SEC proposes crowdfunding rules

October 24, 2013

The U.S. Securities and Exchange Commission yesterday released proposed rules that would allow companies to raise capital through crowdfunded offerings.

The proposed rules, which are part of the rulemaking required by the adoption of the JOBS Act, would allow companies to raise a maximum aggregate amount of $1 million annually through crowdfunding. Investors with an annual income and net worth of less than $100,000 would be able to annually invest up to $2,000 or 5% of their annual income or net worth (whichever was greater). Investors with either annual income or net worth of at least $100,000 would be able to annually invest 10% of the greater of their annual income and net worth, up to $100,000.

Companies conducting crowdfunded offerings would be subject to certain disclosure requirements and would have to conduct crowdfunding transactions through an SEC-registered intermediary. Further, non-U.S. companies would not be eligible to use the crowdfunding rules. The SEC is accepting comments on its proposal for 90 days from the date of publication of the draft rules in the Federal Register. For more information, see SEC Release No. 33-9470. Also see FINRA's recent request for comment on proposed rules for funding portals.

On the Canadian side, the Saskatchewan Financial and Consumer Affairs Authority (FCAA) published a proposed framework earlier this month for crowdfunding in the province. Under the proposal, businesses would be able to make two six-month offerings of $150,000 each annually, and individuals would be limited to an investment of no more than $1,500 per offering. The FCAA is accepting comments on its proposal until November 6.

Meanwhile, the Ontario Securities Commission is continuing its consideration of crowdfunding as part of its work towards potentially introducing a number of new prospectus exemptions.

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