A proposed portion of the Jumpstart Our Business Startups Act, or JOBS Act, has many people buzzing about a whole new opportunity. This new section in Title III of the Act will make it possible for the sale of crowdfunded equity securities through a medium called Funding Portals.

People have been comparing these proposed Funding Portals to Broker-Dealers, but they should do so with caution because there are important differences between the two. Let us start with what a Funding Portal cannot do:

  • provide investment advice or make recommendations;
  • solicit purchases, sales or offers to buy the securities offered or displayed on its website or portal;
  • compensate employees, agents or other persons for such solicitation or based on the sale of securities displayed or referenced on its website or portal;
  • hold, manage, possess or otherwise handle investor funds or securities;
  • engage in any other activity that the SEC determines to prohibit in its crowdfunding rulemaking;
  • compensating promoters, finders or lead generators for providing the intermediary with the personal identifying information of any potential investor; or
  • allowing its directors, officers or partners (or any person occupying a similar status or performing a similar function) to have a financial interest in any issuer using its services.

A Funding Portal also is required to do many things. This list includes, but is not limited to:

  • due diligence on the companies being invested in;
  • taking measures to ensure investor protection and rule adherence;
  • separation of Funding Portal financial interests with those of the offered companies;
  • registering with FINRA; and
  • other restrictions that are not fully developed yet.

So what can a Funding Portal do? Simply put, it can sell crowdfunded equity securities without being registered as a Broker-Dealer.  The legislation for offering crowdfunded equity has helped streamline the investing process in smaller companies. Allowing Funding Portals to simply sell the securities, and not offer additional services such as investment advice like a Broker-Dealer, is very important to keep the simplicity and availability of crowdfunding.


Write a comment:


Your email address will not be published.