Senate Passes Crowdfunding Bill With Added Protections for Nonaccredited Investors
The U.S. Senate today approved, 73-26, an amended version of legislation that will legalize “crowdfunding,” or equity investments in start-ups by the general public.
The CROWDFUND Act (or Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act) adds requirements to the House of Representatives’ JOBS (Jumpstart Our Business Startups) Act that companies use SEC-approved crowdfunding platforms that provide investor protections.
Though both bills have had bipartisan support, they are controversial in the business world, as many people worry that lowering the barriers to investing will encourage fraud. The Senate amendments were focused on creating protections for nonaccredited investors.
Under the Senate bill, entrepreneurs will be allowed to raise up to $1 million per year through approved crowdfunding portals. The amount investors will be able to spend will be capped based on their income, with some people only allowed to put in a maximum of $2,000.
Though the House and Senate bills will have to be reconciled and signed, excitement about legalized crowdfunding has people waiting in the wings. For instance, a site called Crowdfunder says it already has $13.35 million committed to 913 companies, by 974 would-be investors.