The SEC must first adopt regulations governing how companies can use crowdfunding to raise money from investors and set out the responsibilities of intermediaries. These rules will include what must be disclosed to prospective investors before they decide to participate.
Companies will be limited to raising $1 million in any 12-month period using crowdfunding. Companies cannot crowdfund on their own, said the official, but will have to engage an intermediary that’s registered with the SEC as a broker or funding portal. These intermediaries will be required to do some vetting of the company seeking funding.
Also, individual investors will be limited in the amount they can invest by way of crowdfunding in any 12-month period to, if your annual income or net worth is less than $100,000, the greater of $2,000 or 5 percent of annual income or net worth, or if your annual income or net worth is more than $100,000, 10 percent of annual income or net worth up to a maximum of $100,000. When calculating net worth, said the Director, investors should not count the value of their primary residence or any loans secured by the residence (up to the value of the residence).