Equity crowdfunding is the process of offering equity in a company, such as shares of stock, through an internet web portal. In the U.S., equity crowdfunding was not legal before 2016, because the U.S. securities laws governing private placements prohibited general advertising and general solicitation, effectively prohibiting the ability to sell securities over websites accessible by the public.
Equity crowdfunding became legal in the United States with the passage of the Jumpstart Our Business Startups (JOBS) Act in 2012 and the adoption of Regulation CF by the U.S. Securities and Exchange Commission in May 2016. In separate provision, the Jobs Act also removed the limitation on general solicitation and advertising for securities offerings made solely to “accredited investors” (investors with high net income or net assets), which was implemented by the SEC through its Rule 506(c).
Under the new regulatory scheme, equity crowdfunding must be done over an internet portal, which needs to be registered with the SEC and FINRA, the brokerage industry’s self-regulatory body. A company may raise up to $1 million in any 12-month period through equity crowdfunding. Investments are open to anyone, but the amount a person may invest in any one deal is limited based on the investor’s net worth and assets.
For further information on equity crowdfunding please see the following pages: