President Obama recently signed The JOBS Act , which purportedly will ease access to money for small businesses. The Jumpstart Our Business Startups Act bill is supposed to help entrepreneurs find investors through online “crowdfunding,” allowing all Americans to invest in new companies.
This bill also aims to reduce the red tape involved in publicly selling stock. The clock has begun ticking for the SEC to draft regulation to protect investors.
Reports indicate that the JOBS Act allows companies to raise up to $1 million a year from individual investors. The regulations are said to include protection for people who have an annual income or net worth under $100,000 wherein they can invest no more than $2,000 in a company that’s using crowdfunding.
An important consideration in using crowdfunding is that companies can find themselves having to answer to many shareholders that they have never met. They may then find themselves having to publicly reveal financial information and statements.
The good news is that small companies that don’t have a lot of close connections will now have another avenue to find investors.
Before you engage in crowdfunding thoroughly check out any intermediary broker or funding portal. You should make sure that the broker is registered with the SEC, for example. There will likely be a host of new funding portals popping up, some of which may or may not be reputable. Be sure to do your due diligence.
You should also consult with your attorney and tax advisor regarding legal and tax issues regarding your investors so that you know what to expect.
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