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3 Things You Must Know About Crowdfunding Law

You’ve been working on your idea for a long time. Everything is set, now you just have to find funding to make it happen. Crowdfunding can be a great way to fund your startup.

You might’ve thought about it before, but aren’t sure if it’s legal. Well, the great news is that you can use it to fund your business. Yet, you’ve to get ready because you might run into some legal issues.

Don’t worry. We’re going to tell you 3 crowdfunding law issues you might run into.

Read on to learn more!

Crowdfunding Law Issues: What to Expect

If you’re about to embark in the startup world, you’ve to get ready for the good, the bad and the ugly. Crowdfunding your business can get your idea out. But you might be asking yourself is crowdfunding legal?

Yes, it is legal. In 2012, President Obama signed the JOBS Act making crowdfunding possible for startups. But, you could only offer small rewards in exchange for the funding.

This law asked the SEC to pass the rules to allow you to offer equity to your investors in exchange for their investment. The SEC passed these rules in 2015. From this time on, crowdfunding campaigns could offer equity to their investors if they followed the rules.

Crowdfunding being legal doesn’t mean that you can run your campaign in the way you want. Here are 3 major potential issues you should be aware of when you crowdfund your business:

1. Vague Crowdfunding Campaign

You might be asking yourself how can your crowdfunding campaign be vague. After all, you’re explaining your idea to your investors and what you’ll do with the money. Well, crowdfunding isn’t as simple as that.

When you run a crowdfunding campaign, a contract forms between you and your investor. It’s good to have a contract, but most of the time crowdfunding contracts are vague. That’s why you need to detail your reward as much as possible.

Then your investor can’t ask for an unreasonable reward. Remember your investor can sue you if you don’t fulfill their reward. That’s why you’ve to be realistic when deciding what rewards you’ll offer.

2. Potential Intellectual Property Infringement

Before using a name or logo, you should do a thorough research. You’ve to make sure no one owns or is using them already.

If someone owns the trademark, you should contact them to agree or get a license to use it. If no one owns that trademark, you should register it before launching your campaign. This way you can make sure no one steals your idea.

3. Exposing Yourself to Tax and Personal Liability

Yes, you read that right. By crowdfunding your business, you’re exposing yourself to tax and personal liability. You’re personally liable for the money you raise and fulfilling your investors’ rewards.

Also, all the money you raise through crowdfunding is considered income. So you’ll have to include it in your taxes. If the amount raised is over 200 transactions or 20,000 dollars, your crowdfunding platform will mail you a 1099-K form.

Bottom Line

Before crowdfunding your business, you should do your homework. Remember that you might run into crowdfunding law issues.

You should focus on making your campaign as clear as possible. We recommend you get legal advice before launching it.

Are you planning on crowdfunding a real estate startup?

Check out our blog post to learn more.

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