A few weeks ago, we wrote an article summarizing the basic tenants of crowdfunding, the new investment trend catching on in a variety of industries in markets across the globe. Crowdfunding would essentially allow people to invest in new development and real estate who were never able to before. According to the former law, a person was unable to invest in these types of transactions if their net worth was under $2 million or they could not regularly invest $100,000 – which means the majority of Americans.
Crowdfunding became popular through websites like Kickstarter, which allow people to contribute any amount of money towards projects for some kind of agreed-upon return. But because the SEC dragged their feet since the JOBS Act passed in 2012 in establishing any kind of regulation to protect investors, crowdfunding has yet to make a big impact.
The SEC came through this week and finally delivered a set of proposed regulations that would allow crowdfunding portals to become available to the “normal” investor. Several rules were put into place in order to protect both the investors and those they invest in:
- Small business can raise up to $1 million a year through crowdfunding without having to register with the SEC
- All crowdfunding transactions would have to be conducted through an SEC-approved intermediary
- Businesses and individuals who raise money through these portals will be required to disclose information on their business, the people who work there, and their financial statements
- Crowdfunding intermediaries cannot have any interest in the companies using their platforms to raise money
- Investors would have to disclose information about their incomes (as there are restrictions on how much one can donate contingent upon how much money they make annually)
- People with a net income of less than $100,000 can invest up to 5% of their income through crowdfunding
- People with a net income of more than $100,000 can invest up to 10% of their income through crowdfunding