On Friday 30 October, the Securities and Exchange Commission (SEC) adopted final rules to permit companies to offer and sell securities through crowdfunding – as part of the Jumpstart Our Business Startups (JOBS) Act.

Under title III of the Act, the SEC has adopted a final set of rules, called Regulation Crowdfunding, which allow individuals to invest in securities-based crowdfunding transactions subject to certain investment limits. Title III creates an exemption under US securities laws, which enables non-accredited investors to invest in stock through crowdfunding platforms.

The rules require:

• a limit to the amount of money an issuer can raise using the crowdfunding exemption;
• disclosure of certain information about an issuer's business and securities offering; and
• a regulatory framework for the broker-dealers and funding portals that facilitate the crowdfunding transactions.

The limits to be invested, raised or sold are limited as follows:

• a company can raise a maximum aggregate amount of $1 million through crowdfunding offerings in a 12-month period;
• individual investors are limited, over a 12-month period, to an amount equivalent to a percentage of their annual income or net worth, invested across all crowdfunding platforms; and
• during the 12-month period, the aggregate amount of securities sold to an investor through all crowdfunding offerings may not exceed $100,000.

Non-US companies are not eligible to use the exemption.

In the SEC's press statement, SEC Chair Mary Jo White said: “There is a great deal of enthusiasm in the marketplace for crowdfunding, and I believe these rules and proposed amendments provide smaller companies with innovative ways to raise capital and give investors the protections they need.”

And Chance Barnett wrote in an article in Forbes: “... it will have massive implications for startups and investors alike, allowing everyday citizens to invest in startups. This will open up a tremendous amount of capital available to early stage companies.”

However, some say that the new rules are complicated and could be confusing for companies. Douglas Ellenoff, a corporate and securities attorney at Ellenoff Grossman & Schole, told CFO Magazine: “If you’re a CFO and need to raise money, there are all these new options available for you now, and it’s not obvious [which one will be right for you].”

The rules will come into effect 180 days after they are published in the Federal Register.