Broker-Dealer - Launchopedia

In reference to “Crowdfunding”, one of the two types of “Intermediary” (“Portals” being the other) authorized by the “JOBS Act” to handle the sale of crowdfunded securities (i.e. equity or debt instruments) by an “issuing company”. More generally, a governmentally regulated component of the U.S. financial system, either a natural person or an organization trading securities on its own account or on behalf of customers. Broker-dealers are regulated by the federal Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA)(a “Self-Regulatory Organization”, or “SRO”), and sometimes the various states.¹

Related Terms

Crowdfunding | JOBS Act

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Definitioner

JOBS

Jumpstart our Business Startups Act

Human Relations

SEC

The United States Securities and Exchange Commission charged with regulating all sales of corporate securities.⁷

Securities and Exchange Commission (SEC)

The United States Securities and Exchange Commission charged with regulating all sales of corporate securities.⁷

Securities

Includes all types of equity and debt instruments and rights in and to them.³

Equity

Ownership in the capital of a Company. In corporations, it is called “stock”; in limited partnerships or LLCs, it is called “interests” or “units.”³
This designation is given to a stockholder’s ownership in a company. The amount of ownership is obtained when an individual or corporation purchases one or more shares of stock (equity shares). The more equity purchased, the greater the ownership.⁴

Intermediary

Either a "Broker-Dealer" or a "Portal", both allowed by the JOBS Act to consummate a securities-based crowdfunding transaction.¹

Debt

Any obligation by one person to pay another. May be a primary (direct) obligation as in a Note, or a secondary (contingent) obligation as in a guaranty.³
This is an amount of money that a borrower owes to an individual, investor, or lending institution. In the finance world, the word “debt” is often associated with interest payments. For example, when an individual has a credit card limit of $5,000, the lender, usually a bank, is willing to lend the credit card holder $5,000 of credit. If the lender uses $500 of that total amount, they are now considered to be in $500 debt until the total amount is paid. Partial payment of an owed amount always encompasses interest.⁴

Crowdfunding

“Crowdfunding” is the process of raising financial support for a venture via smaller amounts from many investors (“the crowd”), rather than the alternative pattern of larger amounts from a smaller number of supporters. Charities and philanthropies have traditionally employed both fundraising strategies (soliciting both the general populace, or crowd, as well as fewer wealthier donors), while businesses have usually taken the route involving fewer and larger supporters. Today’s internet has vastly increased the ability of fundraisers to communicate information, solicit and receive financial support from anyone on-line. Crowdfunding without the expectation of financial return, or with the promise of a specific good or service, are termed “donation-based” or “reward-based” crowdfunding, are in the nature of charitable solicitation or business marketing, and have never been illegal in the U.S. In contrast, soliciting funds in return for a ownership interest or expectation of repayment, are termed “equity-based” or “debt-based” crowdfunding (together grouped as “securities-based” crowdfunding), and have been until now governed (and effectively prevented) by federal and state securities law. One of the most significant parts (Title III) of the federal “Jumpstart Our Business Startups”, or JOBS Act of 2012 specifically enabled and legalized “security-based crowdfunding”, subject to a variety of regulations and restrictions.¹

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