As of October 30, the S.E.C. has adopted new crowdfunding rules that will allow small investors to purchase equity shares in startup companies. Under Title III of President Obama’s JOBS Act (Jump-Start Our Business Start-Ups), the revisions seek to improve upon an earlier draft that was widely rejected for requiring unworkable compliance costs and procedures.
The new Title III rules cap companies at $1M per year, and limit individual investor contributions based on annual income and net worth. Those with an annual income or net worth of less than $100K are restricted to investing between 5% of such or $2K, while those with greater than $100K, are limited to investing 10% of such. Each company is also required to disclose financial statements that must be independently audited, unless they are seeking less than $500K or are equity crowdfunding for the first time. Further, each funding portal must register with the S.E.C. and be subject to regulation.