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Florida Today Business Q&A
Edward J. Kinberg
December 4, 2012
Updated on September 15, 2015 (See below)

Q:   I recently read I can use something called “crowdfunding” to raise money for my company. What is “crowdfunding”? Can I use it to raise money for my business?

A:   Crowdfunding has many definitions but it generally refers to funding a company by selling small amounts of equity to many investors over the internet. The first steps to allowing widespread use of crowdfunding were taken when the JOBS Act was signed into law on April 5, 2012. Under this Act, a business may sell up to $1,000,000.00 in equity interest to an unlimited number of investors over a 12 month period using online solicitations.

The new crowdfunding rules, which must be finalized by the Security and Exchange Commission (SEC), create a “mini” or “light” version of a public offering. You will have to use an SEC approved “intermediary” to sell shares of your business and you must make disclosures regarding your company’s ownership and financial condition to the SEC and your investors.

In your “offering” your company will be required to disclose the names of all shareholders holding 20% or more of your shares at the time of the offering, provide financial information, describe how the proceeds will be used, the target amount to be raised and the deadline to reach the target amount in addition to other requirements. If you do not raise the target amount by the deadline, investors will be permitted to rescind their commitments. Companies will have to file an annual report to the SEC and investors and will be subject to civil liability under applicable SEC provisions and subject to suit by investors for misstatements or omissions made in the offering.

While the JOBS Act has been law for several months, the crowdfunding provisions will not go into effect until the SEC issues rules defining the details of the program. The SEC is supposed to publish its rules by end of this year, however it is not unusual for agencies to be late, sometimes very late, in publishing new rules. As such, the SEC has issued a warning that any sales or offers of securities under the JOBS Act made before the SEC issues its new rules would be unlawful.

While it will be a lot simpler to raise money though crowdfunding than a traditional public offering, it will still be a complicated and risky process.

Update: As of September 15, 2015, the SEC has not published a final rule for crowdfunding. On November 5, 2013, SEC released a proposed rule that was nearly 600 pages long. The period to submit comments on the proposed rule, which have not been published at, expired on February 3, 2014.