Although the language of the Act is somewhat garbled and unclear, itappears Congress is trying to say that an investor will be limited to acrowdfunding investment in any one company annually in an amount
equal to $2,000 or 5% of the investor’s annual income or net worth if
either that income or net worth is less than $100,000. If either of (both?)
the investor’s annual income or (and?) net worth is $100,000 or more,
the annual investment limitation in one company is 10% of the
investor’s annual income or net worth, but not to exceed $100,000.
To qualify for the crowdfunding exemption, the offer of securities mustbe made through an independent, non-interested intermediary broker or
“funding portal” registered with the Securities and Exchange
Commission. Some of the specific requirements for crowdfunding arestill unknown because the CROWDFUND Act gives the SEC nine
months from the Act’s passage to adopt rules. Many believe those rules
will be more burdensome than many entrepreneurs will find bearable.Participation in crowdfunding offerings will also create liability risks forintermediaries that may cause them to forego handling crowdfunding orcharge premium amounts for the service to cover the risks.
A “funding portal” is an intermediary, presumably with an internet
presence, for offers of securities only under the crowdfundingexemption. To be a valid funding portal, the entity must be registered assuch with the SEC and may not: offer investment advice, solicit thepurchase or sale of the securities displayed on its website or portal,compensate employees based on the solicitation of such purchases or
sales, or handle any of the investors’ funds. The ultimate responsibilities
of funding portals and brokers will be fleshed out in the rules to beadopted by the SEC. The Act provides specific types of genericinformation that intermediaries, both funding portals and brokers, mustprovide to investors.