Crowdfunding - Update

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After months of sitting on the sidelines, the United States Senate (“Senate”) passed an amended version of the Entrepreneur Access to Capital Act (“EACA”). Although the passage of the amended bill moves crowdfunding one step closer to reality, the House is still required to approve the changes that were made based on Senator Brown’s and Senator Merkely’s original crowdfunding bills. The Senate version, the Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2011 (the “CROWDFUND Act”), has several substantial changes to EACA. First, the CROWDFUND Act requires that the Securities and Exchange Commission (the “SEC”) approve all crowdfunding platforms that act as intermediaries. Second, the CROWDFUND Act limits fundraising to $1 million; whereas EACA allowed issuers to raise between $1 million and $2 million if issuers provided audited financial statements to investors. Finally, while EACA limited individual investments to the lesser of $10,000 or 10% of the investor’s annual income, the CROWDFUND Act creates more graduated investment limitations based on salary. For people with an income of less than $100,000 a year, investments are capped at the greater of $2,000 or 5% of the investor’s annual income. For investors with an income of greater than $100,000, investors are capped at the lesser of 10% of their annual income or $100,000.

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