Colorado Division of Securities releases crowdfunding rules
DENVER (July 30, 2015) – In preparation for the August 5 date when the Colorado Crowdfunding Act will go into effect, the Colorado Division of Securities, part of the Department of Regulatory Agencies (DORA), has released a set of rules that will govern the actions of those seeking to take advantage of this new legal investment option. The Division has spent the last several months crafting these rules with help from industry experts and the general public.
“We made sure to carefully outline the rules for the implementation of equity crowdfunding in Colorado to both instruct and make the option as clear and easy as possible for potential issuers, but with an eye toward ensuring that consumers who may want to invest are protected,” stated Securities Commissioner Gerald Rome. “Our focus was to keep the paperwork and ‘red tape’ requirements to a minimum while imposing strict disclosure and record-keeping rules in order to limit fraudulent offerings.”
Equity crowdfunding differs from current crowdfunding enterprises such as Kickstarter and Indigogo. With equity crowdfunding, businesses that choose to solicit money from the general public will now be able to offer equity or a stake in the company. Previously, individuals who contributed to crowdfunding campaigns were not allowed shares in the company, and their contributions were considered donations to an effort. Colorado joins a handful of other states in legalizing this method of capital acquisition in response to a delay in federal crowdfunding rules that were made legal through the 2012 Jump-Start Our Business Start-Ups (JOBS) Act.
The new crowdfunding rules, which can be found in full in the attached document, both clarify as well as expand the regulations outlined in the initial Colorado Crowdfunding Act, approved by the state legislature this spring and signed by Governor Hickenlooper on April 13. Included in the new rules are specifications on the role of the required online intermediary, further description of required escrow accounts, a more detailed list of prohibited activities, and clarification on how issuers and intermediaries are to keep the offerings “within Colorado.”
“There has been a lot of excitement and interest surrounding the equity crowdfunding option,” continued Rome. “We are excited to help facilitate a way in which start-up businesses — such a hallmark of Colorado’s economy — can get up and running through community support.”
"I commend Commissioner Rome and Division of Securities staff for creating rules for the Crowdfunding Act that balances the great opportunities ahead to foster economic prosperity for entrepreneurs and their investors, yet structured so that both are protected from fraudulent practices," stated DORA Executive Director Joe Neguse.
The Crowdfunding Act officially goes into effect August 5.
Division of Securities