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Crowdfunding
Practical Law Glossary Item 8-519-0406 (Approx. 2 pages)
Glossary
Crowdfunding
Raising capital using the internet or social media from a large number of investors and in relatively small amounts. Crowdfunding enables capital raising by small startup businesses that may not have easy access to traditional methods of capital markets and venture capital fundraising.
The Jumpstart Our Business Startups (JOBS) Act of 2012 amended the Securities Act by adding a new Section 4(a)(6), providing a registration exemption for crowdfunding offerings as long as certain conditions are met, including:
- The amount sold by an issuer does not exceed $1 million in a 12-month period.
- The amount sold to each investor does not exceed thresholds depending on the investor's annual income or net worth.
- Issuers file with SEC and provide to selling intermediaries and investors, certain information about the issuer and the offering.
- The offering is conducted through a broker or funding portal that is registered with the SEC for this purpose and also complies with a set of conditions.
For more information on the crowdfunding exemption, see Practice Note, Crowdfunding Offerings Under Section 4(a)(6).