Posted on: 11 January 2015
Venture capital is considered a subset of private equity, and as such it is regulated by the Securities and Exchange Commission, or SEC. Knowledgeable and experienced securities attorneys can provide invaluable advice about the financial dealings of fledgling companies, especially those decisions related to venture funding. In 2012, President Barack Obama signed into law the Jumpstart Our Business Startups Act, or JOBS Act, and many of the parts of the legislation concerning venture capital went into effect the following year. If you're an aspiring investor, CEO, or venture capitalist, take a look at some of the provisions of the JOBS Act below to better understand your options.
- Securities offerings that fall under Regulation A (an exemption from SEC registration) had a prior limit of $5 million, but under the JOBS Act, this limit has been raised ten-fold, to $50 million. As such, these kinds of simplified regulations now allow a far greater fundraising opportunities and potential.
- Equity-based crowd funding is now permitted up to $1 million, but comes with several caveats. To give one example, those investors who have an annual income of less than $100,000 is not allowed to invest more than $2,000 (or 5 percent of the income amount, whichever is greater) in a given year. Venture capital funders whose annual income exceeds $100,000 may invest up to 10 percent of said income each year. When receiving funds from a large pool of investors, having a securities attorney on hand to advise fundraising is a huge benefit.
- After the signing of the JOBS Act, nascent companies must conduct their offerings through a broker, or so-called funding portal. Such portals exclude the possibility of advertising to persons or institutions who are not classified as direct investors or brokers themselves. Startups are required to give these investors and other intermediary parties information regarding the offering at least 21 day prior to the offering.
- Startups who want to attract members of community banks--that is, locally owned depository institutions--could only list up to 500 such members as shareholders. The new JOBS Act increases this limit to 2,000. Rules and regulations relating to annual income still apply to these shareholders.
Even you have a good grasp on the basics of newly revised securities law, it is imperative to hire a securities attorney if you want to ensure that your company makes sound financial decisions going forward. Doing so can be fundamental in laying the groundwork for a successful Initial Public Offering. For more information, visit sites like http://carterwestlaw.com.Share