In short order, startups will be able to sell stocks online to so-called “small-time” investors. Yep, crowdfunding for securities is finally (almost) here. So, let’s go over the SEC’s recent proposal and give an overview of what online stock selling will look like.
What Law Made It Possible For Startups To Sell Stocks Online?
In an effort to get the economy back on track after it careened off the rails in 2008, officials passed the JOBS Act in 2012. The bill is comprised of several sections relating to various commercial sectors. Title III addresses issues related to crowdfunding businesses. Specifically, it allows inchoate companies to directly solicit investments for their businesses online. In the language of the law, the online securities provision “permits companies to offer and sell securities through crowdfunding.”
The JOBS Act gives the Securities and Exchange Commission authority over certain aspects of online stock selling, and earlier in the month the commission unanimously voted to release their online security selling rules proposal for public comment.
What Are The Commissioners Suggesting? Here’s the rundown:
- If you make less than $100,000 a year, than you can invest either $2,000 or 5% of your income – whichever is more.
- If you make more than $100,000 a year, you can invest either $100,000 or 10% of your income – whichever is less.
- Companies soliciting investors must provide a business plan, in addition to the names of officers, directors and people who own at least 20% of the company, to potential purchasers.
- Startups are allowed to raise $1 million without registering with the Securities and Exchange Commission.
The above provisions will go a long way in helping smaller startups, which traditionally would have difficulty getting an audience with venture and angel capitalists, get off the ground. Moreover, the measures unburden the SEC of time consuming, process stalling paperwork.
What Are The Drawbacks Of The Proposed New Startup Crowdsourcing Rules?
Bottom line: no law is perfect. So while Casandras may speak some truth when they warn of the fraud potential, it’s important to look at the positive potential. We, the People, have proved our affinity for crowdsourcing models. So why not allow innovators to tap in to the fundraising model? As SEC Chairman Mary Jo White explained, “There is a great deal of excitement in the marketplace” over crowdfunding. We want this market to thrive, in a safe manner for investors.”
Get In Touch With A Lawyer Who Knows A Whole Lot About Tech and Online Startups
Are you launching a startup? Do you want to explore the possibilities of marketing and selling investment stocks through crowdsourcing? If so, get in touch. Kelly Warner is a full service, well-regarded law firm that focuses on the needs and realities of online and tech sector businesses. Email us, Twitter us, Facebook us, Skype us (aaronklaw) – we’re always around and ready to talk.