by Beth Buczynski

The collaborative consumption movement scored a huge victory yesterday: The Entrepreneur Access to Capital Act was approved by the U.S. House of Representatives with overwhelming bipartisan support.

“It’s clear that we need new ways to help small businesses and entrepreneurs take their ideas from the dinner table to the production line, said Congressman Patrick McHenry (NC-10), who championed the bill. ”The first step is to modernize outdated regulations that stand as barriers to American innovation. This legislation will ensure that our small businesses are not left behind. Crowdfunding can help give them the means to create jobs for hard-working individuals here at home.”

Of course, the bill will still have to survive the tense partisanship of the U.S. Senate before it becomes law, but this victory in the House and a written statement of support from the President is a good start.

What makes this “Crowdfunding Bill” so important?

First and foremost, it makes it much easier for small businesses and entrepreneurs to seek capital from individual public investors in very small amounts, and without all the regulation and oversight of the SEC. (Note: these regulations are good and important when we’re talking about international mega-corps and billions of dollars in securities. But when it comes to the local solar company or mom and pop bakery down the street, the rules should be different).

Another big benefit of this bill is that it begins the important process of legitimizing the crowdfunding industry and creating a legal framework for companies to utilize it safely. Until recently, crowdfunding was more of a donation process, in which individuals offered money but enjoyed no hope of financial compensation if the idea was successful. This bill changes that by making it possible for companies to offer equity-based crowdfunding opportunities to investors and startups to spur capital formation without involving the Big Banks.

The bill will also:

- Create a crowdfunding exemption from SEC regulations for firms raising up to $2 million, with individual investments limited to $10,000 or 10 percent of an investor’s annual income.
- Exclude crowdfunding investors from counting as shareholders for purposes of calculating the 499-shareholder cap under 12(g) of the Securities Exchange Act.
- Preempt state law and exempt the ban on general solicitation for the new crowdfunding exemption (making it legal for companies to advertise investment opportunities to the general public).

“Small business folks in Western North Carolina tell me time and time again that uncertainty and over-regulation are hampering their growth,” said McHenry. “So it unfortunately comes as no surprise that over two years into a sluggish economic recovery, nearly 14 million Americans remain unemployed as entrepreneurs continue to struggle with gaining access to much needed capital.”

By taking the decision about what companies to support out of the hands of politicians and banks, The Entrepreneur Access to Capital Act could be the first step toward changing that depressing reality and encouraging innovation in America once again.