Title III of the Jumpstart Our Business Startups Act, signed by President Barack Obama in April 2012, asked the U.S. Securities and Exchange Commission to create rules that would allow businesses to issue securities through Internet-based crowdfunding. After much deliberation and hundreds of comments from the public, the commissioners at the SEC recently voted 3-1 to finalize these rules, which will make it easier for companies and startups to access capital from investors who might not have otherwise been included.
The final rules will hopefully open up doors for both businesses and investors. But companies that want to raise money this way shouldn’t let the “crowdfunding” label fool them into thinking that taking advantage of the new framework is as simple as setting up a Kickstarter page or sending out an email asking for investments. Issuing securities under this new system will involve some work on the part of both the issuer and the broker-dealer or funding portal that is facilitating transactions.
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