On the 23rd of October 2013, the U.S. Securities and Exchange Commission (the "SEC") issued a press statement announcing proposed rules for the selling of securities via crowdfunding. Companies that are eligible can raise as much as $1 million over a 12 month period.
Crowdfunding investments are much riskier than investing in securities registered for sale. Securities issued as part of Crowdfunding transactions can't be exchanged or sold within 12 months. Smaller and new businesses are typically much riskier than more established firms.
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Therefore, under the proposed rules, investors will be restricted in the amount they can invest in Crowdfunding, depending on their net worth and income. The solicitations and transactions for crowdfunding would need to be conducted through an SEC authorized intermediary, which could be an SEC-registered broker or a new entity known as a financing portal.
Intermediaries will provide investors with informational materials as well as take measures to stop fraud, and make documents for offering to investors, and offer an open forum for the crowd to debate the offering.
In essence the proposed regulations provide the door to a new and exciting avenue for small and start-up businesses to raise capital via crowdfunding with a significantly lower administrative burdens than a traditional "going publicly" transaction. We will examine the proposed regulations in depth in an article series over the next few months. Keep an eye out.