A section of the Internal Revenue Code that allows real estate owners to sell one property and buy another without having to pay capital gains taxes on their profits right away. This can only be done between similar properties, such as two rental properties. Using a 1031 exchange, investors can postpone paying capital gains taxes until they sell the replacement property without intending to reinvest the proceeds.
An individual who has a net worth exceeding $1 million (excluding their primary residence), or an annual income of at least $200,000 for the past two years, or a joint income with a spouse of at least $300,000, or a qualified institutional buyer. Accredited investors have access to investment opportunities that are not available to the general public and can offer or buy certain securities.
An individual or entity that engages in fraudulent,
manipulative, or deceptive activities in order to gain an unfair advantage over
other market participants. Insider trading, market manipulation, and other
illegal or unethical behavior that undermines the integrity and transparency of
the securities market are examples of such activities.
A financial entity that focuses on assisting in the purchase and sale of securities on behalf of clients or for their own account. Broker-dealers carry out deals, offer investment guidance, and provide a variety of financial services linked to securities, such as underwriting and market-making, acting as a middleman between buyers and sellers. They are essential to the functioning of the securities markets because they give investors access to a wide variety of investment options and assist the market stay liquid. Broker-dealers are expected to register with regulatory authorities and adhere to stringent rules designed to safeguard investors and guarantee honest and open markets.
Blue Sky Laws
State-level regulations that govern the selling of securities in order to safeguard investors from fraudulent or dangerous investments. Blue sky laws may mandate that businesses intending to raise capital through crowdfunding register with the state and adhere to specific transparency and filing requirements. This can entail disclosing details regarding the company’s business plan, financial records, and investment risk factors. Additionally, certain governments may place restrictions on who can invest or the amount of money that can be generated through crowdsourcing. In order to ensure that crowdfunding platforms and businesses seeking to raise money through crowdsourcing are working within legal and regulatory frameworks and giving investors accurate and transparent information, compliance with blue sky regulations is essential.
Also known as a convertible promissory note, is a short-term debt instrument that accrues interest and converts into equity at a predetermined time or event, typically given during a startup’s seed investment round and then converted to equity during the next funding round when the company’s value is better established.
Is the practice of funding a project or venture by raising money from a large number of people, typically via the internet. Crowdfunding is a form of crowdsourcing and alternative finance.
Are websites that enable interaction between fundraisers and
the crowd. Financial pledges can be made and collected through the crowdfunding
platform. Fundraisers are usually charged a fee by crowdfunding platforms if
the fundraising campaign has been successful.
An online platform that allows companies to offer securities to a large number of investors in accordance with the SEC’s crowdfunding rules. The portal serves as a liaison between issuers and investors, maintaining compliance with SEC regulations.
A method of
obtaining ideas, content, or services from a large group of people in order to
achieve a common goal by tapping into the crowd’s collective knowledge and
Debt Crowdfunding (P2P)
The practice of raising funds from a large number of investors by offering fixed interest rate loans that must be repaid over a specified period of time. Also known as peer-to-peer lending, this enables businesses and individuals to obtain financing from a diverse group of investors.
Is a method of raising funds for a project by requesting small contributions from a large number of people. This type of crowdfunding is usually used for charitable, social, or non-profit causes. Donation crowdfunding funds are typically distributed directly to the organization or entity in need, with no expectation of financial return.
The process of conducting extensive research and analysis prior to making an investment decision. It entails reviewing financial and legal documents, evaluating the management team and their track record, analyzing market trends, and identifying potential risks and opportunities associated with a security.
Emergent Growth Company (EGC)
An Emergent Growth Company is a newly formed small business with less than $1.07 billion in annual gross revenue that wishes to go public. To qualify as an EGC, the company must have been in operation for less than 5 years and have not issued securities in a registered public offering. It is also exempt from certain Securities Exchange Act reporting requirements, such as providing audited financial statements for fewer years and exemptions from some executive compensation disclosures.
The value of a company that is owned by its shareholders. This value represents the company’s assets minus its liabilities.
Is a method for startups and small businesses to raise capital by selling ownership shares to a large number of investors, usually via an online platform. Individuals can invest in companies they believe in and potentially share in their success, while businesses can gain access to funding from a diverse group of investors.
The practice of marketing investment opportunities to prospective investors who are not already part of one’s network, with the purpose of raising funds. Private issuers may engage in this activity within the limits of specific registration exemptions provided by the JOBS Act, including Title II 506c, Title IV Reg A, and the forthcoming Title III Reg CF.
Initial Public Offering (IPO)
A private company’s first sale of shares of its stock to the public on a stock exchange. When a company goes public through an IPO, it must go through a rigorous process of regulatory filings and disclosures to ensure that potential investors have all the information they need to make an informed decision about whether or not to invest.
Is a method for individuals to invest in private companies or projects in exchange for a portion of the company’s potential profits or equity. Investment crowdfunding is typically used to fund startups or small businesses, but it can also be used for larger projects such as real estate developments.
A company or organization that offers securities to investors, such as stocks, bonds, or other investment products.
An individual or entity that does not meet the financial or experience requirements set by the SEC to be considered an accredited investor. They generally have less wealth, investment experience, and access to information than accredited investors, and are subject to more regulatory protections and limitations.
Private Placement Offering
The sale of securities (such as stocks or bonds) to a small group of qualified investors rather than through a public offering. The Securities Act of 1933 exempts these types of securities transactions from registration with the SEC. However, a private placement offering must still submit various notice filings at both the state and federal levels in accordance with Reg D.
Real Estate Crowdfunding
A method of financing real estate purchases in which multiple investors pool their money together, primarily through equity and peer-to-peer lending. This approach makes real estate investing more accessible to a broader range of people and can provide an opportunity to invest in real estate with lower minimum investments and lower risk.
A type of crowdfunding in which people contribute money to support a project or product in exchange for a non-monetary reward such as a product sample, discount, or other perk.
Return on Investment (ROI)
The profit or loss made from an investment relative to the amount of money that was initially invested.
Any investment contracts or instruments that are traded or sold in the U.S., including stocks, bonds, options, and other financial instruments.
Securities and Exchange Commission (SEC)
A U.S. government agency in charge of overseeing and regulating the securities markets. Its primary goal is to protect investors, promote capital formation, and ensure fair and efficient markets.
Testing the Waters
A process by which companies or issuers assess the interest of potential investors prior to making a formal securities offering. During this process, the company may communicate with potential investors to determine their level of interest in investing in the company and to solicit feedback on the proposed offering. Testing the waters does not involve making an actual offer or sale of securities and is usually done prior to the company filing a registration statement with the SEC.