Global News

In a long-awaited decision, the SEC adopted final rules that will allow companies to offer and sell securities through the use of crowdfunding. The final rules represent a reluctant but positive first step by the SEC in allowing companies to take advantage of the potential source of fundraising.

The final rule permits non-reporting U.S. companies to raise $1 million in any rolling 12-month period. Potential investors with an annual income or net worth less than $100,000 can invest the higher of $2,000 or 5% of their annual income or net worth, while those with an annual income or net worth exceeding $100,000 can invest up to 10% of their annual income or net worth but never in excess of $100,000 in a 12-month period.

Nonprofit groups and individuals have been taking advantage of the Internet to raise funds for years. However, companies have been reluctant to use crowdfunding to sell securities, due to the stringent registration process required by Section 5 of the Securities Act of 1933. In order to lessen those requirements and help small businesses and start-ups attract investments and create jobs, Congress passed Title III of the JOBS Act of 2012. Since then, adoption of these rules had been held up, in part over the regulator’s concerns that investors could potentially be more easily defrauded online. In setting these limits, the SEC sought to strike a balance between allowing companies access to this new source of capital and creating jobs while also protecting investors.

The original article can be found at mondaq.com