New SEC financing rules: All roses for a tweaked fundraising tool?

Nov 30, 2015 | Starting A Business

It’s almost a truism to note that money seeks opportunity.

And that is certainly the case regarding start-up business enterprises across Southern California that are grounded in sound ideas and a smart plan for future success. Investors are understandably — and always — on the lookout for such vehicles, knowing that money sunk into solid businesses is, well, just good business.

Small-business owners and entrepreneurs understandably need cash infusions to implement their ideas and gain market traction. Business financing is almost always vitally important for any new company.

That symbiotic and reciprocal tug associated with business financing (capital needs to be applied to grow, and businesses need funding to prosper) has brought high numbers of relatively unsophisticated investors into the business world. Such investors have long been under the protective arm of federal securities regulators, with the SEC having established equity financing rules to safeguard them against business scams.

The SEC recently announced a number of new rules in a financing realm termed “equity crowdfunding,” which is the simple practice of buying a percentage of a business entity for cash. Those rules loosen prior restrictions on investments from unaccredited individuals and groups, the goal being to allow greater infusions of cash made available to start-ups looking for financing.

Although some voices laud the changes (read crowdfunding platforms) not every knowledgeable person thinks that the new rules are flatly salutary.

In fact, one of the SEC commissioners who participated in the vote that ushered in the rules (he voted against adoption) cites several material concerns for business owners seeking capital. Commissioner Michael S. Piwowar contends that relaxed provisions for equity crowdfunding to finance small businesses will be inimical to the best interests of many start-up enterprises. The rules are overly complex, says Piwowar, and replete with “burdens [that] will spook many small businesses from pursuing crowdfunding as a viable path to raising capital.”

Of course, crowdfunding is just one financing option among many potential choices vying for a business owner’s attention. An established business law firm with a deep well of financing experience can help a client identify viable financing options and smartly pursue them.

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