OLR Report 2015-R-0277 provides general information on crowdfunding as well as links to the crowdfunding laws of the 28 states and the District of Columbia that currently allow this investment method. Crowdfunding is a method of raising capital that uses the internet to attract investments from large pools of investors. According to the Maine Office of Securities, crowdfunding "began as a way for the public to donate small amounts of money, often through social networking websites, to help artists, musicians, filmmakers, and other creative people with their projects."
More recently, the method has been promoted as a way for small businesses and start-up companies to raise investment capital. Crowdfunding allows individuals to invest in these businesses through an intermediary, such as a broker-dealer or a funding portal. A "funding portal" is a website or portal that advertises the investment opportunities and facilitates payment from the investor to the issuer, but does not, among other things, offer investment advice or compensate employees based on sales.
Title III of the 2012 Jumpstart Our Business Startups (JOBS) Act created a federal exemption under the securities laws so that crowdfunding can be used to offer and sell securities. On October 30, 2015, the Securities and Exchange Commission (SEC) adopted its final rules, "Regulation Crowdfunding," to govern such sales and offerings. Among other things, the rules limit the amount of capital that can be raised or invested through crowdfunding methods.
Read the full report here.