The Jumpstart Our Business Startup Act (“JOBS Act”) was passed by Congress on March 27, 2012 and signed into law by the President on April 5, 2012.  The intent of the JOBS Act is to improve access to the capital markets by relaxing certain regulatory burdens for small companies, including providing securities registration exemption to crowdfunding transactions.  Crowdfunding is a method of raising capital whereby early stage companies that do not have easy access to traditional methods of capital raising use internet and social media to solicit a large number of potential investors for relatively small amounts of individual investments.  One popular crowdfunding portal is

Crowdfunding Exemption

Title III of the JOBS Act amends Section 4 of the Securities Act of 1933 (the “Securities Act”) by adding as an exempt transaction any offer and sale of securities by an issuer that meets the following requirements (the “Crowdfunding Exemption”):

1.  The total amount sold by the issuer to all investors does not exceed $1,000,000 during the 12 month period preceding the issuance;

2.  Sale to any single investor does not exceed,

      a.      for an investor whose annual income or net worth is less than $100,000, the greater of $2,000 or 5% of the annual income or net worth of such investor; and

      b.      for an investor whose annual income or net worth is equal to or more than $100,000, 10% of the annual income or net worth of such investor, up to a maximum of $100,000;

3.   The crowdfunding transaction is conducted through a broker or funding portal that is registered with the Securities and Exchange Commission (“SEC”) and any applicable self-regulatory agency; and

4.  The issuer provides certain specified business and financial information to the SEC, existing and potential investors, and brokers or funding portals.

Restriction on Resale

Securities issued under the Crowdfunding Exemption may not be transferred by the purchaser for one year after purchase, unless the transfer is (i) to the issuer, an accredited investor, or a family member in connection with a death or divorce, or other similar circumstances, or (ii) in connection with a securities offering registered with the SEC.

Exemption From State Blue Sky Laws

Title III of the JOBS Act amends Section 18(b)(4) of the Securities Act by including securities offered and sold pursuant to the Crowdfunding Exemption as “covered securities”, thereby exempting such securities from state registration requirements.


The JOBS Act requires the SEC to adopt new rules incorporating the Crowdfunding Exemption into the Securities Act within 270 days after April 5, 2012.  On April 23, 2012, the SEC released a statement clarifying that until the rules implementing the Crowdfunding Exemption have been adopted, any offer or sale of securities in reliance on the Crowdfunding Exemption would be unlawful under federal securities law.