GovTrack’s Bill Summary
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H.R. 2930 (112th): Entrepreneur Access to Capital Act
- Introduced:
- Sep 14, 2011 (112th Congress, 2011–2013)
- Sponsor:
- Rep. Patrick McHenry [R-NC10]
- Status:
- Died (Passed House)
The bill’s title was written by the bill’s sponsor. H.R. stands for House of Representatives bill.
- Full Title
To amend the securities laws to provide for registration exemptions for certain crowdfunded securities, and for other purposes.
- Summary
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No summaries available.
- Text
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Last updated Nov 08, 2011.
14 pages
- Primary Source
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View on THOMAS (The Library of Congress)
GovTrack gets most information from THOMAS, which is updated generally one day after events occur. Activity since the last update may not be reflected here.
- Citation
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Click a format for a citation suggestion:
Library of Congress Summary
The summary below was written by the Congressional Research Service, which is a nonpartisan division of the Library of Congress.
11/3/2011.
Section
2
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Amends the Securities Act of 1933 to exempt from its registration requirements and prohibitions any transactions involving the offer or sale of (crowdfunded) securities by an issuer if the aggregate amount sold within the previous 12-month period in reliance upon the exemption is:
(1) $1 million, adjusted for inflation, or less; or
(2) $2 million, adjusted for inflation, or less if the issuer provides potential investors with audited financial statements.
Requires the aggregate amount sold to any investor in reliance on this exemption within the previous 12-month period, in either case, not to exceed the lesser of $10,000, adjusted for inflation, or 10% of the investor's annual income.
(Crowdfunding is a method of capital formation where groups of people pool money, typically composed of very small individual contributions, and often via internet platforms, to invest in a company or otherwise support an effort by others to accomplish a specific goal.) Requires an intermediary between the issuer and the investor, if there is one, and an issuer, if there is no intermediary, to meet specified requirements.
Requires both intermediaries and issuers (if there is no intermediary) with respect to such exempted transactions to:
(1) warn investors of the speculative nature generally applicable to investments in startups, emerging businesses, and small issuers;
(2) warn investors that there are restrictions on the re-sale of the securities;
(3) take reasonable measures to reduce the risk of fraud with respect to the transaction;
(4) provide the Securities and Exchange Commission (SEC) with information about the intermediary or about the issuer and the offering, as the case may be;
(5) provide the SEC with continuous investor-level access to the intermediary's or the issuer's website;
(6) require each investor to answer questions demonstrating a basic understanding of the nature of the securities offered, including the risk of illiquidity;
(7) outsource cash-management functions to a qualified third party custodian;
(8) maintain books and records the SEC deems appropriate;
(9) allow for communication between the issuer and investors via the intermediary's or the issuer's website;
(10) not offer investment advice; and
(11) notify the SEC upon completion of the offering.
Requires the issuer (and requires an intermediary to require the issuer) to state a target offering amount as well as a deadline to reach it, and ensure that the third party custodian withholds offering proceeds until the aggregate capital raised from investors other than the issuer is no less than 60 % of the target offering amount.
Requires an intermediary, in addition, to:
(1) carry out background checks on the issuer's principals, and
(2) provide the SEC and potential investors with information about the issuer and the offering.
Requires an issuer to disclose its interest in the issuance to investors.
Authorizes an issuer or intermediary to rely upon certifications as to annual income provided by the person to whom the securities are sold to verify the investor's income.
Directs the SEC to make available to the states information it receives about the intermediary, issuer, and offering.
Restricts investor sales of certain securities during the one-year period beginning on the date of purchase, unless such securities are sold to either the issuer of the securities or to an accredited investor.
Declares that an intermediary shall not be treated as a broker under the securities laws solely by reason of participation in a crowdfunded transaction.
States that this Act does not preclude an issuer from raising capital through other means.
Directs the SEC to establish disqualification criteria that render either an issuer or intermediary ineligible to utilize a specified exemption under the Securities Act of 1933 based upon the disciplinary history of the issuer or its predecessors, affiliates, officers, directors, or persons fulfilling similar roles.
Requires such criteria to be substantially similar to rules adopted for disqualifying felons from Regulation D offerings in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Section
3
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Amends the Securities Exchange Act of 1934 to exclude securities held by persons who purchase them in crowdfunded transactions under this Act from application of the 500-to-750 shareholder "held of record" criterion for a class of equity security subject to mandatory registration.
Section
4
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Amends the Securities Act of 1933 to exempt such crowdfunded securities from state regulation of securities offerings; but retains state jurisdiction over fraud, deceit, or the unlawful conduct of intermediaries, issuers, and custodians.
House Republican Conference Summary
The summary below was written by the House Republican Conference, which is the caucus of Republicans in the House of Representatives.
This summary can be found at http://www.gop.gov/bill/112/1/hr2930.
Background
This bill is part of a package of legislation intended to improve small businesses’ access to capital. Specifically, H.R. 2930 would improve capital formation by expanding equity financing options. The traditional alternative method, a commercial bank loan, is increasingly difficult in light of tightened lending standards following the financial crisis of 2008-09. Capital formation is necessary for business expansion and therefore job creation and sustained economic growth.
According to the Committee on Financial Services, “crowdfunding” is an increasingly popular method of capital formation, where, according to SEC Chairman Mary Schapiro, "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. This bill would remove SEC restrictions that prevent “crowdfunding” so entrepreneurs can raise equity capital from a large pool of small investors who may or may not be considered “accredited” by the SEC.
Summary
The legislation would amend the Securities Act of 1933 to establish an exemption from the requirement that certain securities be registered with the Securities Exchange Commission (SEC). Specifically, the bill would exempt securities from registration requirements if:
- The aggregate amount raised through the issuance is $1 million or less each year ($2 million or less if the issuer provides investors with certain financial information); and
- Each individual who invests in the securities does not invest, in any year, more than the lesser of $10,000 or 10 percent of the investor’s annual income.
In order to qualify for this exemption, the bill would also require issuers or intermediaries acting between issuers and investors to provide certain information and risk disclosures to investors, such as warnings of the speculative nature generally applicable to investments in startups, emerging businesses, and small issuers. The bill would also require issuers or intermediaries to provide information about the issuer and offering to the SEC, in addition to providing continuous investor-level access to the intermediary's website and maintaining such books and records as the SEC deems appropriate.
Additionally, the bill would require the SEC to develop regulations to implement this new authority and to set out actions that would disqualify certain individuals from issuing securities under the exemption.
Cost
The Congressional Budget Office (CBO) estimates that implementing H.R. 2930 would have a negligible impact on the SEC’s workload, and any change in agency spending that is subject to appropriation would not be significant. Enacting H.R. 2930 would not affect direct spending or revenues; therefore, pay-as-you-go procedures do not apply.
House Democratic Caucus Summary
The House Democratic Caucus does not provide summaries of bills.
So, yes, we display the House Republican Conference’s summaries when available even if we do not have a Democratic summary available. That’s because we feel it is better to give you as much information as possible, even if we cannot provide every viewpoint.
We’ll be looking for a source of summaries from the other side in the meanwhile.
The bill contains the following citations to other parts of U.S. law:
United States Code
The United States Code is the compilation of permanent laws enacted by Congress. Temporary and other non-permanent laws do not appear in the United States Code. (About half of the United States Code is the law itself, called positive law. The other half is merely a compilation of the laws but has no legal significance.)
- Title 15: COMMERCE AND TRADE
- Chapter 2A: SECURITIES AND TRUST INDENTURES
- Subchapter I: DOMESTIC SECURITIES
- Section 77d: Exempted transactions
- Section 77r: Exemption from State regulation of securities offerings
- Chapter 2B: SECURITIES EXCHANGES
- Section 78l: Registration requirements for securities