities in crowdfunding offerings and are subject to certain limitations as define by The Act. A) if investors annual income or net worth is less is than $100,000 they can only invest $2000 or 5% the lesser of their annual income or net worth. B)If their annual income and net worth is greater then $100,000 or 10% of the lesser of their income or net worth. Total crowdfunding offerings cannot exceed $100,000 during the last 12 months.

This Title III will be written in three parts and this is the first part. Please watch for future posting of the conclusions of the rules of Title III of the JOBS Act and how it will regulate the crowdfunding space.

Eddie Edwards is a licensed real estate broker, Educator and Crowdfunding Consultant. You can contact him at eddie@eddieedwardsrealestate.com or on twitter @eddie_edwards. You can also book a time to discuss more about, crowdfudning and real estate crowdfunding

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