After several days of debate and discussion, the US House of Representatives has approved the legislation, the Expanding Access to Capital Act (HR 2799).
The bill was sponsored by Representative Patrick McHenry, the Chairman of the House Financial Services Committee, an individual who has long supported small businesses and smaller investors and a key voice advocating on behalf of the investment crowdfunding sector.
The legislation passed 212 to 205, with voting split across party lines. Fifteen Representatives did not vote on the bill. While the Democrats did not vote in support of the bill, several Democrat amendments to the legislation were incorporated in the final language of the bill.
McHenry issued the following comment on the legislation:
“Across the country, entrepreneurs with a new idea or seeking to grow their business are struggling to access affordable capital. The Expanding Access to Capital Act addresses this and more by alleviating the unique challenges faced by job creators and their investors who live outside major financial hubs. This legislation builds on the success of the bipartisan JOBS Act of 2012 and will benefit Americans from all walks of life—whether they’re saving for retirement or launching a startup. I’m proud House Republicans advanced H.R. 2799 to provide more people with the opportunity to achieve their American dream.”
The legislation has been described as adding to the JOBS Act of 2012. This bipartisan legislation was signed into law during the Obama administration and it legalized online capital formation or investment crowdfunding. The legislation aims to improve entrepreneurs’ access to capital while improving opportunities for smaller investors.
Some of the amendments to the final legislation include:
- Rep. Lawler’s amendment to clarify the definition of “general solicitation” and “angel investor” for purposes of the federal securities laws to ensure that startups can discuss their products and business plans at certain events, known as “demo days.”
- Rep. Huizenga’s amendment directs the Securities and Exchange Commission to promulgate rules with respect to the electronic delivery of certain required disclosures to investors.
- Rep. Lucas’s amendment amends Federal securities laws to allow 403(b) plans to invest in collective investment trusts (CITs) and insurance contracts that comparable retirement plans, such as 401(k)s, may currently invest in.
- Rep. Wagner’s amendment allows a closed-end investment company, an entity that invests in securities using money raised in its initial public offering, to invest its assets in securities issued by private funds.
Some aspects of the legislation which may impact the investment crowdfunding industry include:
- Micro-offering exemption – allows for exemption for a securities offering of $250,000 or less
- Regulation A+ improvement – will raise the funding cap of Reg A+ to $150 million
- Improving crowdfunding opportunities – limits liability for funding portals
- Secondary trading state exemption
- An update to the Accredited Investor Defintion- an update that qualifies an individual as Accredited if they receive investment advice
There are other portions of the legislation that are noteworthy and positive for the capital markets.
While the legislation has been approved in the House, it is not yet clear how it will be received in the Senate, but in an election year, anything is possible.
Developing…