As the May effective date for the Securities and Exchange Commission’s crowdfunding rules draws closer, the agency has released a primer for investors who wish to participate in such ventures.
On Tuesday, the SEC released an Investor Alert detailing the parameters – and potential risks — associated with crowdfunding.
Companies can use crowdfunding to offer and sell securities to the investing public starting May 16. Funding portals could begin registering with the Commission in late January.
The alert notes that while anyone can invest in crowdfunding, there are numerous risks involved because crowdfunded projects are early-stage ventures, and there are limits to how much a person can invest during any 12-month period in these transactions.
The SEC alert notes the limits depend on net worth and annual income.
If either your annual income or your net worth is less than $100,000, then during any 12-month period, you can invest up to the greater of either $2,000 or 5% of the lesser of your annual income or net worth.
If both your annual income and your net worth are equal to or more than $100,000, then during any 12-month period, you can invest up to 10% of annual income or net worth, whichever is lesser, but not to exceed $100,000.
Crowdfunding investments can only be made through an online platform, such as a website or a mobile app, of a broker-dealer or a funding portal; companies will be prohibited from offering direct crowdfunding investments.