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New SEC rules will allow anybody—not just the wealthy—to invest in startups in the US

Clare Meadows, right, asks Dominic Penn, 13, a question as he helps her during a senior citizen class on computers at the Chestnut Ridge Middle School, in Washington Township, N.J., on Wednesday, Nov. 5, 1997. The five-week course was the first sponsored by the school district specifically for senior citizens. (AP Photo/Allen Oliver)
AP Photo/Allen Oliver
Put me on Shark Tank.
By Alice Truong
Published Last updated This article is more than 2 years old.

The US Securities and Exchange Commission has approved new rules that allow crowdfunding backers to receive shares of stock in the companies they’re supporting.

The SEC voted 3-1 on Oct. 30 to approve Title III of the Jumpstart Our Business Startups (JOBS) Act, which will go into effect 180 days after it is published in the Federal Register.

The changes substantially expand the definition of a startup investor. Currently, only accredited investors—who must have a net worth of at least $1 million, not including their primary residence, or $200,000 in annual income—can invest in startups, limiting the pool of potential investors to 3% of the population.

Under Title III, crowdfunding platforms selling equity will be required to register with the SEC, and maintain records related to their transactions. The new rules allow small businesses to raise up to $1 million using crowdfunding in a 12-month period.

Individuals whose annual income or net worth is less than $100,000 will be able to invest up to $2,000, or 5% of their annual income, or net worth, whichever is lower. People with higher income or net worth will be able to invest up to 10%, but no more than $100,000 a year. Investors will generally not be able to sell shares for one year.

Indiegogo CEO Slava Rubin said the crowdfunding platform was excited by the news and “exploring how equity crowdfunding may play a role” in its business model.

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