Investing

SEC Adopts Rules to Permit Crowdfunding Securities

Chris Lange

Published: November 2, 2015 2:40 pm

Last Updated: January 13, 2020 5:38 pm

The U.S. Securities and Exchange Commission (SEC) announced that it has adopted final rules to permit companies to offer and sell securities through crowdfunding.  The SEC also voted to propose amendments to existing Securities Act rules to facilitate intrastate and regional securities offerings.  The new rules and proposed amendments are designed to assist smaller companies with capital formation and provide investors with additional protections.

For some background, crowdfunding is an evolving method of raising capital that has been used to raise funds through the Internet for a variety of projects. Also worth noting was that Title III of the JOBS Act created a federal exemption under the securities laws so that this type of funding method can be used to offer and sell securities.

The final rules, Regulation Crowdfunding, permit individuals to invest in securities-based crowdfunding transactions subject to certain investment limits.  The rules also limit the amount of money an issuer can raise using the crowdfunding exemption, impose disclosure requirements on issuers for certain information about their business and securities offering, and create a regulatory framework for the broker-dealers and funding portals that facilitate the crowdfunding transactions.

Mary Jo White, SEC Chair, commented:

There is a great deal of enthusiasm in the marketplace for crowdfunding, and I believe these rules and proposed amendments provide smaller companies with innovative ways to raise capital and give investors the protections they need. With these rules, the Commission has completed all of the major rulemaking mandated under the JOBS Act.

The new crowdfunding rules and forms will be effective 180 days after they are published in the Federal Register. The forms enabling funding portals to register with the Commission will be effective Jan. 29, 2016.