Crowdfunding Bill Moves Closer to Law

On March 22, 2012, the US Senate passed its own version of the Jumpstart Our Business Startups (JOBS) Act by a vote of 73-26. That’s good news for entrepreneurs and business owners, because it represents a major step toward loosening restrictions on the ability to raise capital, in particularly through the practice known as crowdfunding.

The good news is tempered, however. The bill passed in the Senate was an amended version of the one passed in the House, which means that the House will have to approve the changes before the Act can become law. House Majority Leader Eric Cantor has pledged to move quickly on the bill, and to schedule a vote as early as next week. But if the previous 390-23 House vote on the legislation is any indication of the overall approval in the House of crowdfunding measures, today’s Senate vote is a significant step in the right direction for entrepreneurs.

For your reference, here’s a quick roundup of recent legal advisories on crowdfunding and related legislative efforts to make it easier for small business to raise capital:

Crowdfunding

Crowdfunding: Current Legalities & Proposals (Davis Wright Tremaine LLP)

“Unfortunately, with the way crowdfunding legislation is shaping up in Congress, any crowdfunding securities law exemption from registration could end up being a mirage — something to get the hopes up of the entrepreneurial community, only to dash them later upon the hard rocks of a reality full of overly complex rules and expensive compliance requirements.” Read the full update»

The President Favors Crowdfunding, But Is It Good Enough? (Davis Wright Tremaine LLP)

“The President is in favor of crowdfunding, and is ‘calling for a national framework that allows entrepreneurs and small businesses to raise capital through crowdfunding.’ This is exciting news to crowdfunding enthusiasts. Crowdfunding would allow early stage and small businesses to raise small amounts of money from the public at large.” Read the full update»

Crowdfunding – Update (Christine McKillip)

“After months of sitting on the sidelines, the United States Senate passed an amended version of the Entrepreneur Access to Capital Act. Although the passage of the amended bill moves crowdfunding one step closer to reality, the House is still required to approve the changes that were made based on Senator Brown’s and Senator Merkely’s original crowdfunding bills.” Read the full update»

Crowdfunding: Devil in the Details (Priore Law Group)

“Crowdfunding is part of a general movement to facilitate financing for new companies. Indeed, in today’s economic climate, there clearly is a need for new ventures to be able to reach out to communities and stakeholders to raise capital through any legitimate method. Unfortunately, the proposed Senate Bill S.1791, imposes requirements that prevent organizations from going directly to the community.” Read the full update»

Crowdfunding – One Step Forward, One Step Back (Christine McKillip)

“Despite Senator Reid’s fulfillment of his promise to timely introduce crowdfunding legislation, the Securities and Exchange Commission and Chairman Mary Schapiro may have succeeded in stalling crowdfunding for a second time. In a letter sent to the Senate Banking Committee on March 15, 2012, Chairman Schapiro addressed the [The Entrepreneur Access to Capital Act], stating that the bill does not go far enough to protect investors.” Read the full update»

Crowdfunding Bills Stall in Congress (Christine McKillip)

“This ‘crowd funding’ model of raising capital has had some limited success in the form of gift giving to the issuer; however, crowd funding in exchange for an economic interest in the issuer is currently impermissible under federal and state securities laws. As a result of these legal limitations, crowd funding has failed to grow as a capital raising strategy. In order to provide greater access to capital available through the crowed funding method, three bills were introduced in the Senate in the fourth quarter of 2011 aimed at expanding the exemptions available to issuers.” Read the full update»

Jumpstart Our Business Startups (JOBS) Act

The March Toward Reform For Emerging Growth Cos. (Sheppard Mullin Richter & Hampton LLP)

“The provisions of the JOBS Act will, if enacted, represent a watershed change to the laws and regulations governing capital raising for private companies and would create a limited, temporary and scaled regulatory compliance pathway, referred to as an “IPO on-ramp,” for companies going public and newly public companies. The IPO on-ramp is designed to reduce the costs and uncertainties of accessing public capital.” Read the full update»

Legislative and Regulatory Proposals Affecting Capital Raising — March 2012 (Morgan Lewis)

“There have been several recent legislative and regulatory initiatives which, if adopted, could significantly affect the manner in which companies can raise capital, both in public capital markets and on a private basis. Following are brief descriptions of the more noteworthy proposals.” Read the full update»

The Entrepreneur Access to Capital Act and What It Could Mean for Startups (Sheppard Mullin Richter & Hampton LLP)

“There has been a lot of talk recently about a phenomenon called crowdfunding, a new type of fundraising that relies on social media and the Internet to raise small amounts of capital from large numbers of individuals. Despite the talk, crowdfunding remains impermissible under the securities laws absent a costly registration with the SEC and with state securities administrators… Crowdfunding would seem to be a viable approach to small company capital formation, if only it were legal.” Read the full update»

Congress Opens the Door to More Small Company Offerings (Christine McKillip)

“The abandonment of the general solicitation prohibition under Section 4(2) and Rule 506 opens the door to an unlimited amount of funding for small businesses. Under the Access Act, as long as certain sophistication standards are met, the issuer may raise an unlimited amount of money from practically any qualified investor without the regulatory burden of a registered offering.” Read the full update»

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See also: 

• CROWDFUND Act S.2190 – Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2012

Will Crowdfunding Supporters Be Disappointed When Legislation (Finally) Arrives?

Funding a Small Business: 7 Financing Sources to Consider

Crowdfunding & Startup Capital: A Look at Legislative Initiatives to Ease Restrictions

Startup Financing: SEC Sending Mixed Signals with ‘Bad Actor’ Rule?

Crowdfunding: The Future of Startup Financing?

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