Crowdfunding for Internet Stock Sales Approved by SEC

Crowdfunding for Internet Stock Sales Approved by SEC

Source: Bloomberg

Startups and small businesses could sell ownership stakes in their companies by soliciting investors over the Internet under a proposal advanced by the Securities and Exchange Commission.

The plan would set rules for equity crowdfunding, which lawmakers said would spur growth by easing financing when they mandated it in the 2012 Jumpstart Our Business Startups Act. The rules, which the SEC voted 5-0 to release for public comment yesterday, may boost the nascent crowdfunding movement and help the agency through its backlog of regulations required by the JOBS Act and Dodd-Frank law.

Oct. 23 (Bloomberg) — The U.S. Securities and Exchange Commission meets to consider a proposal to allow businesses to sell ownership stakes in their companies by soliciting investors over the Internet. The SEC plan, approved unanimously at the conclusion of the meeting, would create rules for equity crowdfunding, which lawmakers intended to ease financing for startups and small companies when they authorized it in the 2012 Jumpstart Our Business Startups Act. (Source: Bloomberg)

Businesses and startups too small or risky to attract funding from banks or venture capitalists are expected to use equity crowdfunding. Regulators say they tried to address concerns that such fundraising will create a channel for fraud by allowing upstart companies to issue illiquid shares to retail investors.

“The proposal before us today appears to offer great promise for providing capital to small businesses so they can survive and hopefully thrive, but it may also provide great risks to investors,” Democratic SEC Commissioner Kara M. Stein said before the vote in Washington. “If we don’t get it right, I fear that the promise of crowdfunding will be lost.”

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