House passes ‘crowdfunding’ legislation

WASHINGTON, D.C. – Legislation allowing small businesses and start-ups to raise capital through social media while also protecting investors is now headed to President Barack Obama for his signature after passing the House.

The amendment passed the House on Tuesday by a bipartisan vote of 380-41. The Senate passed a bill with a similar amendment sponsored by U.S. Sens. Michael Bennet, Jeff Merkley, D-Ore., and Scott Brown, R-Mass., last week by a vote of 64-35.

The amendment is based on the Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act (CROWDFUND). It addresses the hardship that small businesses and start-ups face in securing capital by letting them raise funding from individual investors online and via social media through “crowdfunding.”

“Crowdfunding is an important way to harness potential investments in small businesses and start-ups in Colorado and across the country,” Bennet said in a statement issued by his office last week. “This amendment will help bring our securities regulations into the 21st century while driving innovation, promoting job growth and supporting small businesses in a way we have not seen before.”

Using “crowdfunding,” startups rely on multiple investors who contribute relatively small dollar amounts. Entrepreneurs publish information on their proposed business and invite small investors to offer capital.

Once pledges for a project reach a set amount, a deal can move forward.

The concept already is under way on websites such as Kickstarter, which distributes funding to artists and film productions.

Bennet’s amendment adds investor protections, including disclosures about a company’s financial condition, its business plan and potential conflicts of interest, according to the senator’s office. It also provides stronger oversight of crowdfunding intermediaries.

Normally, a company must register with the U.S. Securities and Exchange Commission as a broker-dealer, which Bennet’s office says may not be practical for many crowdfunding situations.

The amendment provides a “more streamlined and less burdensome” registration process that lets companies raise as much as $1 million annually on registered websites, Bennet’s office said.

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