1: What is Section 401 of the JOBS ACT?

Regulation A of the JOBS Act added new Securities Act Section 3(b)(2) providing a federal exemption under section 401 of Securities Act of 1933. The new section permits a private company raise up to $50,000,000 in a 12-month period from both accredited and non-accredited investors. This covers issuer eligibility requirements, content and filing requirements for offering statements, and ongoing reporting for issuers in Reg A offerings.

2: Define an Issuer

An Issuer in equity crowdfunding is a legal entity that proposes an offer to sell securities of its company.

3: Scope of Disclosure

Companies looking to raise funds under the Reg A+ crowdfunding are required to file a Form 1-A with the SEC. Once approved, the offering materials are available to investors on the technology portal.

Below is the information that a company looking to raise funds through crowdfunding must disclose:

  • information about officers, directors, and owners of 20 percent or more of the issuer;
  • a description of the issuer’s business and the use of proceeds from the offering;
  • the price to the public of the securities or the method for determining the price,
  • the target offering amount and the deadline to reach the target offering amount,
  • whether the issuer will accept investments in excess of the target offering amount;
  • certain related-party transactions; and
  • a discussion of the issuer’s financial condition and financial statements.

3: Role and significance of SEC

The SEC is a federal agency in the United States Government. Its primary roles are to protect investors; maintain fair, orderly and efficient markets through the enforcement and proposing securities rules and regulations. The SEC’s Crowdfunding Investor bulletin can be found here; https://www.sec.gov/info/smallbus/secg/rccomplianceguide-051316.htm