Entrepreneurs can use peer-to-peer lending sites such as Prosper and LendingClub to obtain loans for their businesses without worrying about breaking securities laws. But they cannot take a similar approach to selling equity in their companies online. Selling interests in the financial returns of a business must be registered with the Securities and Exchange Commission (SEC) or meet the criteria for exemption from registration, according to rules established about eight decades ago. Even if the entrepreneurs seeking to raise money by soliciting others online don't care if the money they obtain is a gift, a loan, or an equity investment, those distinctions matter to the SEC.
Now the SEC is considering making regulatory changes that would allow entrepreneurs to raise modest amounts of equity through online crowdfunding, according to a recent letter from SEC Chairman Mary Schapiro to Rep. Darrell Issa (R-Calif.), chairman of the House Committee on Oversight and Government Reform. I applaud Schapiro because her changes to the Depression-era rules would make a lot of sense by giving capital-constrained entrepreneurs a further source of equity funding.
To read the full, original article click on this link: Let the Crowd Buy Equity in Private Companies - BusinessWeek
Author: Scott Shane
