Franchising Today - Summer 2016 - 9

CROWDFUNDING

Crowdfunding offerings are capped
at $1 million per year. The issuer must
be a U.S. company and cannot be an
Exchange Act reporting company or a
mutual fund. Individual investors are
limited to certain maximum aggregate crowdfunding investments made
during any 12-month period.
Investors with an annual income
or net worth below $100,000 can invest the greater of $2,000 or 5 percent
of such investor's annual income or
net worth. An investor with an annual income or net worth greater than
$100,000 can invest up to 10 percent
of such investor's annual income
or net worth, with a maximum of
$100,000. With limited exceptions,
crowdfunded securities are subject to
a one-year transfer restriction.
A crowdfunding issuer must prepare and file a substantial disclosure
package, similar to a short-form registration statement under the Securities
Act of 1933, as amended, that would be
prepared for a public offering. Issuers
must file with the SEC and deliver to
potential investors and intermediaries information that includes:
Basic information on Form C
about the company and the offering. Financial disclosure follows

a tiered approach based on the offering amount and whether the issuer is crowdfunding for the first
time. The issuer may be required
to prepare audited financial statements, accompanied by a signed
audit report from the auditors
and consent to use the statements
in the offering materials,
Issuers must amend Form C for
updates and material changes to
previous disclosures,
Offering milestones trigger filing
of Form C-U,
Crowdfunding issuers must file a
Form C-AR annual report within
120 days after fiscal year end,
The issuer must file a termination report on Form C-TR within
five days after certain events that
end or disqualify the crowdfunding offering.
Does this mean that a franchisor can
slap a new cover page sheet on its current FDD and launch a crowdfunding offering? No, but with a modest
supplement describing the corporate
governance documents and equity
attributes not otherwise covered in
the FDD, a franchisor can quickly be
compliant with the SEC's rules, and

the launch of the offering will be more
easily achieved than without a FDD.
How often does a franchisee ask
whether he or she can invest in the
franchisor? Crowdfunding offers
franchisors the opportunity to consider paired or paperclip offerings,
where the prospective franchisee is
also offered the opportunity to invest
in the franchisor's equity.
Existing franchisees that are successful and committed to the success
of the franchise concept offer another
pool of potential investors, with contact information already listed in FDD
Item 20. Communications vehicles
between a franchisor and its franchisees offer the opportunity to promote
the offering to a group of potential investors without the need for any public or portal solicitation.
Although the disclosures required
by Form C and FDDs are quite similar, franchisors and franchisees new to
SEC reporting should be prepared to
spend additional resources on securities law compliance. The benefit is leveraging compliance resource allocation for franchising and securities law
compliance. An audit is an audit, and
the skills and reporting for one area are
not dissimilar to the other. Even if the
crowdfunding target audience is not
the franchisee community, the FDD
remains the primary disclosure tool.
Administrative efficiency opportunities can be exploited, compared
with crowdfunding issuers who are
not engaged in franchising, and therefore sustain all of the compliance burden without franchise revenues to offset compliance costs.
Joel Buckberg is a shareholder with Baker Donelson's
Nashville office, where he leads the firm's commercial transactions and business counseling group and
co-chairs the hospitality industry service team. He
counsels clients involved in franchising, hospitality and
distribution matters. He may be reached at 615-7265639 or jbuckberg@bakerdonelson.com.
SUMMER 2016

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Table of Contents for the Digital Edition of Franchising Today - Summer 2016

Contents
Franchising Today - Summer 2016 - Cover1
Franchising Today - Summer 2016 - Cover2
Franchising Today - Summer 2016 - 1
Franchising Today - Summer 2016 - Contents
Franchising Today - Summer 2016 - 3
Franchising Today - Summer 2016 - 4
Franchising Today - Summer 2016 - 5
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Franchising Today - Summer 2016 - Cover3
Franchising Today - Summer 2016 - Cover4
http://www.nxtbook.com/nxtbooks/knighthouse/ft_2020_vol5issue1a
http://www.nxtbook.com/nxtbooks/knighthouse/ft_2019_vol4issue4
http://www.nxtbook.com/nxtbooks/knighthouse/ft_2019_vol4issue4b
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