New technologies have drastically changed the ways in which new startups raise capital. Securities laws and regulations are adapting to these changes to ensure that investors are still protected under federal securities laws when investing via new technologies. Regulation CF (aka Title III of JOBS Act) is a relatively recent rule that took effect in 2016 and recently updated in 2020. It allows new business startups to raise equity through crowdfunding, which means private from all Americans, instead of the richest 2% Americans. More importantly, crowdfunding is typically used for new companies to turn their customers into their investors, which is exciting news for startup founders. Learn more about how crowdfunding works, what its legal limitations are, and how to determine whether Regulation CF is the right tool for your new company’s capital funding, is added to every startup founder’s to-do list.
New Rules Raising Investment Limits
According to the SEC, companies currently may raise an aggregate of $5 million in a twelve-month period through crowdfunding securities. This is a significant increase from the original $1.07 million limit. The new limit greatly expands a new company’s ability to raise capital through crowdfunding. These changes also work to level the inequalities faced by small companies looking for startup funding options. Traditionally, large companies have had a competitive advantage in access to startup funding, but crowdfunding has changed the dynamic considerably.
Accredited Versus Non-Accredited Investors
The SEC allows investors to be accredited by passing either an income test or an asset test. (There are also certain new categories for investors who have certification and other specialized knowledge of securities investment.) If an investor is accredited, he or she is no longer limited on the amount that may be invested through regulation crowdfunding in a twelve-month period. Though non-accredited investors are limited, the restriction is amended to the greater of annual limits set by income or net worth, which used to be the lesser of the set annual limits prior to the 2020 changes, the test was.
With the new regulations, startups have better access to capital than ever before. An experienced securities lawyer can help new startup owners access this capital responsibly.
Call Us Today to Schedule a Consultation with One of Our California Business Lawyers
There are many ways to raise capital for a new business. While these new regulations provide new opportunities, they also come with new restrictions and strict legal requirements that must be followed. Consult with an experienced California crowdfunding lawyer before considering any securities offering. The securities attorneys at Structure Law Group have helped many entrepreneurs secure the capital funding that is best for their unique business needs. We help business owners launch funding initiatives that are both legally compliant and effective in order to position new business owners for success on their first day of operations. Call (408) 441-7500 to schedule a consultation.