As faithful readers of this blog know, the JOBS Act is a new law that will allow a filmmaker (or a theater producer or any other start-up) to publicly announce that they are raising capital (on Facebook or even in the local paper), and then raise up to $1M each year via crowd funding.
But how does the new law work? While you are advised to get an entertainment attorney to guide you through the process of fund raising - you can obtain an overview of the new law's provisions by reading (quality) posts online. For one place to start, I recommend the blog maintained by Ken Davenport, a Broadway producer (Godspell, You’re Welcome America starring Will Ferrell, and Blithe Spirit starring Angela Lansbury) who frequently blogs about the issues that producers face. On June 26th, 2012 Ken Davenport published a helpful guest post by two entertainment lawyers, Gary Emmanuel and Daniel M. Wasser, that covers many of the introductory questions filmmakers and theater producers may have about the JOBS Act. If you are a theater or film producer who is thinking about crowd funding, the Emmanuel / Wasser post is a great place to start. Here are some excerpts:
"The JOBS Act, also known as the Jumpstart Our Business Startups Act, is designed to make it easier for business startups to raise funds, and theater and film producers will be particularly interested..."
"First, the JOBS Act eliminates the prohibition on general solicitation and advertising in connection with “Rule 506 offerings” if all purchasers are “accredited investors.” Second, the JOBS Act establishes a framework in which financing can be raised privately through crowdfunding."
"When raising money from investors in the United States, a company must either register its offering with the Securities and Exchange Commission (SEC) and make a public offering, or it must rely upon an exemption from registration and make a private offering."
"Congress recognized that the existing prohibitions on general advertising and solicitation were making it harder for entrepreneurs to raise capital. Lifting these prohibitions in connection with Rule 506 offerings now means that general advertising and solicitation for investors can take place through traditional media such as newspapers, through the internet and via social media networks such as Facebook, LinkedIn and Twitter."
NOTE: The JOBS Act changes to the rules on general advertising and solicitation were supposed to go into effect in July but the SEC missed that deadline.
"Upon the adoption of [new] rules by the SEC, the crowdfunding portion of the JOBS Act will allow a company to raise up to $1 million per year through crowdfunding. Part of the rationale for crowdfunding is that if no one risks too much money (commensurate with their income), the risk of loss is reduced if the investment does poorly, so there are limits on how much any one investor can invest."
"[T]he SEC is required to issue rules regarding general solicitation and advertising in connection with Rule 506 offerings – although delays are expected. Once issued, this should open the floodgates, particularly for media savvy producers with a well-developed internet strategy for reaching potential accredited investors. For producers, the time to start working on that strategy is now. By the end of December, 2012, the SEC’s rules regarding crowdfunding are expected to be published."
"This article was written by lawyers to update selected key legislative and regulatory developments affecting the film and theatrical industry. Because of the generality of this article, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations."
Thanks to Steven Beer for the link.