Missouri Real Estate Lawyer

On April 5, 2012, President Obama signed into law the Jumpstart Our Business Startups (JOBS) Act.  Under Title III of the JOBS Act, known as Regulation Crowdfunding, private businesses can raise up to $1 million from anyone
online per 12 months. That includes family, friends, customers, vendors, and social media connections. Calculating the $1 million Regulation Crowdfunding limit may not be as simple as you might expect.

The $1 million limit is calculated by first adding up all of the funds raised in the preceding 12 months under Regulation Crowdfunding. Then add to that the amount you currently plan to raise under Regulation Crowdfunding.  For example, let’s say six months ago your company completed its first ever Regulation Crowdfunding campaign, raising $250,000. Your company is now limited to raising an additional $750,000 under Regulation Crowdfunding during the next six months. You can try to raise this amount in one or more additional campaigns during these remaining six months.  If you raise no money under Regulation Crowdfunding during the next six months, then the limit resets to $1 million. That’s easy enough.

However, Regulation Crowdfunding is just one of several ways to raise investment capital under the JOBS Act. For example, Rule 506(c) of Title II of the JOBS Act allows private businesses to use general advertising to raise unlimited amounts from accredited investors.  Regulation A of Title IV allows business to raise up to $50 million from anyone using general advertising. What if a business wants to use both Regulation Crowdfunding and another securities regulation, like Rule 506(c) and/or Reg A+, to raise investment capital within the same 12-month period? Will the funds raised under the other regulations count toward the $1 million Regulation Crowdfunding limit? The answer is not clear.

One part of Title III seems to leave open the possibility that private securities sold outside of Regulation Crowdfunding would count as part of the $1 million Regulation Crowdfunding limit, while another part seems to say it does not count. The U.S. Securities and Exchange Commission (SEC) noted this ambiguity when it released Regulation Crowdfunding on October 30, 2015.  In its view, Congress did not mean for funds raised outside of Regulation Crowdfunding to count toward the funds raised under Regulation Crowdfunding.  So, since the SEC is the securities police, sounds like you don’t have to worry about it.

What you do have to worry about are funds raised by other companies that are “controlled by or under common control with” you or your company. What does this mean? Basically, don’t try to do an end around the $1 million Regulation Crowdfunding limit by trying to raise funds through multiple companies in which you have some form of control. You can certainly form multiple companies and have each of them try to raise funds at the same time under Regulation Crowdfunding.  However, whatever they raised during the preceding 12 months will be added together to determine the amount of the $1 million Regulation Crowdfunding limit that is still available for the company in control of them.

Likewise, a company will be limited by the amount raised by any of its predecessors in the preceding 12 months. For example, if Company A merges with Company B, then the amount that Company B can raise under Regulation Crowdfunding will be limited by all amounts raised by Company A during the preceding 12 months under Regulation Crowdfunding.

Published May 8, 2016

Michael Sewell (314) 942-3232; michael@sewelllaw.net.

The information contained in this article is for informational purposes only and is not intended as legal advice. You should consult an attorney about how the information contained in this article might relate to your specific circumstances.

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(c) 2016 Michael Sewell and Sewell Law, LC