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Abstract: 

Over the past several years, crowdfunding has become an important and lucrative means for startups and other small companies around the world to solicit investments. In the U.S., however, until the enactment of Title III of the JOBS Act in 2012 and the long-awaited regulatory ruling from the SEC on October 30, 2015, using crowdfunding to offer a company’s equity or debt interest to investors was a violation of federal securities laws. The SEC’s Regulation Crowdfunding, which implements Title III of the JOBS Act, and FINRA’s rules for funding portals aims to create a regulatory framework that will allow small businesses to engage in crowdfunding without the stringent requirements that apply to more traditional securities offerings. While these regulations could be beneficial in many ways, they are also complex and burdensome in ways that may hinder small businesses from engaging in crowdfunding and keep the U.S. crowdfunding industry from enjoying the same growth seen in other countries. This article provides an overview of the adopted regulations in the U.S. and evaluates their advantages and drawbacks for crowdfunding participants, with an eye toward identifying future legislative improvements to better facilitate crowdfunding transactions for small businesses as intended by the JOBS Act.

Keywords: Crowdfunding, Regulation Crowdfunding, FINRA funding portal rules, JOBS Act Title III

Affiliations:  1: Carter Ledyard & Milburn LLP; 2: Carter Ledyard & Milburn LLP.