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9/23/2013

EquityNet Featured in The Washington Post

Below is an article by Washington Post - On Small Business entitled "Small business advice: What the SEC’s new general solicitation rules mean for growing companies".

Small business advice: What the SEC’s new general solicitation rules mean for growing companies
By Judd Hollas, Washington Post - On Small Business Contributor
September 23, 2013

The Securities and Exchange Commission today lifted an 80-year ban on general solicitation, allowing businesses to now publicly advertise their need for funding — a potential boon for firms in need of capital.

The ban was initially enacted during the Great Depression to prevent fraudulent securities from moving across state lines and to protect naïve investors from financial ruin. Now, what is known as Title II crowdfunding (i.e., mass-funding by accredited investors), which was authorized last year by the JOBS Act and later approved by the SEC to take effect on Sept. 23, allows entrepreneurs to start advertising their capital needs as they see fit.

However, they must follow current financing rules and adapt to some new regulations that will come into effect later this year.

What follows is a brief outline of the situation that Title II will create for entrepreneurs seeking funding.

What businesses can accomplish under Title II:

As stated above, businesses will have the ability to publicly advertise their need for funding on and after September 23rd. Businesses will not be limited to any specific form of advertisement, so anything from ads on bus stop benches to television commercials will be considered viable. It’s very likely, however, that due to the ubiquitous nature of the Internet, many of these advertisements will be seen online.

Some businesses, for example, may consider posting offerings on Internet-based crowdfunding platforms. Others may wish to seek alternative means of crowdfunding, but with the implementation of Title II, and eventually Title III of the JOBS Act (allowing crowdfunding by non-accredited investors), online crowdfunding platforms will likely become the simplest and most effective means for firms to raise capital.

Details of current Title II regulations for businesses:

Title II imposes restrictions as to who can actually invest in a business soliciting capital. In the past, self-accreditation was all that was required of an investor and a business was allowed an unlimited number of such investors and up to 35 non-accredited investors.

Now, general solicitation rules require that all investors must be accredited and that businesses must take reasonable steps to verify the accreditation status of their investors. A business can verify the accreditation status of a business by doing the following:

• Obtain any IRS form that reports an investor’s income for the past two years. Such forms include, but or not limited to Form W-2 (“Wage and Tax Statement), Form 1099 (report of various types of income), or a copy of Form 1040 (“U.S. Individual Income Tax Return”).

An investor must also include a written representation that states he or she has a reasonable expectation of reaching the income level necessary to qualify as an accredited investor during the current year. The individual investor must make $200,000 in annual income or $300,000 if his or her spouse is included to be considered accredited.

• Review documentation for assets and liabilities that is dated within the prior three months, and a written representation from the investor stating that all liabilities required to make a determination of net worth have been disclosed. Documentation for assets can include bank statements, brokerage and other statements of securities holdings, certificates of deposit, and tax assessments or appraisal reports issued by an independent third party.