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A weekly look at Wyoming business questions from the Wyoming Small Business Development Center (WSBDC), part of WyomingEntrepreneur.Biz, a collection of business assistance programs at the University of Wyoming.
By guest columnist Douglas Ellenoff, Ellenoff Grossman and Schole LLP, New York City
“What can you tell me about crowdfunding and the responsibilities of a small business intending to make an offering?” Ron, Casper
President Obama signed the Jumpstart Our Business Startups Act into law April 5, 2012.
This act introduced several historic reforms designed to facilitate capital formation, including the creation of a new exception under Section 4 of the Securities Act of 1933 permitting crowdfunding. Crowdfunding is the act of offering unregistered securities through a registered Internet intermediary website or broker to raise small amounts of money from a large pool of investors. The maximum limit is $1,000.
Before the act was passed, entrepreneurs and charities had success using the Internet and social media to raise money from many contributors in exchange for some kind of reward or gift. These new reforms allow securities to be sold so that contributors can become shareholders.
Crowdfunding transactions must be conducted through either a broker or a funding portal that is registered with the Securities and Exchange Commission and probably the Financial Industry Regulatory Authority as well.
A funding portal is a new form of registered entity. Unlike a broker, a funding portal is restricted from offering investment advice to investors. They may not solicit purchases or sales or offer to buy securities they offer. In addition, funding portals are prohibited from paying agents or employees any compensation based on the sale of securities offered on websites.
To learn more about crowdfunding, be sure to register for the Wyoming Small Development Center’s November business fitness webinar Thursday, Nov. 6, from 2-3 p.m. Cost for the webinar is $15, and attendees can register at http://www.wyen.biz.
A blog version of this article and an opportunity to post comments are available at http://wyen.biz/blog1/.
The WSBDC is a partnership of the U.S. Small Business Administration, the Wyoming Business Council and the University of Wyoming. To ask a question, call 1-800-348-5194, email email@example.com or write 1000 E. University Ave., Dept. 3922, Laramie, WY, 82071-3922.