The SEC’s Office of Investor Education & Advocacy is issuing this Investor Bulletin to advise investors about the inflation-adjusted increase in the investment limits for securities-based crowdfunding.
Crowdfunding generally refers to a financing method in which money is raised through soliciting relatively small individual investments or contributions from a large number of people. The Jumpstart our Business Startups (“JOBS”) Act of 2012 required the SEC to adopt rules providing for securities-based crowdfunding. As a result, in 2015, the SEC adopted crowdfunding rules that allowed the general public the opportunity to participate in the early capital raising activities of start-up & early-stage companies & businesses.
The JOBS Act also provided that the dollar amounts in crowdfunding limits be adjusted for inflation every five years. As a result of this statutory requirement, the SEC has adjusted the crowdfunding dollar amounts in relation to inflation.
What are the new investment limits in crowdfunding?
Because of the risks involved with securities-based crowdfunding, you are limited in how much you can invest during any 12-month period in these transactions. If you are a non-accredited investor, the limitation on how much you can invest depends on your net worth & annual income. Following are the inflation-adjusted investment limits.
If eitheryour annual income or your net worth is less than $124,000, then during any 12-month period, you can invest up to the greater of either $2,500 or 5% of the greater of your annual income or net worth.
If both your annual income &your net worth are equal to or more than $124,000, then during any 12-month period, you can invest up to 10% of annual income or net worth, whichever is greater, but not to exceed $124,000.
The following table provides a few examples:
greater of $2,500 or 5% of $40,000 ($2,000)
greater of $2,500 or 5% of $150,000 ($7,500)
10% of $150,000 ($15,000)
10% of $900,000 ($90,000)
How do I calculate my net worth?
Calculating net worth involves adding up all your assets & subtracting all your liabilities. The resulting sum is your net worth.
For purposes of crowdfunding, the value of your primary residence is not included in your net worth calculation. In addition, any mortgage or other loan on your home does not count as a liability up to the fair market value of your home. If the loan is for more than the fair market value of your home (i.e., if your mortgage is underwater), then the loan amount that is over the fair market value counts as a liability under the net worth test.
Further, any increase in the loan amount in the 60 days prior to your purchase of the securities (even if the loan amount doesn’t exceed the value of the residence) will count as a liability as well. The reason for this is to prevent net worth from being artificially inflated through converting home equity into cash or other assets.
What are the other dollar amounts in crowdfunding that increased?
Other dollar amounts in securities-based crowdfunding that were adjusted for inflation include the offering amount thresholds for financial statement disclosure requirement. The minimum level of financial disclosure required by the company depends on the amount of money being raised or raised by the company in the prior 12 months. Following are the inflation-adjusted threshold amounts & a summary of the financial disclosure required:
- $124,000 or less– financial statements & specific line items from income tax returns, both of which are certified by the principal executive officer of the company unless financial statements reviewed or auditedby an independent public accountant & the accountant’s review or audit report, as the case may be, are otherwise available.
- $124,000.01 to $618,000 – financial statements reviewed by an independent public accountant & the accountant’s review report unlessfinancial statements auditedby an independent public accountant & the accountant’s audit report are otherwise available.
- $618,000.01 to $1.235 million – iffirst time crowdfunding & audited financial statements are not available, then financial statements reviewed by an independent public accountant & the accountant’s review report, otherwise financial statements audited by an independent public accountant & the accountant’s audit report.
- More than $1.235 million (up to the maximum aggregate of $5 million)– financial statements auditedby an independent public accountant & the accountant’s audit report.
An auditprovides a level of scrutiny by the accountant that is higher than a review.
To learn more about crowdfunding, see our Investor Bulletin.
For a list of funding portals registered with FINRA to act as crowdfunding intermediaries, visit finra.org/about/funding-portals-we-regulate.
For a list of broker-dealer firms registered with FINRA, visit finra.org/about/firms-we-regulate.
For our Investment Adviser Public Disclosure (IAPD) website, visit adviserinfo.sec.gov.
For FINRA’s BrokerCheck, visit brokercheck.finra.org.
For information on how to search for company documents in the SEC’s EDGAR database, see Using EDGAR – Researching Public Companies.
For additional investor educational information, see the SEC’s website for individual investors, Investor.gov.