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Corporate regulator issues rules for small business crowdfunding

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START-UPS and micro, small and medium enterprises (MSMEs) may now raise up to P50 million through crowdfunding following the Securities and Exchange Commission (SEC)’s release of guidelines regulating this method of fund raising.

In a statement on Tuesday, the corporate regulator said it approved the Rules and Regulations Governing Crowdfunding (CF Rules) during its July 4 en banc meeting.

“With the rules and regulations governing crowdfunding in place, the commission hopes 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,” SEC Chairman Emilio B. Aquino said in a statement.

The rules, published on the SEC Web site, define crowdfunding as the “offer or sale of securities of a limited scale usually for start-ups, MSMEs done through an online electronic platform.”

Such transaction involves three parties: the entrepreneur or project initiator, supporters or those willing to fund the entrepreneur’s business idea or project, and the platform or moderating organization that helps the entrepreneur and supporters realize the business idea or project.

The SEC identified four types of crowdfunding, namely: donation-based, reward-based, lending-based, and equity-based. The rules, cover only the latter two, since they involve offers of securities or shares to the public.




Start-ups and MSMEs may raise up to P10 million through CF when the amount is offered to retail investors, and may reach up to P50 million when it is offered to banks, registered investment houses and insurance companies, among others.

Meanwhile, a retail investor with annual income of up to P2 million may invest a maximum value of five percent of total income per year. Those with an annual income of more than P2 million may invest up to 10%.

No limit is set for the bigger investors.

Investors must also be provided with relevant information on the issuer’s CF activities, such as fees, charges and other expenses, as well as information on investor rights.

Recognizing that some entities have already been conducting crowdfunding, the SEC has set a three-month transition phase to give them time to comply with the new rules.

They may continue their existing operations until the SEC decides on their registration application with the commission.

“Otherwise, those who fail to submit an application during this transition phase will be regarded as carrying on crowdfunding activities in violation of SEC rules and regulations and will be penalized accordingly,” according to the rules. — Arra B. Francia