The Securities and Exchange Commission (SEC) has proposed new rules that would allow companies to sell shares through crowdfunding sites.
The proposals fall under the auspices of the JOBS Act, which was signed into law in April 2012 and is designed to make it easier for startups and small businesses to raise capital from a wide range of potential investors.
"There is a great deal of excitement in the marketplace about the crowdfunding exemption, and I'm pleased that we're in a position to seek public comment on a proposal to permit crowdfunding," says SEC chair Chair Mary Jo White. "We want this market to thrive in a safe manner for investors."
The proposed rules would among other things permit individuals to: invest up to five per cent of their annual income (or 10% for higher net worth investors) up to a maximum of $100,000; limit the amount of money a company can raise to $1 million over a 12 month period; require companies to disclose certain information about their offers; create a regulatory framework for intermediary crowdfunding platforms. All offerings would be conducted exclusively online either by a by a registered broker or a funding portal, which is a new type of SEC registrant.
As mandated by Title III of the JOBS Act, securities purchased in a crowdfunding transaction could not be resold for a period of one year.
Holders of these securities would not count toward the threshold that requires a company to register with the SEC under the Exchange Act, while companies raising funds through crowdfunding would be required to file an annual report with the SEC and provide it to investors.
The SEC is seeking public comment on the proposed rules for a 90-day period following their publication in the Federal Register.
In the UK, meanwhile, the Financial Conduct Authority has issued a consultation paper outlining a revised approach to regulating firms that operate investment-based crowdfunding platforms or market unlisted equity or debt securities. The watchdog is inviting public responses to its proposals by 19 December 2013.
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