CPA & Business Advisory Blog

Crowdfunding Update: 5 points to keep you compliant

As business advisors, we want to help our clients and contacts grow their businesses and find success in today’s marketplace.  Use of our networks including referrals to bankers, individual investors, or private equity companies add value to business owners by helping them to find the funding they need in order to get them to the next level.  As a part of that added value, our goal is to stay up-to-date on alternative sources for funding and share that knowledge with our clients and contacts. 

According to the website, the concept of crowdfunding was first successfully utilized in 1997 and has been evolving ever since.  The JOBS Act (Jumpstart Our Business Startups Act) enacted on April 5, 2012, created a path for startups and small businesses to raise capital through securities offerings using the Internet through crowdfunding.  In October, the SEC is proposing additional requirements under this act, which are provided below as reported by CCH Accounting Research Manager. 

The SEC’s proposal represents a significant shift in how small businesses can raise capital. The proposal includes a number of key provisions aimed at facilitating capital formation while protecting investors, including:

  • Crowdfunding transactions must be done through a registered intermediary. Registered intermediaries include broker/dealers registered with the SEC and funding portals, a new type of intermediary.
  • The maximum raised or invested through crowdfunding is $1 million in any 12-month period. Certain restrictions apply to potential investors based on their income or overall net worth.
  • Issuers must file financial statements with the SEC and provide them to investors and intermediaries. The financial statements must cover the shorter of the: (a) issuer’s two most recent fiscal years; or (b) length of time the issuer has been in existence. The financial statements must be certified by the chief executive officer of the issuer and must either be reviewed or audited depending on specified requirements included in the proposal. Issuers must file annual reports with the SEC until they are subject to the regular reporting requirements of the SEC.
  • Specified disclosures must be provided including information on the business, owners, use of proceeds raised, and certain related party information.
  • The proposal includes certain “bad actor” restrictions to prohibit these individuals from benefiting from the crowdfunding exemption.

Comments on the proposal are due 90 days from publication in the Federal Register.

The proposed rules are available at:

If you have questions on how crowdfunding can help you, call us at 440-449-6800. We'll be happy to have a complimentary no-risk conversation with you.

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