On November 3rd, the House passed the Entrepreneur Access to Capital Act with overwhelming approval: 407-17. This Act would enable businesses to raise capital through crowd funding. Crowd funding is the contribution of small equity investments from many individuals.
Currently, federal and state laws governing the sales of securities restrict public solicitation of investors and limit fund-raising to sophisticated investors, or require a registration process that is cost-prohibitive for many entrepreneurs.
The Act restricts individual investments to $10,000 or ten percent of their annual income, whichever is lower. Businesses can raise up to $1 million dollars using this method without registering their securities unless they provide audited financial statements, in which case they can raise up to $2 million.
The Act includes a number of provisions to protect investors. State regulators will be notified of each crowd funding, so that they may police the transactions in case of any violations. And individuals who have committed securities fraud or other financial crimes are prohibited from raising money using this method. Also, the offerings are required to include warnings to investors about the speculative nature of the investment.
The Act is yet to pass the Senate. But passage is expected since the legislation has received bipartisan support and has the support of the White House.
If this measure is enacted into law, it will provide entrepreneurs with a valuable avenue to access capital, and it will enable many individuals to invest in their community and favorite local businesses.