Crowd Equity vs. Crowd Funding

WASHINGTON - JANUARY 21:  President Barack Oba...

Crowd Equity

vs. Crowd Funding

I make a distinction because not all crowd funding will fall under crowd investing. People are already confused about what is happening. Over the next 12 months, you will see huge changes in how websites handle both.

Crowd Equity sites will offer shares of a business for sale. These sites will over see the process. A business owner will not be able to do this alone on his own. These sites are called third party intermediaries.  If you make less than $100,000 you can only invest 5% of your income. Obama called on the Treasury Department, Small Business Association and Justice Department to monitor the new legislation closely and report regularly on their finding

Here are the basic rules

  • The law allows an entrepreneur or small business to raise up to $1 million per year through an SEC-registered crowd funding intermediary. The House bill did not require an intermediary and would have allowed people to raise money via Facebook and other social media websites.
  • Intermediaries seeking to help companies raise money through crowd funding must register with the SEC, make sure investors are advised of the risks they are taking, and take measures to prevent fraud.
  • Individuals with an income of less than $100,000 per year are allowed to invest the greater of $2,000 or five percent of their income.
  • Individuals with an income of more than $100,000 can invest up to ten percent of income, with a cap of $100,000.
  • Companies that use crowd funding must provide financial statements to investors. Companies seeking to raise $100,000 or less would have to provide tax returns and a financial statement certified by a company principal.
  • Companies seeking between $100,000 and $500,000 in capital would have to get independent accountants to review these statements.
  • Audited financial statements would be required for companies seeking more than $500,000 in capital.
  • Companies can avoid registering with the SEC until they have 2,000 shareholders, up from 500 currently.

Would you like to get a consult on your crowd funding project? Call 909 626 3835

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