Yesterday, the Securities and Exchange Commission announced that it had issued the long-awaited proposed rules that would allow private companies to use crowdfunding to sell securities. I’ve talked about crowdfunding before here and here, and those thoughts haven’t changed, but the new proposed rules (which you can read here) are worth discussing. I must admit, however, that I have not read the proposed rules in full. Why is that you ask? Because they (together with the commentary) are 585 pages long (at least that’s what Adobe Acrobat tells me).

With that said, I’ll briefly address what the SEC points out in their fact sheet (and a few key parts of the rules I did read). The thing that pops out to me is that these rules read more like “registration light” than they do “exemption from registration”. I will continue to guide my clients towards Reg D offerings and stay away from crowdfunding. Here are some of the highlights:

• $1MM maximum offering in a twelve month period
• Limitations on amount each investor may contribute (depending on whether their net income / net worth is more or less than $100,000)
• Company financial statements provided to investors must be accompanied by tax returns if the offering is for $100,000 or less, reviewed by independent accountants if the offering is more than $100,000 but not more than $500,000, and audited if the offering is more than $500,000.
• Public filing of financial information not normally required for Reg D private offerings (including number of employees, total assets, cash and cash equivalents, accounts receivable, short-term debt, long-term debt, revenues/sales, cost of goods sold, taxes paid and net income)
• Progress updates on the offering must be filed periodically (after 50% fulfillment, 100% fulfillment and offering closing)
• An annual report must be provided to investors and filed with the SEC
• All crowdfunding transactions must be placed with an SEC-registered intermediary (either a broker-dealer or a funding portal).

Public comment on the proposed rules will be open for 90 days. If you wish to comment on the rules, you can do so here.