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The SEC's Proposed Crowdfunding Rules: May Not be a Crowd Pleaser

October 25, 2013

On October 23, 2013, the Securities and Exchange Commission (the “SEC”) released proposed rules under the Jumpstart Our Business Startups (“JOBS”) Act to permit companies to offer and sell securities through crowdfunding.  Companies have been able to use crowdfunding to raise money through small contributions from a large number of individuals without issuing securities (but often by providing a product or a gift) through popular websites such as Kickstarter and Indiegogo.  However, because of federal and state securities laws, crowdfunding has not been available to companies seeking to raise capital through the issuance of securities.  If the SEC’s proposed crowdfunding rules are ultimately adopted, this could change. While the SEC's proposed rules are intended to make it easier for start-up companies to raise capital, the financial and compliance burdens imposed on crowdfunding offerings may make it impractical and prohibitively expensive for start-up companies to benefit from them.

Click to view a brief analysis of the proposed rules and potential impacts for start-up companies.

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