US Securities and Exchange Commission approves crowdfunding for sale of stocks online
The US Securities and Exchange Commission approved a proposal that would allow startups and small companies to sell ownership stakes to investors through Internet crowdfunding platforms. The regulator approved the rules for equity crowdfunding last month in a 5-0 vote and would be open for public comment for 90 days. Under the proposal, startups or other businesses considered too small or too risky by venture capitalists and lenders can use equity crowdfunding.
Democratic SEC Commissioner Kara M. Stein said before the proposal was voted in Washington, "The proposal before us today appears to offer great promise for providing capital to small businesses so they can survive and hopefully thrive, but it may also provide great risks to investors. If we don't get it right, I fear that the promise of crowdfunding will be lost." The regulators have assured that they have tried their best to address the concerns that fraud could be perpetrated through the platform. Some have expressed concerns that startups may shares which were not liquid to retail investors.
The proposal requires that crowdfunding should conducted through an entity that will allow investors to ask questions and talk about the transaction.
According to Republican SEC Commissioner Michael Piwowar, all types of investors and not just the accredited ones will be given the chance to invest in startups earlier than before. New companies that opt to use crowdfunding would not be able to get an investment of over USD 5,000 annually from an investor whose net worth is under USD 100,000. Those who have income or whose net worths are over USD 100,000 may invest up to 10% of their income or net worth. The maximum that they can invest is USD 100,000 annually.
To determine if investors are complying with the law, the proposal requires a crowdfunding portal to ask the income or net worth of the investors.