Crowdsource funding, when authorized, will allow the use of the internet by companies to raise capital directly from the public without having to file registration documents with the Securities and Exchange Commission. The changes to SEC regulations that will make this possible are pending and may be finalized in 2015. This will be the first major change in the regulation of securities offerings in 82 years. A change that may be of great benefit to small businesses.

The SEC, established under the Securities Exchange Act of 1934 to implement the Securities Act of 1933, and additional laws passed since, establishes regulations and enforces laws covering the offer, sale, and exchange of securities and for participants in the securities marketplace. SEC regulations require that companies that want to raise money from the public through interstate commerce file a registration statement with the SEC, offer them by methods subject to its oversight and provide certain reports to the SEC and the public.

Meeting the public offering regulations is expensive. Registration statements are long, complex and require experts to prepare them. The filing of reports to the SEC are also expensive. The 1933 Act allowed for exemptions from the registration and reporting requirements for certain offerings. They are described in SEC Regulation D rules.  Rule 504 exempts an issuer from registering offerings of up to $1 million made exclusively in one or more states and done in accordance with the laws of those states. Rule 505 exempts an issuer of securities from registering offerings of up to $5 million, if sold only to accredited investors and up to 35 unaccredited investors and if the investors cannot sell their securities freely for at least one year. Rule 506 provides "safe harbor" rules for issuers which, if they are met, assures that an offering is "non-public," and thus is exempt from registration.  

The exemptions make it possible for companies to raise capital through limited public offerings or private placements, however they are still too expensive for use by most small businesses. In order to change this situation a new law was passed- the Jumpstart Our Business Startups Act was signed into law on April 5, 2012. The JOBS Act includes the CROWDFUND Act, which once the SEC issues final regulations, will enable crowdfunding. It is intended to encourage funding of small businesses by easing various securities regulations, in particular by allowing interstate public offerings through authorized  public portals, i.e. web sites. The rules were supposed to have been issued within 270 days of when the Act was signed into law, but the issuance of the rules has dragged on due to controversy over the Act, mostly over concern that the change might foster rampant securities fraud.

Crowdfunding, when allowed, will make access to equity or debt capital in relatively small amounts , perhaps as low as $100,000, available to small businesses through public solicitation.  In the next column I will write about how crowdfunding will work.

The Port Charlotte SCORE Biz Owner Academy is presenting classes at the Mid County Library in Port Charlotte Saturday mornings from 10:15 a.m. to 1 p.m. The next set of classes, Simple Steps to Grow a Business, begins January 10, 2015. The Biz Owner Academy will also present Internet Marketing beginning February 21 and  Marketing Warrior starting on March 7. Full details can be found at If you like what you see, register on line and lock in the dates on your calendar. Do it now.