October 16, 2021

Volume XI, Number 289

Advertisement
Advertisement

October 15, 2021

Subscribe to Latest Legal News and Analysis

October 14, 2021

Subscribe to Latest Legal News and Analysis

October 13, 2021

Subscribe to Latest Legal News and Analysis
Advertisement

SEC Issues Guidance on Crowdfunding Rules

The staff of the SEC’s Division of Corporation Finance (Staff) recently issued guidance in the form of compliance and disclosure interpretations on the SEC’s crowdfunding rules, which took effect on May 16, 2016.1 Eligible issuers should consult with counsel to ensure all aspects of their offerings under the SEC’s crowdfunding rules are in compliance with the rules and the Staff’s guidance. This is especially important as it has been reported that the SEC is “giving special attention” to crowdfunding offerings.2

This alert summarizes the Staff’s guidance on the SEC’s crowdfunding rules.

General

Prior to filing an offering statement on Form C with the SEC and providing it to the designated intermediary, an issuer may disseminate information not constituting an “offer” of securities. For example, factual business information that does not condition the public mind or arouse public interest in the issuer or a securities offering is not an offer and may be widely disseminated. The rules do not provide an exemption for the dissemination of information constituting an offer of securities prior to an issuer filing a Form C and providing it to the designated intermediary. As the SEC broadly interprets the term “offer,” eligible issuers should consult with counsel before disseminating any information or engaging in any media interviews or other third party publications to ensure they do not constitute a prohibited “offer.”

The rules’ investment limits apply to all investors, including non-natural persons. A non-natural person must calculate the investment limits based on its revenue and net assets as of its most recent fiscal year end rather than annual income and net worth like a natural person.

Financial Statement Disclosure

A recently formed issuer may choose to provide a balance sheet as of its inception date in its offering statement if the crowdfunding offering is conducted between inception and 120 days after reaching the first annual balance sheet date. The issuer must include a balance sheet as of a date during that period, which may be the inception date. If the balance sheet is dated as of inception, the statements of comprehensive income, cash flows and changes in stockholders’ equity are not applicable. For crowdfunding offerings conducted more than 120 days after the issuer’s first annual balance sheet date, the most recent annual balance sheet date determines the relevant period for which the issuer must provide statements of comprehensive income, cash flows and changes in stockholders’ equity.

Depending on its date of inception, an issuer with a December 31 fiscal year end commencing a crowdfunding offering in June 2016 would provide the following financial statements:

Date of Inception

Balance Sheet

Other Financial Statements

May 2016

As of inception

Not applicable

May 2015

As of December 31, 2015

For the period from inception 

to December 31, 2015

May 2014

 

As of December 31, 2015 and 2014

 

For the year ended 

December 31, 2015 and 

the period from inception to December 31, 2014

Advertising Limitations

An issuer or persons acting on its behalf may only advertise the “terms of the offering” (i.e., the amount of securities offered, the nature of the securities, the price of the securities and the closing date of the offering period) in the manner permitted by the rules. An issuer (or persons acting on its behalf) may communicate with investors about the terms of the offering through communication channels provided on the intermediary’s platform if the issuer identifies itself (or persons acting on its behalf identify their affiliation with the issuer) in all such communications. Advertising the terms of the offering outside the intermediary’s communication channels is limited to notices (which may be in the form of a video) that direct investors to the intermediary’s platform and contain no more than the limited information permitted by the rules about the offering, the issuer and the intermediary. If an issuer compensates a third party to promote the issuer’s offering outside the intermediary’s communication channels, those third-party communications must also comply with the rules’ notice limitations.

The rules’ advertising limitations only apply when an issuer (or persons acting on its behalf) advertises any “terms of the offering.” Thus, if an advertisement does not include any “terms of the offering,” the issuer (or person acting on its behalf) is not limited to notices that include only the information allowed by the rules.

A third party publication (e.g., a media article) may constitute a notice subjecting an issuer to the rules’ advertising limitations. If the third party publication advertises the “terms of the offering” and the issuer has been directly or indirectly involved in the preparation of the publication, the article would be a notice subject to the rules’ advertising limitations. As the rules limit the information that may be in a notice, the issuer would likely find it difficult to comply with the rule’s requirements. If the media article does not advertise the “terms of the offering,” it would not be a notice subject to the rules’ advertising limitations, but could constitute an “offer” under the federal securities laws.


1. For more information on the SEC’s crowdfunding rules, please see our client alert dated December 2, 2015, SEC Adopts Rules to Allow Crowdfunding Beginning May 16, 2016. See also SEC Div. of Corp. Fin., Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers (May 13, 2016), available at https://www.sec.gov/info/smallbus/secg/rccomplianceguide-051316.htm.

2. ThinkAdvisor, SEC Taking ‘Close Look’ at JOBS-Act-Related Offerings, Particularly Crowdfunding (Feb. 29, 2016), available at http://www.thinkadvisor.com/2016/02/29/sec-taking-close-look-at-jobs-act-related-offering.

Copyright © 2021, Hunton Andrews Kurth LLP. All Rights Reserved.National Law Review, Volume VI, Number 145
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement

About this Author

Alan Bickerstaff, Andrews Kurth Law Firm, Securities Attorney
Partner

Alan Bickerstaff is a Corporate and Securities partner who focuses on representing entrepreneurs and public and private emerging growth companies on formation, operations and corporate governance matters; securities law reporting and compliance matters; private equity and venture capital financings; public offerings and mergers and acquisitions.

Alan represents companies in a wide variety of industries, including the software, internet, energy, semiconductor, renewable energy, clean technology, life sciences, and telecommunications industries.

Alan has also represented...

512-320-9229
Jeff C. Dodd, Andrews Kurth Law Firm, Securities Attorney
Partner

Corporate, Securities and Corporate Finance: experience in diverse domestic and international corporate transactions, including representing issuers and underwriters (and investment bankers) in connection with public and private securities offerings (including IPOs and secondary offerings); representing venture capital and other investment groups or funds, as well as portfolio companies, in private debt and equity financing transactions; representing various participants (buyers, sellers, financing sources) in merger and acquisition and change of control transactions, public...

713-220-4736
Edward A. (Ted) Gilman, Andrews Kurth Law Firm, Securities Attorney
Partner

Ted's practice includes corporate and securities law, predominantly in the context of entrepreneurial and emerging growth companies. Ted represents several publicly traded companies with respect to their 1934 Act filings. He also has a transaction-based practice, focusing on private equity and debt offerings, public equity offerings, and mergers and acquisitions. His experience includes representation of both acquirers and targets in a variety of public-public and public-private business combination transactions, as well as issuers, underwriters and venture capital firms in public and...

512-320-9266
Advertisement
Advertisement
Advertisement