THE Securities and Exchange Commission (SEC) has approved its rules and regulations on crowdfunding, a move that will allow start-ups and small and medium-sized enterprises greater access to funding.
The SEC en banc on July 4 approved the rules and regulations governing crowdfunding, defined as a fund-raising activity typically conducted through an online platform, mainly used by start-ups.
“Information and communication technology has made a significant impact on our financial environment,” SEC Chairman Emilio B. Aquino said.
“With the rules and regulations governing crowdfunding in place, we hope to support recent financial innovations on providing easier access to finance especially for smaller business start-ups or ventures while ensuring the integrity and fairness of financial systems and the protection of investors,” he added.
The fund-raising approach involves three parties—the entrepreneur or project initiator; the supporters or those willing to fund the entrepreneur’s business idea or project; and the platform or moderating organization that brings the entrepreneur and supporters together to realize the business idea or project.
Supporters make their contributions or donations through online platforms. The platforms coordinate and administer the fund-raising activities.
Reward-based and donation-based crowdfunding are two famous forms of community crowdfunding, which are not subject to securities regulation as they do not involve offers of securities or the prospect of financial return, the agency said.
On the other hand, the financial return model includes lending-based and equity-based crowdfunding.
“Securities-based crowdfunding can offer an alternative source of private financing for start-ups and SMEs,” Aquino said.
“Further, market validation through successful crowdfunding campaigns may create more funding opportunities for businesses,” he said.
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