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Senate Toughens Crowdfunding Rules, Passes JOBS Bill

A bill meant to loosen the flow of money to startups passed the Senate and heads back to the House for a vote as early as next week.

House Overwhelmingly Passes JOBS Act House Overwhelmingly Passes JOBS Act

The House of Representatives passed a package of bills that makes it easier for companies to go public and for entrepreneurs to raise money over the Internet through crowdfunding. Read More

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Senate approves crowdfunding

The Senate passed the Jumpstart Our Business Startups Act today by a 73-26 vote, but not before amending the bill.

This means the House, which already passed the JOBS Act, will have to accept the Senate’s changes before the bill can be signed into law by President Barack Obama.

No problem, said House Majority Leader Eric Cantor, Republican of Virginia.

“I intend to schedule a vote on the Senate-amended bill early next week so we can get this bipartisan jobs bill to the president’s desk for his signature without delay,” Cantor said.

The legislation will make it easier for small businesses to use the Internet to raise small investments from lots of people, a technique known as crowdfunding. It also will encourage more companies to go public by exempting them from some Securities and Exchange Commission regulations in the first five years after an initial public offering. Plus, companies will be able to offer up to $50 million in stock to the public without registering with the SEC, up from the previous threshold of $5 million.

The only difference between the House bill and the Senate bill is the crowdfunding provision. By a 64-35 vote, the Senate required companies that use crowdfunding to provide financial statements to investors. Companies seeking between $100,000 and $500,000 in capital would have to get independent accountants to review these statements. Audited financial statements would be required for companies seeking more than $500,000 in capital.

The amendment also limits the total amount that a company can raise through crowdfunding to $1 million. The House bill would allow companies to raise up to $2 million if they provide audited financial statements.

In addition, the amendment requires Internet intermediaries—the websites that will offer crowdfunding investment opportunities to the public—to register with the SEC.

Some business groups that supported the bill opposed this amendment. The Small Business and Entrepreneurship Council complained the amendment “unnecessarily restricts the potential of crowdfund investing” by imposing excessive costs on businesses and giving the SEC too much authority to regulate crowdfunding.

But after the vote, the council said the legislation remains “a powerful package with significant benefits for the small-business community.”

“A strong entrepreneurial ecosystem depends on access to capital,” said Karen Kerrigan, the council’s president and CEO. “Freeing up new sources of capital—as the JOBS Act will do—will strengthen our nation's small-business sector and add to their job-creating capacity."

Another crowdfunding champion, America Online cofounder Steve Case, said the House should accept the Senate bill because that’s “the quickest and simplest path to getting this legislation to the president’s desk.”

Case chairs the Startup America Partnership and advises Obama on issues related to entrepreneurship. The president has endorsed the legislation.

The American Sustainable Business Council said the crowdfunding amendment was necessary in order to protect investors from fraud.

“A successful crowdfunding model doesn’t have to be a choice between too little access to money and too much fraud,” said David Brodwin, cofounder of the ASBC. “The Senate bill strikes the right balance between proper oversight and free markets. At a time when banks are balking at lending to small businesses, [crowdfunding] provides a 21st century way to meet capital needs and help them grow.”

Kent Hoover is the Washington bureau chief for bizjournals.


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