Small business crowd-funded stocks get government go-ahead

Stock Certificate

A stock certificate can now be issued by small businesses. Image: Flickr / jm3 / CC-BY

In the past few years, crowdfunding has become a popular way for small business owners to acquire funding. Now, Congress has opened the door for owners to sell equity in their small businesses online.

The problem with equity deals

Small business owners who want to sell equity in their company as a way to build financing for their businesses have run into difficulties with the Securities and Exchange Commission. The SEC used to limit small companies from offering stock or equity, requiring registration that would cost hundreds or thousands of dollars. The SEC also stopped small businesses from advertising stock offerings, meaning they could not even post about it on the internet.

The Entrepreneur Access to Capital Act

In two bipartisan votes in early November, Congress passed two major changes to legislation that would grease the wheels for small businesses. The Entrepreneur Access to Capital Act allows businesses to raise capital from crowdfunding in amounts up to $2 million without needing to register with the SEC. Any investors in crowd-funded small businesses would still be limited to $10,000 per year, or 10 percent of the investor’s annual income. A change to the SEC rules allows for up to $50 million in small stock to be sold without SEC registration.

Basic differences in crowdfunding

These changes to rules in crowdfunding will allow small businesses to sell equity in their company. This equity, however, must be set up carefully. Any time someone sells stock in a company, even if it is small and not regulated by the SEC, he or she must do so within the laws and regulations of the state. It is always prudent to check with a lawyer and your state Department of Corporations if you plan to sell stock in your company. There are ways of crowdfunding your company without selling stock, such as Kickstarter or IndieGoGo, which offer crowdfunding for rewards, rather than for equity in the company.

Sources:

Wall Street Journal
USA Today
Biz Journals
HispanicBusiness.com

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