Since Crowdfunding investments will be in smaller companies that do not have short-term options for investors to sell their stakes, investors’ money will be tied up for a good amount of time – several years in most cases. In addition, investing in Crowdfunded companies is riskier than traditional investment vehicles. In order to protect smaller investors from large losses in Crowdfunding investments and to keep them from tying up too much money they may need access to in the short-term, the JOBS Act puts limits on how much you can invest in total over any and all Crowdfunding businesses, not just per investment.

The investment limits are as follows:

The definitions of net worth and income are expected to be similar to how accredited investors are required to calculate their income or net worth, and the SEC will soon determine which one to use to calculate your limit. The next section explains what the accredited investor definitions might look like; it may get a little confusing or overwhelming, but rest assured that most Crowdfunding platforms will make it easy for you to get this information and will calculate your investment limit for you. In case you want to figure your investment limit ahead of time, here are descriptions for how you can figure each number:

**Using your income level to determine your investment limit:
**Using your income will not likely be as simple as taking your current salary and multiplying it by either 5% or 10%, depending on if you make less than or more than $100,000 per year, respectively. The more likely scenario will be that, if you use your income, you will have to have made your current reported salary in each of the past two years with a reasonable expectation to earn the same amount in the current year. For example, if you made $60,000 in 2010, 2011 and expect to make the same this year, you will use $60,000 as your base – your investment limit would be $3,000 (.05 x $60,000). In a “greater than $100,000” example, if you made $120,000 in 2010, 2011 and expect to make the same this year, you would use $120,000 as your base – your investment limit would be $12,000 (.10 x $120,000).

The SEC will have to determine what to do if you have not made the same amount each year. For example, if you made $60,000 in 2010, $62,000 in 2011 and are expecting to make $65,000 in 2012, we will need to wait to see what the SEC says to use to determine your base. For example, they may say to use the last full year ($65,000) or maybe average the three ($62,333). I will update the post when the rule is released. Again, if it is under $100,000, you will take 5% to calculate your limit, and if it is over $100,000, you will use 10% to calculate your limit.

**Using your net worth to determine your investment limit:
**If you use programs like Quicken or Mint.com to track your money, you should be able to find your net worth there. If not, you will have to calculate it yourself – your total assets, like cash and investments, less your total liabilities, like credit card debt and student loans. The rules for accredited investors, which we expect to be similar to the rules for Crowdfunding investors, state that you cannot use your personal residence in the calculation. To help you with this one, if you do not already use Quicken or other financial planning software, here is a link to a net worth calculator. This is not an official estimate you can use for Crowdfunding, but it will at least get you an estimate. Thank you AARP!

**For real estate assets and real estate liabilities, leave at $0 unless you have a home that is not your primary residence. **

Link to Sample Net Worth Calculator

An important thing to remember here is that the investment limit is across all Crowdfunding investments, no matter which platforms you use. So if your limit is $3,000 and you have invested $1,000 total over a few companies on one platform, you can still only invest $2,000 on any other platforms. The SEC will weigh in on how this will be regulated, but remember, these rules are in place to protect you, and you should not try find ways to invest more than you are allowed. Again, the platforms will help you with this and will likely let you know what your investment limit is and how much you are allowed to invest.

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