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May 17 — On the first day they could do so, 17 issuers filed documents with the Securities and Exchange Commission seeking to raise money to fund small enterprises ranging from a grocery delivery service to a start-up that will develop plants that can help light a room.
The fundraising is permitted under new SEC crowdfunding rules that became effective May 16, allowing small companies to raise up to $1 million in a 12-month period without costly and time-consuming Securities Act registration.
Many of the issuers filing a Form C May 16 were small, with target offering amounts ranging from $20,000 to $50,000. Most issuers did accept oversubscription offers in the event they reached their offering target amounts. Investors wishing to participate in this new means of raising capital have a wide range of business ventures from which to choose.
In addition to Nextdoororganics Inc.'s grocery delivery service with produce from small batch producers and farmers, and TAXA Biotechnologies Inc.'s proposal to engineer plants that glow for home or commercial lighting purposes, fund-raising forms were filed by:
The rules impose limits on individual investments based on the investor's income or net worth, and regardless of financial status, as the aggregate amount of securities sold to any investor through all crowdfunding offerings in a 12-month period may not exceed $100,000. Securities purchased in a crowdfunding transaction generally may not be resold for one year. The rules were required under Title III of the Jumpstart Our Business Startups (JOBS) Act.
Issuers relying on the crowdfunding exemption must file certain information with the SEC on a new Form C and provide this information to investors and the intermediary facilitating the offering. Issuers relying on the crowdfunding exemption must also file an annual report with the SEC on Form C and provide it to investors.
All transactions relying on the crowdfunding rules must take place through an online SEC-registered intermediary, either a broker-dealer or a new entity defined by the rules, a funding portal. A funding portal must register with the SEC on a new Form Funding Portal, which includes information such as the funding portal's business activities, legal status and disciplinary history. The funding portal must also become a member of a national securities association (currently, FINRA).
FINRA rules establish the application procedures, conduct and compliance requirements as well as investigative and disciplinary provisions applicable to funding portals. A company relying on the rules is required to conduct its offering exclusively through one online intermediary platform at a time.
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