Rules Permitting Crowdfunding Adopted by SEC
On October 30, 2015, the Securities and Exchange Commission (SEC) announced that it had adopted final rules that would allow securities offerings by companies through the use of crowdfunding. The SEC has also voted to amend existing rules in the Securities Act that would allow for regional and intrastate securities offerings. The SEC says that the new rules and proposed amendments are designed to aid smaller businesses and companies with capital formation, as well as provide additional protection to investors.
Crowdfunding allows companies and small businesses to raise funds and capital through online methods for various projects. It is an evolving method that has been granted federal exemption under Title III of the JOBS Act so companies can offer and sell securities through this method of funding. The final rules, Regulation Crowdfunding, would allow individuals to invest in crowdfunding transactions subject to specific limits, including a limit on the monetary amount an issuer can raise using crowdfunding.
The final rules will require the issuers to impose requirements for disclosure of information regarding the business and securities offerings, as well as create regulations regarding broker-dealers and the funding portals facilitating all transactions of the crowdfunding.
The SEC has also proposed amendments to modernize Rules 147 and 504 of the Securities Act. These amendments would allow for intrastate offerings in order to help with capital through intrastate crowdfunding provisions, as well as increase the amount of money that may be offered from $1 million to $5 million and add more protection for investors. The SEC is utilizing a 60-day period after the publication to seek comment from the public.