Last week we posted that the House of Representative and Senate passed their own crowdfunding bills and were heading to reconciliation. Rather than debate the differences, on March 27, 2012, the House of Representatives passed the Senate's version of the bill which was initially passed on March 22, 2011. The bill has now been sent to President Obama for signature. The following are key provisions of the Senate's bill related to crowdfunding:
- Allow entrepreneurs to raise up to $1 million per year through and SEC approved portal.
- Free people to invest a percentage of their income. For investors with an income of less than $100,000, investments will be capped at the greater of $2,000 or 5% of income. For investors within an income of more than $100,000, investments will be capped at 10% up to $100,000.
- Require crowdfunding portals to provide investor protection, including investor education materials on the risks associated with small issuers and illiquidity.
- All investment offerings on the platform must be registered in advance with the SEC through a filing of basic information about the corporation and its principals. Fundraising up to $100k requires very minimal financial statement filings and allows for pre-revenue businesses to still raise up to $100k. Fundraising from $100k to $500k requires review of financials by a public accountant. Fundraising from $500k to $1M requires audited financials.
- Crowdfunding investors are excluded from shareholder caps (currently at 500, though likely to be increased soon) for purposes allowing a private company to stay privately held. *Companies will be able to raise crowdfunding from as many people as they want.
- The investor cannot resell the stock for a year, except back to the issuing company, an accredited investor, through a subsequent registered IPO, or to their family. *This is consistent with non-public offering re-sale restrictions.