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Crowd-funding Equity in Your Company Legal in U.S. Soon
The JOBS ACT (Jumpstart Our Business Startups) has
passed the U.S. Senate, 73-26. The amended bill H.R. 3606 goes
to the House of Representatives for a vote next week.
The legislation does not actually create or fund jobs. Instead
it relaxes regulations on "emerging growth companies"
(companies under $1,000,000,000 in annual gross revenue) in
raising capital by amending the Securities Act
of 1933.
One of the game changing provisions in the legislation allows
companies to crowd-fund by soliciting investment from
individuals in exchange for equity shares, not just incentive
gifts. Prior to this legislation, private placement offerings
could only be made to accredited
investors and not be publicly advertised.
Dan Primack, who follows the venture capital and private
equity beat for Fortune, describes this provision:
Enable crowd-funding: Consider this the
Kickstarter-for-equity provision, allowing companies to
issue shares in exchange for crowd-funded capital. This
basically is for companies that either are too small for
traditional angel/VC funding, or companies that are unable
to secure such capital. In other words, we're probably
talking about a proliferation of thousands of lousy
companies. But if just one or two become the next Facebook,
then the trade-off is worth it.
You can read the fine
print here.
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