This last week, the Senate passed the "JOBS
Act," leaving it one step away from final passage by Congress and Signature
by President Obama. The JOBS Act contains a number of provisions which
are aimed at reducing the securities compliance burdens of small companies and
startups. One of the major provisions within the JOBS Act is the
so-called "crowdfunding" provision.
Crowdfunding has an enthusiastic following online and within
the entrepreneurial community. Obviously, that following is very
excited about the bill's Senate passage. Unfortunately, I don't think
they should be popping the champagne corks anytime soon. Before passing
the bill, the Senate passed an amendment to the bill substituting a new version
of the crowdfunding law by Senators Merkley, Bennet, and Brown in place of the
one written by Rep. Patrick McHenry. All signs point to the Republican
leadership in the House conceding to the Senate's amendment this week in order
to get the bill to the president's desk for signature as soon as possible.
And I believe the Senate's amendment kills crowdfunding.
The replacement crowdfunding bill is significantly more complex and
fraught with liability for issuers. While even the McHenry approach had
some degree of complexity, the Merkley version makes it look simple and
straightforward in comparison. Here are just a few examples of some of
the differences that I think will sink the new crowdfunding law and prevent it
from being of any practical use:
In all, the statute that provides for the crowdfunding
exemption expanded from 12 pages to 24 after the substitution of the Merkley
version. For a crowdfunding exemption to work, it must be simple.
Small companies cannot afford the significant compliance burdens placed
upon them by the crowdfunding exemption that was passed. Therefore, my
prediction is that entrepreneurs will quickly find that the new exemption is
too expensive to utilize and is more trouble than it is worth and that it will
rarely be used. As I've stated in the past, there
are some significant practical obstacles to crowdfunding even with the McHenry
bill. The Senate's solution certainly didn't help.
Therefore, I believe the Senate may have just effectively killed
crowdfunding. I may be wrong; the SEC may implement the bill well through
regulation and save crowdfunding. Anyone want to take a bet that this
© 2012 Alexander J. Davie -
This article is for general information only. The information presented should
not be construed to be formal legal advice nor the formation of a lawyer/client
Read more articles by Alexander Davie at Strictly Business, a
business law blog for entrepreneurs, emerging companies, and the investment
For more information about LexisNexis
products and solutions connect with us through our corporate site.