Is it legal to solicit investors for a startup since the JOBS Act has passed?
Yes and No.
The JOBS Act has several pieces, two of which are relevant here. The fascinating thing is that they allow for diametrically opposite activities! The key questions are:
- Who can you MARKET to?
- Who can you SELL to?
Under the Crowdfunding provisions of the JOBS Act, a startup company will, for the first time, be able to sell shares of stock to anyone (that is, “the crowd”) once the SEC publishes the final rules for the program in January of 2013. However, the fascinating wrinkle is that it looks like startups will NOT be able market this sale to anyone, but that instead the sale will have to be done through a new form of web site called a funding portal (think “Kickstarter for equity”.)
However, under another part of the JOBS Act dealing with General Solicitation, startups, which have always been allowed to sell shares of stock privately only to Accredited Investors (rich people with investable assets over $1m or income over $200K) will, for the first time, be allowed to market that sale to anyone, once those provisions go into effect this summer.
So, at the moment it looks like your choice will therefore be: MARKET to anyone but SELL to Accredited Investors, or SELL to anyone but MARKET only through funding portals. If this all sounds a bit confusing…it is! And since the actual rules are still being written, quite a bit may end up changing by January, when crowdfunding will finally become legal.
For the moment, however, we’re still in the traditional world of “MARKET to nobody, SELL only to Accredited Investors.”
*original post can be found on Quora @ : http://www.quora.com/David-S-Rose/answers *
Written by David S. Rose
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