On November 3, 2011, the United States House of Representatives voted almost unanimously, 407 – 17, to pass the Entrepreneur Access to Capital Act, also known as H.R. 2930.

Introduced by Rep. McHenry, R-North Carolina, the bill would permit “crowd-funding” to finance new businesses by allowing companies to pool investment up to $1 million without registering with the Securities and Exchange Commission (SEC), or up to $2 million if the company provides investors with audited financial statements. Importantly, individual contributions are limited to the lesser of $10,000 or 10 percent of the investor's annual income.

According to the bill, crowd-funding is an increasingly popular method of capital formation, where groups of people pool money typically comprised of very small individual contributions, to support an effort by others to accomplish a specific goal. Current SEC regulations impede this innovative and lower-risk form of financing, by prohibiting general solicitation and advertisements for non-registered offerings and capping the number of shareholders for non-registered companies at 500.

If passed by the Senate, the Entrepreneur Access to Capital Act will dramatically lessen the requirements, and, according to its supporters, will connect small businesses and entrepreneurs with everyday, low-dollar investors as they seek to get innovative new businesses off the ground.

The Obama Administration voiced its support for the legislation, stating in a press release: “In the President’s September 8th Address to a Joint Session of Congress on jobs and the economy, he called for cutting away the red tape that prevents many rapidly growing startup companies from raising needed capital, including through a ‘crowd-funding’ exemption from the requirement to register public securities offerings with the Securities and Exchange Commission. This proposal, which would enable greater flexibility in soliciting relatively small equity investments, grew out of the President’s Startup America initiative and has been endorsed by the President’s Council on Jobs and Competitiveness. H.R. 2930 is broadly consistent with the President’s proposal. This bill will make it easier for entrepreneurs to raise capital and create jobs. The Administration looks forward to continuing to work with the Congress to craft legislation that facilitates capital formation and job growth and provides appropriate investor protections.”

Attorneys at I.S. Law Firm are dedicated to helping businesses and entrepreneurs. Please contact us for a consultation today: (703) 527-1779 or via e-mail: law@islawfirm.com.