On October 23, 2013, the SEC issued a press release announcing its long awaited equity crowdfunding rules. The proposed rules were released a few days later, and are now open for a three-month comment period. Assuming revised rules are published after comments are received and analyzed by the SEC staff, revised rules can be expected in Spring 2014 to become effective later in the year.
The proposed rules implement Title III of the Jumpstart Our Business Startups Act (the JOBS ACT). They provide for the establishment of equity crowdfunding web portals, which must either be sponsored by an SEC-registered securities broker-dealer or else registered with the SEC in a process that parallels the broker-dealer registration process. Companies may raise up to $1 million in any 12-month period under the rules by selling stock or other equity. The amount that may be invested by each investor is limited. If either the investor’s annual income or net worth is less than $100,000, the maximum that he or she may invest is the greater of $2,000 or 5% of his or her annual income or net worth. If either the investor’s annual income or net worth is equal to or greater than $100,000, the maximum that he or she may invest is the lesser of $100,000 or 10% of his or her annual income or net worth.
A future post will analyze the proposed rules in greater depth.