Companies structured as S Corporations would be able to use equity crowdfunding under legislation recently introduced by U.S. Reps. French Hill (R-AR) and David Schweikert (R-AZ).
The Securities Act of 1933 prohibited the sale of securities that weren’t registered with the Securities and Exchange Commission, which restricted the ability of small businesses to crowdfund capital for growth.
The Jumpstart Our Business Startups (JOBS) Act of 2012 enabled small companies to crowdfund up to $1 million in capital from large investor pools — but the exemption doesn’t apply to companies with more than 100 shareholders, including S Corporations.
“The long-term success of any company is linked to its ability to raise the money needed to grow their operations,” said Hill, a member of the House Committee on Financial Services. “As House Republicans formulate our plans to restructure tax law in this country, we need to make sure that we are taking into account the problems and concerns of businesses of all sizes. This bill would eliminate a roadblock in the tax code so that all businesses can utilize these new cost-effective methods for raising capital.”
The S-Corp Access to Crowdfunding Act, H.R. 531, would amend the tax code to exempt shares acquired through crowdfunding or small public offerings from the JOBS Act limitation, providing S Corporations more access to equity crowdfunding.
“As crowdsourcing in capital becomes a more robust opportunity for our small businesses, archaic legacy rules need to be brought up to date for today’s capital environment,” said Schweikert, a member of the House Ways and Means Committee.