At its Open Meeting on October 30, the Scurities and Echange Commission approved a final rule to permit the offer and sale of securities through crowdfunding under Title III of the JOBS Act. The final rules will allow companies to raise up to $1 million through crowdfunding during a 12-month period and place limitations on the amount investors may invest in these securities based upon income level.

At its Open Meeting on October 30, the Scurities and Echange Commission (SEC) approved a final rule to permit the offer and sale of securities through crowdfunding under Title III of the JOBS Act. The final rules will allow companies to raise up to $1 million through crowdfunding during a 12-month period and place limitations on the amount investors may invest in these securities based upon income level.

The final rules incorporate several revisions to the originally proposed rules. These include exempting first-time crowdfunding issuers offering more than $500,000, but not more than $1 million of securities from the requirement to provide audited financial statements. Further, the final rules permit an individual investor to invest over a 12-month period in the aggregate across all crowdfunding offerings up to (i) if the investor’s annual income or net worth is less than $100,000, the greater of (a) $2,000 or (b) 5% of the lesser of the investor’s annual income and net worth or (ii) if the investor’s annual income and net worth are both equal to or greater than $100,000, 10% of the lesser of the investor’s annual income and net worth.

As with the SEC’s recent regulations around general solicitation, these limitations raise questions about whether the cost and administrative burden of complying with the rule might be prohibitively high for the small companies it was meant to help. In fact, Commissioner Piwowar voted against the final rules, objecting to the complex compliance requirements that may dissuade small businesses from participating in crowdfunding and the income limitations placed on investors and suggesting that further refinement be made once empirical studies on the results of this rule are available. View the Commissioner’s dissenting statement. 

The final rules and forms will be effective 180 days after publication in the Federal Register, except the forms enabling funding portals to register with the SEC, which will be effective on January 29, 2016. For more information, view the SEC’s press release