Title III of the JOBS Act: How Will Crowdfunding Rules Affect You?

by | Aug 21, 2014 | Financial Services

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Title III of the JOBS Act (Jumpstart Our Business Startups) is a much anticipated and long-awaited “crowdfunding” installment that will make it possible for non-accredited individuals to invest and participate online in startup businesses and other private companies.

This ruling is set to unleash a new wave of capital into the American investment market, up to $3 billion, according to some predictions.

The main benefit of Title III is that it increases entrepreneurs’ chances of success. This in turn will provide new jobs and stimulate our economy. The increased and more readily available investment capital will also encourage the creation of more startups as people will feel more confident of their chances of obtaining funding.

Although most of the non-accredited people allowed to invest under Title III will be first time investors in the formal sense of the word, many will already have been part of the friends and family cash source that has helped to fund many businesses and ideas. Title III not only formalizes the trend of tapping into your personal network for money, it also invites a larger pool of both accredited and non-accredited investors to join in.

Checks and Balances
Although Title III opens up investment in startups to a much larger group of small-time investors, there are still a few critical regulations in place to protect both the business and the investor.

The most important rule protecting non-accredited investors is the limit placed on how much an individual is allowed to invest in any given year. This limit is determined according to an individual’s annual income and net worth. In addition, investments made under the Title III crowdfunding ruling have some resale restrictions.

Companies also have to adhere to certain rules when soliciting funding from non-accredited investors. These are:
* They can raise no more than $1 million in this way.
* They must disclose their financial statements, their use of proceeds and information about officers, directors, and all those who own 20% of the company or more.
* They also have to disclose certain information about the securities being offered.

title III crowdfunding isn’t just implemented and legal yet. However, Title II, which allows crowdfunding to accredited investors that have been verified is already legal. For more information on properly verifying other investors or yourself as accredited investors, visit VerifyInvestor.com.

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