How SEC regulations can affect your crowdfunding plans

As the reach of the Internet connects more people to each other, crowdfunding has become a popular model for startup companies to generate money for inception costs. Until recently, supporters would receive small tokens for their generosity, such as t-shirts and hats to even small parts in movies.

Now crowdfunding has evolved into securities offerings where supporters receive monetary benefits for their contributions. This means that these and future gifts through crowdfunding could be governed by SEC regulations. 

However, the Jumpstart Our Business Startups (JOBS) Act of 2012, created a new exemption to Securities Act registration requirements. Essentially, it established a difference between traditionally securities transactions (i.e. equity crowdfunding) and rewards based crowdfunding. If a crowdfunding venture fits an “equity” description, it must be offered through an SEC-registered intermediary, a “funding portal” or through a registered dealer-broker.

So how are you to know whether you are engaging in a covered form of crowdfunding? An experienced business law attorney can guide you through the process of meeting SEC guidelines (as needed) and constructing your funding agenda so that you don’t run afoul of the law. After all, a number of investors may not be particularly savvy about investing and the protections that apply to them can be very stringent. Yet, it allows people of meager means to invest in small businesses they believe in without overwhelming risks.

If you have further questions about proper crowdfunding techniques, disclosures and methods, an experienced business law attorney can evaluate your situation.

The preceding is not legal advice. 

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