The Securities and Exchange Commission voted this week to propose rules that would permit companies to offer and sell securities through crowdfunding.

Crowdfunding is a term used to describe an evolving method of raising money through the Internet, according to the SEC. For several years, this funding method has been used to generate financial support for such things as artistic endeavors like films and music recordings, typically through small individual contributions 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 as a means to offer and sell securities.

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

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

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

Under the SEC's proposed rules for crowdfunding the commission approved Wednesday, a company would be able to raise a maximum aggregate amount of $1 million through crowdfunding offerings in a 12-month period.

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

Or, investors would permitted to invest 10% of their annual income or net worth, whichever is greater, if either their annual income or net worth is equal to or more than $100,000. During the 12-month period, these investors would not be able to purchase more than $100,000 of securities through crowdfunding.

The SEC said certain companies would not be eligible to use the crowdfunding exemption including non-U.S. companies, companies that already are SEC reporting companies, certain investment companies, companies that are disqualified under the proposed disqualification rules, companies that have failed to comply with the annual reporting requirements in the proposed rules, and companies that have no specific business plan or have indicated their business plan is to engage in a merger or acquisition with an unidentified company or companies.

SEC Chair Mary Jo White noted that the intent of the JOBS Act is to make it easier for startups and small businesses to raise capital from a wide range of potential investors and provide additional investment opportunities for investors.

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

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