Crowdfunding After Coronavirus Hits

In the past six weeks, the COVID-19 outbreak has caused quarantines and closures, and has restricted the movement of people and goods between countries and within the United States. It’s devastated certain industries and economies at home and abroad. Uncertainty about the duration of the crisis has roiled the financial markets, leading to worries about a global recession to come. Large businesses like Boeing will survive, as in 2008, because they’re “too big to fail,” but the small businesses that are the real backbone of the U.S. economy may face hardship. Some—the lucky ones—will need to raise capital to respond to increased demand for their crisis-related products; others will need additional cash to keep their businesses viable during the pandemic.

Transcript

1. Crowdfunding After Coronavirus Hits
2. Crowdfunding After Coronavirus Hits U.S. small businesses are left unsure whether they’ll survive without an injection of cash. While government relief is in the works, many businesses won’t qualify, or the resources available to them will not be enough to address their needs. But some industries will not be impacted, and may even experience growth during the coronavirus crisis. Companies in these industries that need capital to meet rising demand should consider crowdfunding a securities offering as an option. Small companies with suitable products or services—ones that will continue to be in demand as the crisis continues—should make an educated determination of whether crowdfunding a securities offering is a viable option for them at this time. Companies already conducting crowdfunding offerings should consider disclosure obligations they may have due to the COVID-19 outbreak. In the past six weeks, the COVID-19 outbreak has caused quarantines and closures, and has restricted the movement of people and goods between countries and within the United States. It’s devastated certain industries and economies at home and abroad. Uncertainty about the duration of the crisis has roiled the financial markets, leading to worries about a global recession to come. Large businesses like Boeing will survive, as in 2008, because they’re “too big to fail,” but the small businesses that are the real backbone of the U.S. economy may face hardship. Some—the lucky ones—will need to raise capital to respond to increased demand for their crisis-related products; others will need additional cash to keep their businesses viable during the pandemic.
3. There are several securities exemptions available for crowdfunding offerings, each with unique benefits and requirements. Rules 504 and 506 of Regulation D do not require a filing with the SEC prior to raising funds, while Regulation Crowdfunding (“Regulation CF”) and Regulation A require an SEC review and qualification of the offering prior to sales.  Regulation Crowdfunding (“Regulation CF”) allows offerings up to $1.07 million on offering portals registered with the SEC and FINRA.  Regulation A allows offerings of up to $50,000 in a 12 month period.  Regulation D, Rule 504 allows offerings of up to $5 million.  Regulation D, Rule 506(c) allows issuers to raise an unlimited amount of capital from accredited investors using general solicitation and advertising as long as you take reasonable steps to verify sales are made to accredited investors only. Crowdfunding Exemptions from SEC Registration
4. Regulation A Crowdfunding Regulation D Regulation CF Tier 1 Tier 2 Rule 506(c) Rule 504 -------- Offering Limit Each 12 Month Period $20 million $50 million None $5 million $1.07 million General Solicitation & Advertising Permitted; before qualification, Testing the Waters permitted before and after the Offering Statement is filed Same as Tier 1 Yes Permitted in limited circumstances Permitted with limits on advertising after Form C is filed with the SEC Issuer Requirements U.S. or Canadian companies. "Bad actor" rules apply U.S. or Canadian companies. ""Bad actor" rules apply "Bad Actor" rules apply Excludes blank-check and investment companies. "Bad actor" rules apply Excludes non-US, blank-check, reporting, and investment companies. "Bad actor" rules apply Investor Requirements None Non-Accredited Investors subject to investment limits Accredited Investors. Company must take reasonable steps to verify accredited investor status None Investment limitations based on annual income and net worth SEC Filing Requirements Form 1-A, including two years of financial statements. Exit report Form 1-A, including two years of audited financial statements. Annual, semi-annual, current, and exit reports Form D Form D Form C, including two years of financial statements that are certified, reviewed or audited, as required. Progress and annual reports Tradability Restrictions No No Yes. Restricted securities Yes. Restricted securities except in limited circumstances 12-month resale limitations State Blue Sky Preemption No Yes Yes No Yes Funding Portal Required for Offering Yes No No No No
5. For further information about crowdfunding, please contact Hamilton & Associates Law Group, P.A. at 101 Plaza Real South, Suite 202 North, Boca Raton Florida, (561) 416-8956 or info@securitieslawyer101.com This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group, P.A. and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes. Hamilton & Associates | Crowdfunding Lawyers Brenda Hamilton, Esq. 101 Plaza Real South, Suite 202 North Boca Raton, Florida 33432 Telephone: (561) 416-8956 Facsimile: (561) 416-2855 www.SecuritiesLawyer101.com
6. For more information about our publications please visit the links below: A+ Offerings A+ Reporting About Brenda Hamilton Accredited Investor Status COVID-19 SEC Disclosure Requirements Crowdfunding Crowdfunding Portals Direct Public Offering Direct Public Offering Attorneys Draft Registration Statements DTC Chills DTC Eligibility DTC Global Locks Due Diligence EB-5 Program & Going Public Eligibility & Regulation A+ Form S-3 Registration Statement Form S-8 Registration Statement Funding Portals Global Locks Go Public 101 Going Public Attorney Going Public Bootcamp Going Public for Foreign Issuers Going Public Law Regulation A+ Disclosures Regulation A+ Q&A Regulation A+ SEC Reporting Reverse Mergers 101 Schedule 14A Schedule 14C Spam Sponsoring Market Makers Stock Promotion Going Public Lawyers Going Public Transactions Jobs Act 101 Initial Public Offerings Intrastate Crowdfunding Investor Relations 101 IPO Alternatives LinkedIn Manipulative Trading Offering Integration In Regulation A Offerings OTC Link OTC Markets OTC Markets Attorney OTC Markets Dual Listings OTC Pink Sheets OTC Markets Stock Promotion Policy OTCQB Listing, Eligibility, Quotation OTCQX Listing, Eligibility, Quotation Periodic Reporting Private Placements Registered Direct Public Offerings Regulation A Exempt Offerings Regulation A+ Regulation A and Blue Sky Laws Regulation A Testing the Waters Regulation D Regulation D Bad Actors Restrictive Legends Reverse Mergers Reverse Merger Game Changers Reverse Stock Splits Rule 144 Rule 10b-5 Rule 15c-211 Rule 504 Rule 506(c) Rule 506 (c) Offering SEC Comments SEC Investigations SEC Inquiries SEC Registration Statements SEC Requests for Comments Secondary Registration Statement What is a Form 10 Registration Statement? What is DTC Eligibility? What is a Form S-8 Registration Statement? What is Form 12b-25? What are the OTC Markets OTC Pinks? What Is Regulation SHO? What Is A Confidential Registration Statement? What Are The OTC Markets? Secondary Registration Statement Social Media Schedule 14A Schedule 14C Short Sales Spam Sponsoring Market Makers Stock Scalping 101 Stock Promotion Equity Crowdfunding Exempt Direct Public Offerings FINRA Rule 6490 Forensic Attorneys Form 1-A Form 10 Registration Statement Form 10-K Twitter & Regulation A+ Wells Notices What is Going Public? What Is Accredited Crowdfunding? What Are Short Swing Profits? Stock Spin-Offs Going Public Attorney Roles Going Public Attorneys DD OTC Markets Attorneys DD