Crowdfunding - The Entrepreneur Access to Capital Act (H.R. 2930)
The Entrepreneur Access to Capital Act (H.R. 2930) was introduced to foster relationships between investors and entrepreneurs. Specifically, it permits crowdfunding issuances that offer an equity stake (securities) to investors.
What is Crowdfunding?
The basic idea is to raise money through relatively small contributions from a large number of people - combining the best of microfinance and crowdsourcing.
Why is it necessary?
Entrepreneurs, startups, and small businesses are overlooked by conventional lenders (local banks or venture capitalists, angel investors) and have a hard time accessing credit in today's marketplace. As a result, United States capital formation and entrepreneurs suffer.
Today in the United States, internet-based crowdfunding is utilized to raise millions of dollars for charitable organizations and non-profits.
Other nations - such as Great Britain, Hong Kong, and the Netherlands - already offer equity-based crowdfunding opportunities to investors and startups to spur capital formation.
Entrepreneurs and investors in the United States that communicate through internet-based platforms and offer securities are subject to costly SEC registration requirements.
Compliance with each individual state's securities laws and rules - known as "Blue Sky Laws" - is prohibitively costly if companies are seeking to raise only small amounts of money.
The SEC's general solicitation ban restricts companies from using modern communications to inform and connect to investors.
The Entrepreneur Access to Capital Act (H.R. 2930):
Creates a crowdfunding exemption from SEC regulations for firms raising $1 million or $2 million if the issuer provides potential investors with audited financial statements.
Individual investments limited to $10,000 or 10 percent of an investor's annual income, whichever is lesser.
Preempt Blue Sky Laws and eliminate the application of the ban on general solicitation for issuers relying on the crowdfunding exemption.
Excludes crowdfunding investors from counting as shareholders for the purposes of calculating the 499-shareholder cap under 12(g) of the Securities Exchange Act.
