Kentucky Startup Lawyer


And We’re Back…

Quick Intro:

It has been quite some time since my last post. My start-up law firm has been steadily gaining traction and occupying nearly all of my waking hours, but I am loving every minute of it! I promise to begin posting regularly to so that you all can stay informed with local relevant information that will help you with your growing ventures. If you ever have any questions or need help, feel free to reach out to me day or night.

Why the Hype? 

Crowdfunding seems to be all the hype these days. The blogosphere has been flooded with articles anticipating what specific rules the Securities Exchange Commission (SEC) will pass in regards to crowdfunding and how it will effect small businesses and investors alike.

As I browse through the articles my mind begins to wander and I envision a large mug of frosty beer. Beer? Yes, Pabst Blue Ribbon (PBR) to be exact. In 2009, avid PBR fans and investors alike, launched a crowdfunding campaign to acquire the beer company. The SEC quickly put a stop to the attempted acquisition because it considered the crowdfunding method to be a sale of securities that had not been registered under the 33′ Act. Although it is possible to offer a limited amount of privately held unregistered securities, under Regulation D, there are limits to the amount a company may raise and who they may solicit or raise funds from. Under Rule 506, an offering is limited to 35 non-accredited investors, a number largely exceeded by the nearly 5 million separate investors that raised nearly $300 million to buy PBR.

Individuals, institutional investors, and professionals familiar with securities offerings were not surprised by the SEC’s move to block the PBR campaign. Perhaps the bad economy is to blame, or maybe because an iconic name was involved lending the campaign instant notoriety, for whatever the reason, the rest of the world questioned the SEC’s actions and the existence of all of the investing rules and regulations, that appear to hamper economic growth and the free capital market.

In the wake of the publicity and a presidential campaign year, Congress passed President Obama’s JOBS Act (Act), that among others, contained a provision to establish a new exemption from the SEC’s longstanding regulations over crowdfunding securities. The passage of the Act quickly became popular with start-up companies, as a new and efficient vehicle to access start-up capital. Start-up companies will now be able to raise up to $1 million a year without any state or federal registrations, eliminating added expense and time to the already time-strapped entrepreneur.

This sounds great, sign me up!

If you are a seasoned entrepreneur, you have been anxiously awaiting for the SEC to draft the crowdfunding rules, as required by the JOBS ACT, so that you can begin raising much needed capital. If you have been living under a rock, or spending all of your waking time on your startup, this may all be news to you. Luckily for you, there is still time, plenty of time I might add, before crowdfunding will become a fundraising option for your venture. The SEC has yet to draft the rules which will guide investors and issuers through this new funding frontier. The new SEC chairwoman, Mary Jo White, has stated that the adoption of the crowdfunding rules is one of the SEC’s top priorities for 2013.

What does this mean for me? 

The waiting game begins. Although the SEC has made crowdfunding a priority, it will be quite some time before issuers will be given the green light to start crowdfunding campaign. The SEC has to first draft the rules, then publish the drafts for public comment, then the comments will be reviewed and taken into consideration for the final modifications, and then finally adopt the rules. The process is not simple and it is cluttered with red tape. It is predicted that the rule adoption process will not be complete until the end of 2013. Unfortunately, before you can begin accepting crowdfunded investments, you must wait until the powers at be are ready. While this may hamper your short term plans of crowdfunding your company to the next level, keep in mind, there are multiple other ways to raise money for your start-up today!


Nathan S. Fort, ESQ
Fort Phelps PLLC
415 E. Market Street, Suite 101
Louisville, KY 40202
Phone: (502) 509-3678
Fax: (888) 710-0379


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