In what can be considered a historic day for startups, small businesses and entrepreneurs all across the United States, the Securities and Exchange Committee (SEC) voted 3 to 1 to approve the final rules for debt and equity crowdfunding (aka Regulation Crowdfunding) on Friday.  In about 180 days, tech startups and Main Street businesses will be able to raise up to $1 million from their friends, followers, and community via SEC registered websites. There is a lot you need to know about the new rules, so let’s jump right in:

1. This is NOT Kickstarter
If you are interested in selling equity in your startup or borrowing money from the customers of your small business, you must realize you are selling securities in your business and that this is a highly regulated activity (hence the 685 pages of rules).  Take extra time to understand what you CANNOT do so that you do not get in trouble with the law.

2. What has changed?
Limitations under old regulations qualified you to issue securities without doing a full IPO as long as you limited the number of investors, used only accredited investors (those with income over $200,000/year or with a net worth over $1 million), and did not use any public means of solicitation (which included the Internet, email, newspapers, radio, television, etc). Those limits have all changed. Now, anyone can invest at least $2,000, but beyond that amount, an investor is still restricted based on income or net worth. (I’ve put together a calculator you can download to check your limits as an investor under the new rules.) Issuers (aka startups and Main Street businesses) can use email, Facebook, Twitter, etc., to offer an investment (debt or equity) in their firm as long as they hit 100 percent of their funding target, not exceed $1 million and do so on a SEC-registered funding portal (cheaper) or via a broker/dealer (more expensive).

3. Compliance is KEY
If you fail to comply with the rules (like submitting your annual report with the SEC within 120 days after the end of your fiscal year and posting a link on your website), you could lose your exemption, which means that you will face hefty fines and legal fees to defend yourself. Be sure to follow all the rules/filings before, during, and after you raise your funds. For instance, you cannot list your offering on more than one platform. Also if you want to host a launch party to promote your offering, do NOT do so with the funding portal (unless it is a broker-dealer) because that is considered offering investment advice (by the funding portal), which is not allowed.

4. Think of who is in your crowd when deciding on a path forward
If you have both accredited and unaccredited investors but wish (or need) to raise over $1 million, then consider doing what is called a parallel offering. Do a Regulation Crowdfunding offering for the unaccredited investors and at the same time a Title II offering, which allows for general solicitation of accredited investors and does not have the $1 million cap. Just be careful not to reference both offerings in your marketing materials or they could be considered “integrated.” They should be independent offerings.

5. You cannot crowdfund a fund to invest in crowdfunded opportunities
Each offering must include a business plan for which the underlying purpose must be a bonafide business and not an investment vehicle. Sorry, you creative types.

6. Your investors can change their mind up to 48 hours prior to closing
Keep in mind that if you hit your funding target, investors have the right to rescind. In this case, it might benefit you to aim to over exceed your target (which is allowed) so that you have enough cushion if an investor or two changes their mind. On the flip side, if you are exceedingly successful with your campaign before the 30-, 60-, or 90-day period ends, you may choose to close early with a five-day notice to potential investors (and the SEC) and start putting that money to work right away.

7. Disclose, disclose, DISCLOSE
One of the key provisions about the rules is that you need to be as upfront and transparent with your investors as possible. This requires that you disclose anything about your business that would have a material impact on an investor’s decision to back it. Disclosures could include everything from the fact that you’ve taken on substantial debt to the fact that your mother-in-law owns 70 percent of the business or that your business could fail if coconut water (your business model) goes out of vogue or that one customer makes up 80 percent of your business. If you think you would be overwhelmed by this, consider using http://idisclose.com/ which can help make sure you get it all out there.

8. Get comfortable with your financials
While the costly audit requirement has been removed for first time crowdfund issuers (you will still need them reviewed by someone like an independent public accountant if you are raising over $100,000), this doesn’t excuse you from having to produce financial statements that truly represent the financial health of your company. Don’t go down the path of crowdfunding if you aren’t going to use a product like Quickbooks. Using a product like Quickbooks means that your balance sheet, income statement, statement of cash flow, and statement of change in owner’s equity are just a report click away. Leverage technology to help you stay in line.

9. Your personal financial info could become public
If you are raising less than $100,000, you will need to disclose how much money you made, your taxable income, and total tax as reflected on your federal income tax return and certified by you. So get comfortable sharing a little personal financial information.

While Regulation Crowdfunding opens a new door for entrepreneurs, startups, and small businesses across the U.S., it comes with a fair share of rules and compliance. If you choose to go down this path, it can deliver money that you cannot find elsewhere; but proceed with caution, disclose as much as possible, and remember everything you say will be digitally recorded forever and “can and will be held against you in a court of law” if you make any material misstatements. So be honest, and remember you have about 180 days before this goes live.

Sherwood Neiss is a partner at Crowdfund Capital Advisors. Neiss helped lead the U.S. fight to legalize debt and equity based crowdfunding, coauthored Crowdfund Investing for Dummies, and cofounded Crowdfund Capital Advisors, where he provides strategy and technology services to those seeking to benefit from crowdfund investing. Neiss and Jason Best are credited as the fathers of Title III of the JOBS Act. After attending the bill-signing ceremony at the White House, they formed Crowdfund Capital Advisors to study what is happening in crowdfunding, analyze results, report trends, and follow opportunities. They are active investors in the crowd finance space.