• At Kemp Little, we are known for our ability to serve the very particular needs of a large but diverse technology client base. Our hands-on industry know-how makes us a good fit with many of the world's biggest technology and digital media businesses, yet means we are equally relevant to companies with a technology bias, in sectors such as professional services, financial services, retail, travel and healthcare.
  • Kemp Little specialises in the technology and digital media sectors and provides a range of legal services that are crucial to fast-moving, innovative businesses.Our blend of sector awareness, technical excellence and responsiveness, means we are regularly ranked as a leading firm by directories such as Legal 500, Chambers and PLC Which Lawyer. Our practice areas cover a wide range of legal issues and advice.
  • Our Commercial Technology team has established itself as one of the strongest in the UK. We are ranked in Legal 500, Chambers & Partners and PLC Which Lawyer, with four of our partners recommended.
  • Our team provides practical and commercial advice founded on years of experience and technical know-how to technology and digital media companies that need to be alert to the rules and regulations of competition law.
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  • At Kemp Little, we advise clients in diverse sectors where technology is fundamental to the ongoing success of their businesses.They include companies that provide technology as a service and businesses where the use of technology is key to their business model, enabling them to bring their product or service to market.
  • We bring our commercial understanding of digital business models, our legal expertise and our reputation for delivering high quality, cost-effective services to this dynamic sector.
  • Acting for market leaders and market changers within the media industry, we combine in-depth knowledge of the structural technology that underpins content delivery and the impact of digitisation on the rights of producers and consumers.
  • We understand the risks facing this sector and work with our clients to conquer those challenges. Testimony to our success is the continued growth in our team of professionals and the clients we serve.
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  • Our clients trust us to apply our solutions and know-how to help them make the best use of technology in structuring deals, mitigating key risks to their businesses and in achieving their commercial objectives.
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  • Our legal professionals work alongside social media providers and users in relation to the commercial, privacy, data, advertising, intellectual property, employment and corporate issues that arise in this dynamic sector.
  • Our years of working alongside diverse software clients have given us an in-depth understanding of the dynamics of the software marketplace, market practice and alternative negotiating strategies.
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  • Kemp Little is trusted by some of the world’s leading luxury brands and some of the most innovative e-commerce retailers changing the face of the industry.
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  • FlightDeck is our portal designed especially with start-up and emerging technology businesses in mind to help you get your business up and running in the right way. We provide a free pack of all the things no-one tells you and things they don’t give away to get you started.

SEC approves equity crowdfunding

On 23 October 2013, more than 18 months since The Jumpstart Our Business Startups Act (or JOBS Act) was signed into law in the US, the Securities and Exchange Commission (SEC) presented, and unanimously voted to approve, a proposal to enable small businesses to raise equity capital from crowdfunding.  Although the concept of crowdfunding - enabling many individuals to contribute (generally fairly small) amounts to fund a project in return for future reward - isn’t a new idea, financial services regulations have historically restricted capital providers to high net worth individuals or sophisticated institutional investors. 

The new proposal of the SEC, approved in an open meeting webcast, will open up the pool of potential contributors to, essentially, anyone with an internet connection. 

At the time of signing the JOBS Act, President Barack Obama was predictably bullish, stating: “The last few years have been pretty tough on entrepreneurs.  Because of this bill, startups and small businesses will now have access to a big, new pool of potential investors - namely the American people.”[1]       

Although other parts of the JOBS Act (such as enabling online advertisements to accredited investors or relaxing reporting requirements) were addressed by the SEC relatively quickly, the final crowdfunding element has been delayed for over a year.  Today’s announcement launches a public comment period which will require a further SEC vote to carry into effect.  

Under the new proposals, companies can look to raise up to $1 million per year by issuing shares via “funding portals” (intermediaries between the companies and the investor which are responsible for ensuring the investors meet the participation criteria).  The SEC hopes to limit the exposure of investors outside the high-income bracket by capping the amount that individuals can invest.  Participants with an annual income or net worth of less than $100,000 will be allowed to invest only $2,000 or 5% of their income or net worth (whichever is the greater).  The current proposals do not require the company seeking funding to verify income levels, but the SEC has actively sought views on this as part of the comment period. 

The level of oversight from the company issuing shares will depend upon the amount of money it is looking to raise: if funding of less than $100,000 is sought, then the regime is fairly relaxed and company officers need only submit a financial statement.  Greater amounts require accountant sign-off and for a funding round greater than $500,000 the company must produce an auditor’s statement.  

UK crowdfunding portals wanting to manage US crowdfunding investments would need to submit to an examination process through the SEC before being able to register.  As we considered in depth in our May 2012 article “Click to Invest: is crowd funding the future of raising capital in the creative industries?”, the current UK financial promotion regime effectively stymies open crowdfunding by the public, as it purposefully requires communications to potential investors to be approved by someone authorised by the Financial Conduct Authority.  Whilst there are some exceptions to this prohibition (such as making communications solely to investment professionals or high-net worth individuals), a general offer to anyone to invest would not be one of them.

The UK Government has, to date, favoured tax efficient investment schemes such as the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) over a relaxation of the regulatory hurdles which prevent crowdfunding.  It will be interesting to see, once the new SEC proposal takes effect, whether this will change.      

For further information, please contact Andy Moseby.
 

[1] www.bloomberg.com/news/2012-04-20/investor-caveats-raised-as-startup-funding-rules-loosened