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On May 4, 2020, the SEC announced temporary conditional relief for small businesses that have offered Regulation Crowdfunding offerings in the past to allow them to raise additional funding through Regulation Crowdfunding investment offerings under more expedited and less strict criteria.
Most of us know what Crowdfunding is: Crowdfunding refers to a financing method in which money is raised through soliciting relatively small individual investments or contributions from a large number of people.
A Regulation Crowdfunding offering is when a company offers and sells securities in relatively small investments from a large number of people. These Crowdfunding sales are offerings of equity in a business, so they are regulated by the SEC and have to be facilitated online through an SEC-registered broker-dealer or a funding portal.
The SEC’s temporary relief is aimed at smaller stable companies who are not able to raise enough funds through the EIDL, SBA PPP Loans, or Main Street Lending Facility and need capital to stay in business during the COVID-19 pandemic.
These temporary new rules around Regulation Crowdfunding offer flexibility to the company issuing the securities. They can inquire about investment interest prior to preparing full offering materials, and the window of time it takes to receive funds is significantly shortened. The new rules also exempt issuers from certain financial statement review requirements if they offer between $107,000 and $250,000 in securities in reliance on Regulation Crowdfunding over a 12-month period.
The looser requirements apply to Regulation Crowdfunding securities offerings initiated between May 4, 2020, and August 31, 2020.
Here is a breakdown of the existing Regulation Crowdfunding and the Amendments created recently*:
If your company is unsure as to whether they meet the criteria for Regulation Crowdfunding, reach out to the team at TGG Accounting. We partner with companies to support their accounting teams. Call us today to learn more.
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