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This week, the Securities and Exchange Commission released new proposed rules that would permit but regulate the offer and sale of securities through crowdfunding. Crowdfunding is an internet-based fundraising method. It typically involves musicians, filmmakers, artists, or designers gathering small financial contributions from a large number of individuals.
Under the new rules proposed to regulate equity crowdfunding:
● A company would be able to raise a maximum aggregate amount of $1 million through crowdfunding offerings in a 12-month period.
● Investors, over the course of a 12-month period, would be permitted to invest up to:
○ $2,000 or 5 percent of their annual income or net worth, whichever is greater, if both their annual income and net worth are less than $100,000.
○ 10 percent of their annual income or net worth, whichever is greater, if either their annual income or net worth is equal to or more than $100,000. During the 12-month period, these investors would not be able to purchase more than $100,000 of securities through crowdfunding.
In its offering documents, among the things the company would be required to disclose:
● Information about officers and directors as well as owners of 20 percent or more of the company.
● A description of the company’s business and the use of proceeds from the offering.
● The price to the public of the securities being offered, the target offering amount, the deadline to reach the target offering amount, and whether the company will accept investments in excess of the target offering amount.
● A description of the financial condition of the company.
An article by Above the Law describes the rest of the proposed rules and in it the author suggests that the new rules create a complex, costly regulatory framework that is hard to comply with.
What are your thoughts about the proposed rules? Do you think they will encourage more crowdsourcing deals or make it harder for people to raise money over the internet?