Current Status of Equity Crowdfunding


An early version of “crowdfunding” was created by the SEC under Rule 506 of regulation D.  Under Rule 506, issuers are permitted to raise an unlimited amount of capital from an unlimited number of accredited investors, but no advertising or general solicitation is permitted.  In an SEC No-Action Letter issued in 1996 based on Rule 506, the SEC indicated that it would allow issuers to give accredited investors access to a password-protected website where they could view private investment opportunities.

A more recent version of “crowdfunding” was created by Title II of the JOBS Act which went into effect in September 2013.  Under the JOBS Act, business start-ups are permitted to publicly advertise their need for funding.   These issuers can raise an unlimited amount of capital from an unlimited number of accredited investors using equity crowdfunding internet platforms.  This version of crowdfunding makes it easy for issuers to advertise their security offerings to many accredited investors.   However, under the JOBS Act, issuers using this version of crowdfunding are required to take reasonable measures to confirm the accredited status of potential investors.

A potential third version of crowdfunding is expected to go into effect later this year when the SEC releases new regulations governing equity crowdfunding.  This type of crowdfunding will permit issuers to offer to nonaccredited investors using equity crowdfunding platforms.  It is anticipated that the trade-off for permitting issuers access to large numbers of non-accredited and often unsophisticated investors will be more regulatory oversight.

If you are considering raising debt or equity capital from investors, you need to start by preparing a credible business plan.  This business plan will be the tool that convinces potential investors that you have a legitimate market opportunity, that you know what human and capital resources are required to tap into this market opportunity and that you have a plan to get it done.

If you are considering raising capital from investors, you also need to protect yourself legally.  Doing a private placement security offering  involves significant responsibility and regulation.  Regardless of what offering technique you use, it is essential to have a well-drafted private placement memorandum (sometimes called an offering circular) to describe the security offering.  Having such a memorandum helps you meet SEC regulatory requirements and protect you and your company by providing clear evidence of what information you disclosed to potential investors.

If you intend to solicit investors using one of the crowdfunding platforms, you need to evaluate which platform is best suited for you.  There are hundreds of platforms to choose from. Not all platforms are equal.  You generally will want to find one that has a large vetted investor population, that provides you with an array of crowdfunding tools, and if possible, that caters to your particular industry or market.

If you are considering raising debt or equity capital, give me a call or email at 937-223-1130 or

AND ONE MORE THING.  The US Court of Appeals for the Eighth Circuit affirmed a US Tax Court which held that two parents who were entitled under the terms of their divorce-related agreements to claim dependency exemption deductions for their noncustodial children, but whose ex-spouses did not provide them with IRS Forms 8332 or other documents unequivocally releasing their right to claim the deduction, were not entitled to the deductions. The Court found that IRC section 152 clearly requires an unconditional release of the exemption by the custodial parent and that the documents submitted by the taxpayers fell short of meeting that standard.   If you have any questions about any federal income tax matter call me at 937-223-1130 or  If you have any questions about divorce or dissolution proceedings call or contact Matt Sorg at


AUTHOR: Jeff Senney