The US Securities and Exchange Commission (SEC) has proposed the long-awaited ‘crowdfunding’ rule under the JOBS Act, which would allow entrepreneurs and start-up firms to seek investment from investors over the internet.
The new proposal, if adopted, would transform the way small US firms can raise funds in the private securities marketplace.
SEC Chair Mary Jo White said that the intent of the JOBS Act is to make it easier for startups and small businesses to raise capital from a wide range of potential investors and provide additional investment opportunities for investors.
"There is a great deal of excitement in the marketplace about the crowdfunding exemption, and I’m pleased that we’re in a position to seek public comment on a proposal to permit crowdfunding," White said.
"We want this market to thrive in a safe manner for investors."
Currently, private firms are allowed to solicit only accredited investors with a net worth of $1m, which excludes the value of their homes, or yearly income of over $200,000.
The new rule would allow small businesses to raise a maximum of $1m per year by tapping unaccredited shareholders.
The new plan, which will be left for public comment for 90 days, is believed to hit the right balance between facilitating crowdfunding and defending investors from potential fraud.
