The New Federal Crowdfunding Rules and You: What You Need to Know About Raising Capital

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This informative presentation details how your business can start raising MONEY in exchange for equity the legal way through passage of the recent federal JOBS Act.

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  • Background- Born and raised in GA, undergrad at Oglethorpe Univ., law degree from UGA, MBA from Kennesaw State. I have dedicated my life to helping business owners thrive and grow through the practice of law and general business advice.

    My Firm- Kendrick Law Practice is located in Lithonia, GA and we practice business law exclusively. Our mission statement is to help innovative start ups or growing companies raise capital the RIGHT way through legal compliance and document drafting. We have been practicing securities law for the last seven (7) years.

    Qualifications- This is all that I do, the only law I practice. My job is not only to provide legal advice to my clients but educate them about the latest business trends and news. The federal JOBS Act is one of the hottest business/legal trends right now. Additionally, my particular training in law school was on securities law: both the regulation side and litigation side.
    How can I help?- Let me be your business attorney and counselor. I love to educate BOs about how to thrive and grow their businesses and I am NOT only an attorney but a true business legal counselor and advisor. If you are thinking of seeking funds in exchange for equity in the near future, let KLP provide you with the advice you need and deserve to make sure you raise your capital the RIGHT way.
  • 1- The no. 1 issue of business owners is “How will I raise capital”?, i.e. “Where can I get some money?”
    2- The federal JOBS Act (“Jump Starting Our Business Start Ups” Act) changes the legal way you can raise funds. I will tell you why it’s so revolutionary.
    3- You cannot start raising funds until May 16th, 2016 (which of the date of this re-upload, we should be less than 1 week away from that date)
    4- The Securities and Exchange Commission regulates securities or equities in companies, particularly publicly traded companies. They have received tremendous pressure to step up their game because of past transgressions like Worldcom and the Facebook IPO and the Act speaks to the Securities Act and so they are directly involved in this transfer of power from large, powerful, rich investors to the everyday investor.
  • Securities Act of 1934 is the federal Act that provides for how securities are to be regulated in the United States. The ultimate goal of the Act is information and transparency to protect consumers from fraudulent or false information of companies. To accomplish this goal, the SEC requires publicly traded companies (on a stock exchange) to report loads of materials and information to investors. If you are NOT publicly traded, you still have reporting requirements and have to meet certain income and sophistication requirements under the assumption that trading, selling or buying securities is a very complicated process and the average investor could be taken advantage of.

    Generally speaking, if you wanted to raise money through selling equity (or selling shares), you have to (1) register with the SEC or (2) FILE AN EXEMPTION. If you don’t meet the requirements for an exemption and have to file with the SEC, (like public companies like Coca Cola, Home Depot, etc.) the SEC then requires reporting of information throughout the year (8K- special announcement, quarterly reporting and annual reporting) and you can find this information online. It was time consuming and VERY expensive. BUT---for those that were NOT public companies but wanted to raise securities, there are EXEMPTIONS—3 exemptions under “Regulation D”. Rules 504-506, each with its own limits and rules. They limit the scope and amount of money you can raise. However, the catch WAS: You had to be an “accredited investor” to raise a majority of the funds, which is someone with a certain net worth of $1M or more or income of 2 years of $200k or more. OR you had to be a “sophisticated investor” which was someone involved in the stock market for a while. Or even you were under Rule 505 and didn’t have to be “accredited” or “sophisticated”, you could only be 1 of 35 investors. So this was mostly for the super wealthy and banks and NO opportunities for people like you and I to invest in a company.
  • Signed by President Obama in April of 2012 and stands for the “Jumpstart Our Business Start Ups” Act which was designed to help entrepreneurs raise capital which fewer administrative and legal road blocks. The SEC is the federal agency that regulates securities but only has as much authority as Congress allows generally but can detail the specific administrative procedures to accomplish the goals of the JOBS Act. It has taken the Securities & Exchange Commission (S.E.C.) over 3 years to come up with the regulations authorized by the Act to make this possible.

    NOW through crowdfunding, companies can raise capital by selling small amounts of equity to larger audiences of online investors that don’t have to be “accredited” or “sophisticated”. (Think of crowdfunding as “groupon” for small businesses raising capital in exchange for equity; there is a set supply and you can solicit the general public to “buy in” at a discounted rate because there is pooling.)
    1- The limit is $1M each 12 months
    2- The amount you can raise from individual investors STILL depends on the income of the individual: If networth OR annual income is less than $100,000, you can invest $2,000 or 5% of networth or annual income, whichever is lesser. If networth AND annual income is more than $100,000, you can invest 10% of annual income of networth, whichever is lesser up to $100,000
    3- There are STILL reporting obligations: Offerings of $100k or less in 12 month period are only obligated to provide in-house prepared financial SMS vs. Offerings of $100k-$500k are to provide financial statements that need to be “reviewed” by outside accounting firm vs. Offerings of $500k or more have to provide audited financial statements.
    4-Companies are obligated to go through funding portals that must be registered with FINRA (Financial Industry Regulatory Authority) and the S.E.C. and comply with a set of rules.
    5- Disqualifying companies: Foreign companies, investment or public companies, non-compliant companies, companies without business plans are in eligible
    6- There are certain requirements to follow to make sure that the investors are not counted towards your record holder count that triggers 12(g) registration requirements.
    You don’t until May 16th, 2016 when the federal regulations become effective.



  • Who benefits MOST? For profit entrepreneurs who can appeal to investors that are not rigorous about reporting requirements and short term investment performance or for those that need to raise money for a specific project. If you are in the technology or high entry to market business, this is probably not for you if you require funding above $1MM in order to deliver performances for your investors.

    Downside-
    Harder to convince future investors in future rounds of financing to invest
    Disclosure of patent rights by overzealous investors before patents secured
    Some BAD companies will take advantage of the lessened regulations BUT, I believe the good will outweigh the bad

    Start up companies less than 5 years old are vital to the United States economy and the economy of Georgia and provide a source of sustainable job growth. The JOBS Act is a step in the right direction towards freeing up access to capital that so many business owners need to thrive and grow. Georgia in particular is already doing remarkable things in the business world including ranking No. 2 among states in entrepreneurial activity in the last decade, No. 1 in women owned growth of businesses and metro Atlanta is No. 1 in black owned businesses.
  • The New Federal Crowdfunding Rules and You: What You Need to Know About Raising Capital

    1. 1. Dar’shun N. Kendrick, Esq./M.B.A. Owner of Kendrick Law Practice “Helping Companies Raise Capital the RIGHT way” (678) 739-8109 [office] www.kendricklaw.net dkendrick@kendricklaw.net
    2. 2.  By viewing this presentation, you agree to consult with a knowledgeable attorney before deciding if federal crowdfunding or any capital campaign is right for you and proceeding forward with any campaign raising campaign. KLP or its attorneys, affiliates, employees or otherwise are not responsible for any actions you take in reliance of this information given today in this presentation verbally or in writing, directly or indirectly, affirmatively or negatively for now until perpetuity. (c)2016 * Kendrick Law Practice * (678) 739-8109 * www.kendricklaw.net
    3. 3. About Attorney Kendrick About KLP Qualifications How can I help? (c)2016 * Kendrick Law Practice * (678) 739-8109 * www.kendricklaw.net
    4. 4.  1- No. 1 issue of business owners= Funding/raising capital  2- JOBS Act revoluntionary  3- JOBS Act has not fully taken affect  4- Besides God and the IRS, the SEC can shut you down FASTER than anything. (c)2016 * Kendrick Law Practice * (678) 739-8109 * www.kendricklaw.net
    5. 5.  Securities Act of 1934  How the Process USE to work (www.sec.gov) ◦ Rule 504 Problem= $1MM cap and state “blue sky laws” ◦ Rule 505 Problem= $5MM cap; limited to 35 “unaccredited investors” ◦ Rule 506 Problem= Must be “sophisticated” if unaccredited and then 35 is the limit, no general solicitation unless 506© but all have to be AI  IN ADDITION: Financial SMs/Disclosures required (c)2016 * Kendrick Law Practice * (678) 739-8109 * www.kendricklaw.net
    6. 6.  In relation to the SEC  NOW… ◦ Larger “regular” audiences (like Groupon) ◦ Still $1M limit each year; $2M TOTAL Individual Investors still limited ◦ Reporting Obligations still in place ◦ Funding portals are required ◦ Ineligible companies How Do I Get Started?! (c)2016 * Kendrick Law Practice * (678) 739-8109 * www.kendricklaw.net
    7. 7.  May 16th 2016 It Begins: New Federal Crowdfunding Rules Change the Capital Formation Conversation- https://www.linkedin.com/pulse/may- 16th-2016-begins-federal-crowdfunding-rules- change-kendrick?published=t (blog)  S.E.C.- www.sec.gov  Things to Consider: ◦ 1- You will need a story to tell. (Ex. 14 year olds and app= $14M) ◦ 2- This financing strategy is NOT for every business (c)2016 * Kendrick Law Practice * (678) 739-8109 * www.kendricklaw.net
    8. 8.  Who benefits MOST from crowdfunding?  Are there any downfalls to crowdfunding?  My personal thoughts (c)2016 * Kendrick Law Practice * (678) 739-8109 * www.kendricklaw.net
    9. 9. Contact Us FREE Services Consultation  (678) 739-8109  www.kendricklaw.net  dkendrick@kendricklaw.net  Find us on social media as well

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