Crowd Funding Legislation
Background: Crowdfunding or Crowdsourcing is a cooperative approach to financing where many small investments from a large and diverse group of individuals (“the crowd”) collectively finance a singular initiative. Crowdfunding has recently garnered significant momentum. A push is now being made to allow businesses to employ the strategy to raise capital and offer, in exchange for investors’ incremental contributions, “profit participation” in the form of an “ownership interest” in their companies. Crowdfunding offers a valuable source of funding to many community renewable energy projects. Many groups looking for investors can now use the internet to pool funds used to get more projects off the ground.
Issues: There currently exists significant regulatory barriers that prevent the pervasive adaptation of this strategy. The Securities and Exchange Commission (SEC) has in place (1) expensive registration laws that create financial barriers to crowdfunding, and (2) broad restrictions that prevent the public solicitation of investments and thereby impede companies’ ability to “use modern communications to inform and connect to investors” (Congressman McHenry). To further complicate the situation, there also exist pricey 
individualized State Securities Laws that act as stiff financial obstacles and ultimately work to prevent crowdfunding. Thus, the current regulatory landscape has inadvertently prevented the adoption of crowdfunding, a process that could prove to be a catalytic force.Often times the most significant barrier to implementing a community power project is understanding and complying with the Securities and Exchange Commission’s (the SEC’s) regulations relating to the collaborative financing of these projects.
News: With this understanding, the SEC has spent the past few months reexamining its current regulatory approach towards this new type of capital formation.
The Entrepreneur Access to Capital Act (H.R. 2930) recently passed in the House of Representatives and is intended to address the current barriers in place that prohibit the expansive incorporation of crowdfunding. Through the Bill, lawmakers are seeking to create an exemption from the SEC’s registration and reporting requirements that would “permit crowdfunding issuances that offer an equity stake (securities) to investors” (Congressman McHenry). It also allows firms to raise up to $1 million (or $2 million if audited financial statements are provided to investors) annually from an unlimited number of investors provided that no single investor contributes capital in an amount greater than either (1) $10,000 or (2) 10% of his/her annual income (for each individual investor, the lesser of the 2 amounts applies). Furthermore, this crowdfunding exemption supersedes state regulations, override prohibitions regarding solicitation, and allows companies to exclude “crowdfunding investors” from counting towards their official pool of shareholders (which cannot exceed 499 without official registration under the Securities Exchange Act).
A companion bill known as the Democratizing Access to Capital Act was recently introduced to the Senate by Senator Scott Brown (R-MA) on November 7, 2011 and it it is currently under review. For more information on crowdfunding and crowdfunding legislation check out the links below
Information on Crowdfunding: http://www.youtube.com/watch?feature=player_embedded&v=Ew_XfxSDjeU
Summary Information: http://mchenry.house.gov/crowdfunding/
Full text: http://thomas.loc.gov/cgi-bin/bdquery/z?d112:H.R.2930:@@@L
Democratizing Access to Capital Act: http://www.forbes.com/sites/scottedwardwalker/2012/01/13/crowdfunding-bill-stuck-in-the-senate/
Democratizing Access to Capital Act Status: http://thomas.loc.gov/cgi-bin/bdquery/z?d112:s.01791:
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