House Passes Bill to Allow Crowdfunding (and Cheaper IPOs)

The House of Representatives revealed some great news for startups raising money through crowdfunding today.
Business Writers
March 08, 2012

On Thursday, the House of Representatives voted overwhelmingly to pass a bill that would let small business raise money through crowdfunding – and would make it easier (and cheaper) for them to go public.

The House voted 390-23 to pass the Jumpstart Our Business Startups Act, which would ease certain Securities and Exchange Commission rules that make initial public offerings expensive, and force many small companies to delay them. The Senate has not yet voted on a similar version of the bill they're working on, though Senator Charles Schumer of New York told Bloomberg that passage "appears not to be a question of if, but when."

The bill lets small businesses use direct mail or advertisements to market their securities to potential investors. (The SEC's current "general solicitation" ban essentially limits start-ups to marketing to investors they already know.)

The bill, H.R. 3606, also allows investments of up to $10,000 per investor from crowdfunding sites. The total investment via crowdfunding websites would be capped at $1 million, or $2 million if companies release annual audited financial statements.

Other changes under the bill: SEC registration won't be required of a company until it hits $50 million (the current threshold is $5 million). The shareholder registration requirement will be raised from 500 to 1,000 shareholders, and the number of shareholders allowed to invest in community banks will jump to 2,000 from its current level of 500.

The bill also helps small companies by giving them exemptions and phase-ins for complying with some SEC rules, including the requirement that an outside auditor certify the firm's internal controls as sound. The exemption would apply to companies – referred to as "emerging growth companies" – with less than a billion dollars in gross revenue that go public. After five years, or if the company's gross revenue exceeds $1 billion, it would then have to comply with all SEC deadlines and rules.

Said House Majority Leader Eric Cantor after the bill passed in the House: "This bill makes it easier for startup businesses to happen again in America. By having a win like this, I think we can demonstrate that [both political parties] really can work together."

The House also approved a floor amendment that directs that SEC to conduct outreach – and offer information online – to let small and medium sized businesses know about these changes to the rules.

Photo credit: Thinkstock

Business Writers