On Friday, October 30, the Securities and Exchange Commission (SEC), by a vote of 3-1, adopted rules designed to implement a 2012 law that allows start-ups to use crowd funding to generate investments in their companies.
Starting in the middle of 2016, businesses will be able to legally sell stock online to investors. This will assist companies to use the widespread power of the Internet to generate capital, while allowing investors to invest early in the next blockbuster idea or service.
However, the SEC is warning investors that fraud is a concern, as online scams are rampant. The SEC rules require that the crowdfunding securities offerings can only be made through brokerage firms or Internet funding portals that are registered with the SEC. Further, there will be caps on how much investors can invest, which is based on annual income. The cap will be $100,000.
But sit tight for now. The rules don’t go into effect until sometime next year, and the SEC hasn’t given us an idea of when that will be. Nonetheless, it is an exciting development for start-ups and investors alike, and we will let you know when the SEC rules are issued.