SEC releases ‘crowdfunding’ rule

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Reuters  | By Sarah N. Lynch  | Oct 23, 2013 6:05pm EDT

crowdfunding rules released by SEC(Reuters) - Entrepreneurs and start-up companies looking for investors will be able to solicit over the Internet from the general public under a new proposal issued by U.S. regulators on Wednesday.

The "crowdfunding" proposal, if adopted by the Securities and Exchange Commission, would be a major shift in how small U.S. companies can raise money in the private securities market.

Private companies are currently allowed to solicit only accredited investors - those with a net worth of at least $1 million, excluding the value of their homes, or annual income of more than $200,000.

The crowdfunding rule would let small businesses raise up to $1 million a year by tapping unaccredited investors.

It remains to be seen if the plan goes far enough in limiting regulatory costs so that small businesses find crowdfunding desirable.

The measure would still impose a number of disclosure rules and other requirements on small companies and crowdfunding intermediaries.

Rory Eakin, the chief operating officer and founder of CircleUp, a brokerage that offers crowdfunding opportunities to high-net-worth "accredited" investors, said he was initially optimistic about the proposal until he read the fine print.

Related:  SEC votes to propose equity crowdfunding by unaccredited investors, now up for public comment

"It's hard to imagine attractive companies will take advantage of these proposed rules," he said, citing a raft of concerns including a requirement for companies to file financial statements every year.

SEC commissioners said on Wednesday they hope the plan strikes the right balance between facilitating crowdfunding and protecting investors from possible fraud.

The public will have 90 days to respond to the proposal, which is hundreds of pages long.

"I believe our proposal is generally careful not to add additional, unnecessary frictions into this marketplace," SEC Republican Commissioner Daniel Gallagher said. "That said, the proof is always in the pudding."

Alon Hillel-Tuch, a co-founder and chief financial officer at RocketHub, a crowdfunding platform that is considering registering with the SEC, said that overall he was optimistic about the SEC's plan.

At the same time, he is concerned about aspects of the proposal, such as a requirement that a company raising more than $500,000 provide an audited financial statement.

Some small companies have no historical financials, making it hard to figure out how they would be audited under U.S. accounting standards, Hillel-Tuch said.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada crowdfunding hub providing education, advocacy and networking opportunities in the rapidly evolving crowdfunding industry. NCFA Canada is a community-based, membership-driven entity that was formed at the grass roots level to fill a national need in the market place. Join our growing network of industry stakeholders, fundraisers and investors. Increase your organization’s profile and gain access to a dynamic group of industry front runners. Learn more eBrochure | Prezi or contact us at casano@ncfacanada.org.

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