A Small Entity Compliance Guide[1]

Introduction

On November 16, 2015, the Securities and Exchange Commission ("SEC" or "Commission") adopted new rules and forms to permit companies to offer and sell securities through crowdfunding[2] in reliance on the exemption under Section 4(a)(6) of the Securities Act of 1933 ("Securities Act")[3]. These new rules implement the requirements of Title III of the Jumpstart Our Business Startup ("JOBS") Act, which added Sections 4(a)(6) and 4A to the Securities Act and Sections 3(h) and 12(g)(6) to the Securities Exchange Act of 1934 ("Exchange Act").

The rules adopted by the Commission implement a regulatory framework for intermediaries that facilitate crowdfunding transactions, including specific registration requirements for a new type of intermediary called a funding portal, and rules that impose obligations on all crowdfunding intermediaries – both broker-dealers and funding portals. This guide is only intended to summarize and explain the registration requirements for funding portals. For information about the substantive rules for intermediaries under Regulation Crowdfunding, and complete and definitive information on the registration requirements, you should refer to the adopting release.[4]

Securities Act Section 4A(a)(1) requires that each intermediary in a crowdfunding transaction be registered with the Commission either as a broker-dealer or a funding portal. Broker-dealers register with the SEC on existing Form BD using FINRA's CRD system, whereas funding portals register on new Form Funding Portal through the SEC's Electronic Data Gathering, Analysis, and Retrieval ("EDGAR") system. Funding portals may begin registering with the SEC on new Form Funding Portal beginning on January 29, 2016.

Who is required to register as a funding portal?

You are required to register – either as a broker-dealer under Section 15(b) of the Exchange Act or as a funding portal pursuant to Section 4A(a)(1) of the Securities Act – if you wish to act as an intermediary in a transaction involving the offer or sale of securities in reliance on Section 4(a)(6) of the Securities Act.

If you are a sole proprietorship, partnership, corporation, limited liability company, or other organized entity that is not registered (and does not intend to register) as a broker-dealer but wishes to act as an intermediary in crowdfunding transactions, you must register with the SEC on Form Funding Portal.

A registered funding portal is prohibited from:

• Offering investment advice or recommendations;
• Soliciting purchases, sales or offers to buy the securities displayed on its platform;
• Compensating employees, agents, or other persons for such solicitation or based on the sale of securities displayed or referenced on its platform; or
• Holding, managing, possessing, or handling investor funds or securities.

Therefore, if you engage in, or plan to engage in, any of these activities, and wish to act as an intermediary in crowdfunding transactions you must register as a broker-dealer rather than as a funding portal.

How do I register as a funding portal?

Funding portals must register by filing an application on Form Funding Portal through the SEC's EDGAR system. Form Funding Portal requires information from the funding portal applicant, including information about the funding portal's business, principals, control relationships, and employees.

• In order to gain access to EDGAR, you must complete and submit a Form ID application through the following link.
  https://www.filermanagement.edgarfiling.sec.gov/Welcome/EDGARFilerMgmtMain.htm.
  If you already have an EDGAR account, you can skip this step and log in using your current EDGAR credentials.
  • Additional help with completing the Form ID, can be found at the following link
    • https://www.sec.gov/info/edgar/form-id-faq.pdf
  • During the Form ID application process, you will create a passphrase that will be used later to generate EDGAR access codes and your ultimate password.
  • When your Form ID application has been accepted, you will receive an email notification with your Central Index Key ("CIK"). After receiving the notification email, the next step is to generate the following EDGAR access codes: PMAC, CCC, and password by following these steps:
    1. Go to the Filer Management website (https://www.filermanagement.edgarfiling.sec.gov) and click "Press Here to Begin."
    2. Click "Generate Access Codes" from the menu options.
    3. Input your CIK and passphrase (the 8 character code you created in your Form ID application) and select "Generate Access Codes."
    4. Your PMAC, CCC, and password will appear in the next window. It may be helpful to print this window and store the codes in a safe location. It also may be helpful to include the date you generate these codes as the password expires annually. (See https://www.sec.gov/info/edgar/quick-reference/form-id.pdf for how to update your password). Please note that the PMAC, CCC, and passphrase never expire.
• Once you have an EDGAR account, CIK number, and password you can log into EDGAR at: https://www.edgarfiling.sec.gov/Welcome/EDGARLogin.htm.
• After logging into EDGAR, you should look for Form Funding Portal under the Regulation Crowdfunding tab.

To complete your funding portal registration application, you must file one executed copy of Form Funding Portal through the EDGAR system.

Please note that funding portal names are reserved through FINRA's name reservation process. Details on FINRA's name reservation process are available at: http://www.finra.org/industry/reserving-firm-name.

The instructions to Form Funding Portal contain additional filing instructions. The SEC does not charge a filing fee. Incomplete applications are not considered "filed" and will not be accepted.

A paper copy of the Form Funding Portal is available at http://www.sec.gov/forms for reference purposes.

Nonresident Funding Portals: A nonresident funding portal – that is, a funding portal incorporated in or organized under the laws of a jurisdiction outside of the United States or its territories, or having its principal place of business in any place not in the United States or its territories – must file a completed and executed Schedule C to Form Funding Portal. Schedule C requires a nonresident funding portal to provide information about its arrangements to have an agent for service of process in the United States, as well as a certification and an opinion of counsel addressing the nonresident funding portal's ability to provide the Commission and the national securities association of which it is a member with prompt access to its books and records and to submit to onsite inspection and examination by the Commission and the national securities association of which it is a member.

When is a funding portal's registration effective?

A funding portal's registration becomes effective on the later of: (1) 30 calendar days after the date that the registration is received by the Commission; or (2) the date the funding portal is approved for membership in a national securities association registered under Section 15A of the Exchange Act.

When do I have to file an amendment to my funding portal registration or a withdrawal from registration?

A funding portal must file an amendment to Form Funding Portal within 30 days of when the information submitted on the form becomes inaccurate for any reason.

A funding portal must promptly file a withdrawal of registration on Form Funding Portal upon ceasing to operate as a funding portal. The withdrawal will be effective on the later of 30 days after receipt by the Commission (after the funding portal is no longer operational) or within a longer period of time consented to by the funding portal or that the Commission, by order, determines as necessary or appropriate in the public interest or for the protection of investors.

Additional information for registration, amendments, and withdrawal are set out in Instructions for Form Funding Portal, available at http://www.sec.gov/forms and in text of the rules, available at http://www.sec.gov/about/laws/secrulesregs.htm#sea34.

Nonresident Funding Portals: A nonresident funding portal firm must promptly file an amendment to Schedule C to Form Funding Portal for any change in the funding portal's agent for service of process or in the name or address of the existing agent for service of process. A nonresident funding portal must also re-certify on Schedule C within 90 days after any changes in the legal or regulatory framework that would impact the nonresident funding portal's ability to provide, or the manner in which it provides, the Commission or any registered national securities association of which it is a member, with prompt access to its books and records or that would impact the Commission's or such registered national securities association's ability to inspect and examine the nonresident funding portal. The re-certification must be accompanied by a revised opinion of counsel.

Where can I find a list of registered funding portals?

You may search the EDGAR system for any funding portal that has an effective registration with the Commission. Remember that a funding portal's registration becomes effective the later of: (1) 30 calendar days after the date that the registration is received by the Commission; or (2) the date the funding portal is approved for membership in a national securities association registered under Section 15A of the Exchange Act. If a funding portal's registration is not effective yet, then it will not be searchable in the EDGAR system.

FINRA also maintains a list of all FINRA funding portal members on its website at http://www.finra.org/about/funding-portals-we-regulate.

What other registration requirements have been adopted for funding portals?

As noted above, all registered funding portals are required to become members of a registered national securities association. FINRA is currently the only such registered national securities association. Additional information regarding FINRA membership is available at http://www.finra.org/industry/funding-portals.

Other Resources

The adopting release for the registration of funding portals can be found on the SEC's website at http://www.sec.gov/rules/final/2015/33-9974.pdf.

The text of the rules can be accessed through http://www.sec.gov/about/laws/secrulesregs.htm#sea34.

The SEC approval order of FINRA's crowdfunding rules can be accessed through https://www.sec.gov/rules/sro/finra/2016/34-76970.pdf.

Contacting the SEC

The SEC's Division of Trading and Markets is available to assist funding portals and others with questions regarding the funding portal registration requirements. You can contact the Office of Chief Counsel for this purpose at (202) 551-5777.