Posted on Dec 02, 2011 by Sandy Finlayson |
The Entrepreneur Access to Capital Act was approved by the US House of Representatives on 9th November with overwhelming support from both sides of the House. It has still to get through the Senate but Congressman Patrick McHenry who championed the bill said:-
“The first step is to modernise outdated regulations that stand as barriers to American innovation. This legislation will ensure that our small businesses are not left behind. Crowd funding can help give them the means to create jobs for hard-working individuals here at home”
When (or if) the Bill becomes law, it will create a crowd funding exemption from SEC Regulations for small companies seeking to raise up to $2 Million with individual investments limited to $10,000 or 10% of an investors annual income.
Crowd funding has been a hot topic for the past year or more and the passage of this legislation makes one realise just how far behind the curve the UK regulators now are. Whether or not crowd funding is legal, it is now a reality which is not going to go away.
The challenge for us all is to identify a “best practice” model which gives prospective investors a reasonable opportunity to make an informed judgement about the investment opportunity which is being offered to them, the guarantee of a Share Certificate for the correct number of shares and percentage of the share capital in exchange for their cash and the availability of EIS relief if appropriate.
Crowd funded companies should also ensure that they have appropriate governance arrangements in place which might include giving investors the right to appoint a Non-Executive Director, regular reports, an Annual General Meeting which could be held by way of a webinar and, perhaps most importantly of all from a Company’s perspective, an appropriate drag-along provision to ensure that the Board is able to sell the Company at the end of the day.