The SEC issued final rules in October 2015 related to equity crowdfunding as allowed under Title III of the JOBS Act. The rules establish a framework for small companies to raise funds through crowdfunding platforms regulated by the SEC. Under the rules, companies can raise up to $1 million through crowdfunding in a 12-month period. Individual investors are subject to investment limits based on their income and net worth. Crowdfunding platforms must provide investor education and comply with regulations to facilitate securities offerings. The rules aim to allow small companies access to broader investor pools while protecting investors.

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SEC. Registered entities must meet certain reporting
requirements under the Securities Exchange Act of
1934 (Exchange Act). Proponents of crowdfunding
raised concern that registering with the SEC and
complying with the Exchange Act would be too costly
and complex for crowdfunding portals.
Summary of the Rules
Crowdfunding Platforms- The JOBS Act created
a new type of SEC registrant, the SEC registered
crowdfunding intermediary. These intermediaries
must provide investors with educational information
about their investments, demonstrate efforts to
manage risk and fraud, provide information about the
company and its offering, have the ability to facilitate
communication between the security issuer and
security investors and be able to execute the exchange
of securities. Platforms cannot make investment
advice or recommendations, solicit purchases or
sales of securities or compensate individuals who
do so, or hold, possess or handle investors’ funds
or securities. Funding portals may engage in certain
activities consistent with the restrictions under a safe
harbor.
Exemption Limitations- The following types of
crowdfunding platforms cannot use the exemption
created by these final rules:
• Those based outside of the U.S.,
On October 30, 2015, the Securities and Exchange
Commission (SEC) issued the final rules related to
crowdfunding for select companies. The rules fulfill
Title III of the Jumpstart Our Business Startups
(JOBS) Act, which was signed into law in 2012.
Crowdfunding platforms typically allow access to
broader pools of investors than what a company or
individual may find using a more traditional model.
Rules on who can invest using a crowdfunding
platform are less stringent and the minimum required
investment amount lower.
The JOBS Act paved the way for small companies
and startups to use crowdfunding to raise money. It
established a framework for how companies could
offer securities over Internet portals. The Act requires
companies to make certain disclosures when issuing
securities and to use an SEC-regulated crowdfunding
platform in order to access investors. Companies
are also limited to the amount they can raise from
crowdfunding.
Crowdfunding platforms are regulated, but they do not
have to register with the SEC as brokers. This provision
goes against the Securities Act of 1933 (Securities
Act), which requires any entity that facilitates the
buying and selling of securities to register with the
November 2015
SEC Approves Crowdfunding Rules

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• Those already subject to the Exchange Act,
• Certain types of investment companies,
• Companies meeting the SEC’s crowdfunding
disqualification rules,
• Companies noncompliant with the SEC’s
crowdfunding regulations during the two years
preceding the filing of the offering statement, and
• Companies with no specific business plan or a plan
to merge or acquire an unidentified company(ies).
Crowdfunding Securities- Crowdfunding investors
can generally not resell their crowdfunding-platform-
purchased securities in the first year they hold the
security. Investors will not have to register their
securitiessolongasthecompanyissuingthesecurities
is compliant with its reporting obligations and the
crowdfunding platform facilitating the exchange has
less than $25 million in assets.
Investment Limits- Companies can raise a maximum of
$1 million from crowdfunding over a 12-month period.
Investors with a net worth of less than $100,000 can
invest the greater of $2,000 or 5 percent of the lesser
of their annual income or net worth. Investors with
annual income or net worth greater than or equal to
$100,000 can invest up to 10 percent of the lesser
of their annual income or net worth. The maximum
amount of securities sold to an investor cannot exceed
$100,000 in a 12-month period.
Disclosures- Companies issuing crowdfunding
securities must make the following disclosures:
• Information about officers, directors and owners
who have more than a 20 percent stake in the
company;
• Description of the company’s core business and
how the crowdfunding securities will be used;
• The method the company used to determine the
price of its securities, its fundraising goal and its
deadline to reach that amount and whether the
company will accept capital over this required
amount;
• Description of the company’s ownership and
capital structure;
• Select related-party transactions;
• Description of the material terms of any
indebtedness;
• A statement on the company’s financial condition;
and
• Audited or reviewed financial statements, and if
the crowdfunding is going to be at a certain level,
the company’s tax returns.
• Entities using crowdfunded securities must
amend their offering document during the offering
period if material changes occur that would affect
the company’s ability to meet its targeted offering
amount. They also must file an annual report to
the SEC and share this report with their investors.
Other Provisions
As part of the final rules, the SEC agreed to conduct a
review of how the rules are working, both as a means
for smaller companies to raise capital and to protect
the crowdfunding investors. The report has been
tentatively slated for completion three years after the
SEC’s rules have taken effect.
Effective Date
The new rules will take effect 180 days after they
appear in the Federal Register. The forms that

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The information in this MHM Messenger is a brief summary and may not include all the details relevant to your situation.
Please contact your MHM auditor to further discuss the impact on your audit or audit report.
crowdfunding portals will need to become SEC-
regulated crowdfunding intermediaries will be
available on January 29, 2016.
For More Information
For specific comments, questions or concerns about
the SEC’s crowdfunding regulations, please contact
one of the following members of MHM’s Professional
Standards Group:
James Comito
jcomito@cbiz.com | 858.795.2029
Andrew Gragnani
agragnani@cbiz.com | 212.790.2029
Brad Hale
bhale@cbiz.com | 727.572.1400
Rich Howard
rhoward@cbiz.com | 949.450.4402