Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
Canada Media Fund | Antoine van Eetvelde | April 2, 2014
Disclaimer : The following content is intended to provide general information and does not constitute legal or tax advice of any kind. Refer to your local tax credit administrator for more specific guidelines on reporting crowdfunding income for tax credit purposes.
The end of 2013 and the beginning of 2014 saw a number of significant regulatory developments regarding crowdfunding, both here in Canada and in the US. In particular, the US and certain Canadian provinces made significant progress toward making investment crowdfunding a reality. What follows is a summary of the latest significant regulatory developments in North America. This is the second part of a two-part update (first part available here).
The Securities and Exchange Commission (SEC) has released its proposed rules for investment crowdfunding after almost a year of delay.
This release brings the SEC one step closer to implementing Title III of the JOBS Act which would make investment crowdfunding legal across the US. The proposed rules were open for public comment until February 3, 2014.
The SEC has struggled to create a set of rules that respected the flexible and democratic nature of crowdfunding (which makes it so appealing to very small and early stage start-up companies) while also implementing sufficient regulation to satisfy consumer and investor protection critics who fear that investment crowdfunding is far too open to abuse and fraud.
Key features of the SEC’s proposed rules:
You can access the complete 585-page document that outlines the full set of rules by clicking here.
The proposed rules also include a set of registration rules for crowdfunding platforms, which were developed in partnership with the Financial Industry Regulatory Authority (FINRA). The FINRA released its set of proposed rules—the Funding Portal Rules—for comment at the same time as the SEC published the Regulation Crowdfunding rules.
The SEC has also officially lifted the ban on “general solicitation” as of September, a rule change that was a key directive under Title II of the JOBS Act.
This rule change means that companies can freely advertise private equity offerings to the public via social media and other outreach and media outlets, something that was previously not allowed. Although this rule change does have implications for investment crowdfunding, which relies on general solicitation via social media, it does not actually apply to crowdfunding in the sense that most people understand it. The rule is actually directed at private equity sales to accredited investors and is accompanied by a new proposed rule that companies need to acquire proof that an investor is accredited if they are selling private equity using general solicitation. In other words, the rule does not mean that companies can sell private equity to non-accredited investors (or the general public) using general solicitation, which is what investment crowdfunding seeks to do. However, the rule change does allow certain platforms, such as CircleUp, to legally use the crowdfunding approach to publicly advertise offerings to accredited investors in a much broader way.
Leave a Reply