Update on crowdfunding legislation

Last Friday I told you that the U.S. House overwhelmingly passed a bill that would allow small businesses to solicit investment capital of up to $1 million with a $10,000 maximum per individual contribution without having to do all the expensive and time consuming paperwork registering with the Securities and Exchange Commission.  The concept is call “crowdfunding” and it offers another avenue for small businesses to access capital, something desperately needed.

The SC Small Business Chamber has previously advocated for the SEC to waive registration requirements for small businesses that wanted to raise $100,000 from contributions of up to $100.  The theory being that if the maximum someone could lose in the investment was only $100, then there was not a lot of need for the SEC to protect the consumer.

So while I applauded the bipartisan support for the House crowdfunding bill, I and other supporters of the concept were uneasy about raising the maximum individual contribution to $10,000.  That’s a heck of a lot of money to lose and would probably attract a lot of scam artists soliciting for fraudulent investments. 

Fortunately, Senator Scott Brown of Massachusetts has introduced his crowdfunding bill (S.1791) that reduces the maximum individual contribution to $1000 while keeping the $1 million total on capitalization.  That’s a much more acceptable potential investment loss to justify the elimination of much of the SEC registration requirements.