Crowdfunding refers to a financing method in which money is raised through soliciting relatively small individual investments or contributions from a large number of people.
If a company would like to offer and sell securities through crowdfunding, they must comply with the federal securities laws. Under the federal securities laws, any offer or sale of a security must either be registered with the SEC or meet an exemption.
Regulation Crowdfunding provides an exemption from the registration requirements for securities-based crowdfunding allowing companies to offer and sell up to $5 million of their securities without having to register the offering with the SEC.
With Regulation Crowdfunding, the general public now has the opportunity to participate in the early capital raising activities of start-up and early-stage businesses. Anyone can invest in a Regulation Crowdfunding offering. Because of the risks involved with this type of investing, however, you are limited in how much you can invest during any 12-month period in these transactions. The limitation on how much you can invest depends on your net worth and annual income.