Capital Markets Insights

What is Title III

The Title III provisions were described by Forbes Magazine as the democratization of investing. Mark Roderick, a leading Crowdfunding attorney wrote, 'Title III Crowdfunding is like nothing seen before in the U.S. securities industry.' Through Crowdfunding non- accredited investors (making under $200,000 in income and less than $1 million in net worth excluding their primary residence) can invest in anything from a start up company to real estate. Investments that in the past have been available primarily to the accredited investor (making over $200,000 in income with more than $1 million in assets net primary residence).

Title III allows average investors to pool resources and bypass the middle man, reducing costs thereby increasing potential returns. Using the power of the internet, the public can find great companies from all over the world.

Title III limits on investors during a rolling 12 month period are as follows: investors with an income or net worth of $100,000 or less can invest up to $2000 or 5% of income or net worth, whichever is less. For investors with net incomes or net worth of $100,000 or more, their investment caps are $100,000 or 10% of annual income or net worth, whichever is less. So an investor who makes $125,000 a year with a net worth of $750,000 can invest could invest a maximum of $12,500 a year. Another investor earning $125,000 a year but a net worth of $100,000 can invest a maximum of $10,000 per year.

For a company looking for capital, Title III opens up the whole world. A company can now advertise via the internet. Accessing capital without registering with the Securities and Exchange Commission, a lengthy and expensive process. A company can raise up to $1 million dollars every 12 months. In order to take advantage of Title III, a company must be registered in the United States. A company can raise money for any business as long as it is not a publicly held company or an investment company. Furthermore, the company must not be a blind pool or disqualified as a 'bad actor'. A company raising money with Title III rules can advertise their investment portal or website and the basic terms of the offering. The details of the offering must be displayed only in the portal itself.

The crowdfunding portal is not only a great tool to raise money but also a great way to advertise your business. In many cases investors become customers or spread the word about your product or service.

Title III crowdfunding becomes effective at the beginning of May 2016, but portables can apply to the SEC staring January 29, 2016.