SEC adopts crowdfunding rules

Companies will be permitted to offer and sell securities through crowdfunding under rules adopted by the SEC. In addition, the SEC proposed amendments to existing rules to facilitate intrastate and regional offerings of securities.

The new crowdfunding rules, which take effect 180 days after publication in the Federal Register, permit individuals to invest a limited amount of capital in securities-based crowdfunding transactions.

The rules limit the amount an issuer can raise through crowdfunding and require issuers of securities through crowdfunding to make certain disclosures about their businesses and securities offerings. Companies will be permitted to raise a total of $1 million through crowdfunding in a 12-month period. The amount individuals will be permitted to invest in a 12-month period will be subject to limits based on their annual income and net worth.

Companies offering securities through crowdfunding will be required to make numerous disclosures, including a discussion of the company’s financial condition; a description of the business and use of proceeds from the offering; and information about officers, directors, and owners of 20% or more of the company.

These companies also would be required to file financial statements with the SEC that may be required to be reviewed by an independent public accountant or audited by an independent auditor, depending on the amount offered and sold during a 12-month period. The audit requirement would be softened to a review requirement for certain companies offering securities through crowdfunding for the first time.

The proposed amendments that would change rules for intrastate offerings to enhance capital formation would increase the aggregate amount of money that may be offered and sold pursuant to Securities Act Rule 504. The SEC will accept public comment on the proposed intrastate offerings amendments for 60 days following their publication in the Federal Register.