Startup Law: Congress Clearing Way For Crowdsourcing Stock Investments?

Crowdsourcing Stock Investments
The SEC is making moves to allow startups to sell investment opportunities on the Internet.

Startups may soon be able to sell stocks online. Yep, crowdsourcing stock investments has arrived.

Let’s review the SEC’s proposal and take a look at what online stock selling would look like.

What Law Made It Possible For Crowdsourcing Stock Investments?

In 2012, to stabilize the economy after it careened off 2008’s rails, officials passed the JOBS Act. Title III addresses crowdfunding issues and allows inchoate companies to directly solicit online investments.  Specifically, 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:

  1. If you make less than $100,000 a year, than you can invest either $2,000 or 5% of your income – whichever is more.
  2. If you make more than $100,000 a year, you can invest either $100,000 or 10% of your income – whichever is less.
  3. 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.
  4. Startups are allowed to raise $1 million without registering with the Securities and Exchange Commission.

The proposed provisions will go a long way in helping smaller startups, which traditionally have difficulty securing audiences 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 Crowdsourcing Stock Investments?

The One Thing You Won’t Be Able To Do With Online Securities

If you’re thinking of starting an investment fund by way of the new rules, think again. Raising money for online securities is not allowed. Sorry.

No law is perfect. And yes, fraud is possibly under the proposed framework; But, 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 Tech Startup Lawyer

Are you launching a startup? Do you want to explore selling investment stocks through crowdsourcing? If so, get in touch. Kelly Warner is a full service law firm that focuses on the needs and realities of online and tech sector businesses.