The Securities and Exchange Commission voted this week topropose rules that would permit companies to offer and sellsecurities through crowdfunding.

Crowdfunding is a term used to describe an evolving method ofraising money through the Internet, according to the SEC. Forseveral years, this funding method has been used to generatefinancial support for such things as artistic endeavors likefilms and music recordings, typically through small individualcontributions from a large number of people.

The SEC said while crowdfunding can be used to raise funds for many things, it generally has not been used asa means to offer and sell securities.

That is because offering a share of the financial returns orprofits from business activities could trigger the application ofthe federal securities laws, and an offer or sale of securitiesmust be registered with the SEC unless an exemption is available,according to the agency.

Title III of the JOBS Act created an exemption under thesecurities laws so that this type of funding method can be easilyused to offer and sell securities as well, the SEC said. The JOBSAct also established the foundation for a regulatory structure forthis funding method.

Signed into law on April 5, 2012, by President Obama, the JOBSAct was designed to encourage funding of U.S. small businesses byeasing various securities regulations.

Under the SEC's proposed rules for crowdfunding the commissionapproved Wednesday, a company would be able to raise a maximumaggregate amount of $1 million through crowdfunding offerings in a12-month period.

Over the course of that period, investors would be permitted toinvest up to $2,000 or 5% of their annual income or net worth,whichever is greater, if both their annual income and net worth areless than $100,000.

Or, investors would permitted to invest 10% of their annualincome or net worth, whichever is greater, if either their annualincome or net worth is equal to or more than $100,000. During the12-month period, these investors would not be able to purchase morethan $100,000 of securities through crowdfunding.

The SEC said certain companies would not be eligible to use thecrowdfunding exemption including non-U.S. companies, companies thatalready are SEC reporting companies, certain investment companies,companies that are disqualified under the proposed disqualificationrules, companies that have failed to comply with the annualreporting requirements in the proposed rules, and companies thathave no specific business plan or have indicated their businessplan is to engage in a merger or acquisition with an unidentifiedcompany or companies.

SEC Chair Mary Jo White noted that the intent of the JOBS Act isto make it easier for startups and small businesses to raisecapital from a wide range of potential investors and provideadditional investment opportunities for investors.

“There is a great deal of excitement in the marketplace aboutthe crowdfunding exemption, and I'm pleased that we're in aposition to seek public comment on a proposal to permitcrowdfunding,” White said. “We want this market to thrive in a safemanner for investors.”

The SEC is seeking public comment on the proposed rules for a 90-day periodfollowing their publication in the Federal Register.