Private Offerings, Crowdfunding and Raising Capital – Asset Protection and Liability Issues to Avoid

Asset Protection | Private Offerings, Crowdfunding and Raising Capital – Asset Protection and Liability Issues to Avoid

 A big part of asset protection is risk management, or doing things the right way the first time to avoid future expenses and legal exposure. Many of the HNW private business owners and entrepreneurs I deal with have shared their success with others by raising capital for various projects and allowing others to invest in their vision, including through the use of crowdfunding.

Raising capital involves increasingly onerous risks and compliance issues to avoid accidentally creating and offering an “unlicensed-security”. This week I’ve asked securities attorney Cynthia King to share some of her work in this area, a good starting point in analyzing how your offering is or should be structured. This is a complex area of the law and you should seek experienced counsel. Cynthia created an executive summary of basic issues for me below. The link at the end of the article is to her full white paper on these issues. – Ike Devji




By Cindy King, J.D.

What is Equity Crowdfunding?

Equity crowdfunding is a means for businesses to raise capital online in exchange for distributions of potential profits to investors. It involves the sale of securities, which by definition involves transactions in which a person invests money in a common enterprise and is led to expect profits solely from the efforts of others.

Securities Registration Requirements

The Securities Act of 1933 (“Securities Act”) requires that every sale of securities either be registered with the Securities and Exchange Commission (SEC), or qualify for an exemption from registration. The registration process and ongoing financial reporting requirements are time consuming and expensive. Because of the significant expense involved, most small companies rely on the exemption from registration found in Rule 506 of Regulation D of the Securities Act.

The JOBS Act

The Jumpstart Our Business Startup Act, also referred to as the JOBS Act was enacted by Congress on April 5, 2012. Two of its sections, Title II, Access to Capital For Job Creation, and Title III, Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2012 (The “CROWDFUND Act”) will make it easier for companies to raise capital in offerings exempt from registration.


The amendments to the securities laws provided by the CROWDFUND Act will allow companies to offer and sell up to $1 million in securities during any 12 month period without needing to register the securities. There are limitations imposed under this Act on the amount of money investors can contribute. Companies must also provide detailed information to investors and to the SEC and file reports relating to their operations and finances. In order to sell the securities, companies must use the services of an intermediary that is either a registered broker-dealer or a “funding portal” registered with the SEC and FINRA.

“Accredited Investor Crowdfunding”

Title II of the JOBS Act required the SEC to amend Rule 506 to allow companies to advertise offerings under new Rule 506(c) as long as purchasers of the securities are all “accredited investors”. Accredited investors include people who have a net worth in excess of $1 million, exclusive of the value of their primary residence, and those whose income is in excess of $200,000 individually, or $300,000 jointly. Companies will need to take steps to verify that the investors are in fact accredited, but there is no limit on the amount of capital that can be raised. Offerings can be conducted through a registered broker-dealer, or though new “platforms” created by the JOBS Act.


Equity crowdfunding under the CROWDFUND Act will allow companies to raise up to $1 million every 12 months from non-accredited investors, with certain investment threshold limitation.

“Accredited Investor Crowdfunding” will allow companies to raise an unlimited amount of capital from accredited investors under the requirements of the new Rule 506(c).





Cynthia King is an experienced securities attorney and a former Regional Counsel with the National Association of Securities Dealers, Inc., now known as FINRA. She regularly serves as a consultant and expert witness in connection with securities litigation. In 2004, she founded C.L. King & Associates, LLC, a boutique law firm specializing in business and securities law.Ms. King specializes in all types of complex business transactions, including mergers and acquisitions, capital raising and contract negotiations. She advises broker-dealers and investment advisers on regulatory and compliance matters and represents small and medium sized companies as an outside general counsel. Ms. King is a member of the Colorado Bar Association, the State Bar of Arizona, and the Securities Expert Roundtable. She can be reached at 480-285-1765 or at


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