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Equity Based Crowdfunding: What is It? (And is it Legal?)

There are more than 30 million small businesses in the US. It’s safe to say that most of these small business owners would love to attract investors. In the past, this was difficult due to a small pool of investors and strict federal regulations.

Thanks to the passing of the Jumpstart Our Business Startups (JOBS) act, this could all change. Before the passing of the act, crowdfunding was illegal. Now, companies can tap into funds that come from the general population via equity-based crowdfunding.

In this article, we will discuss equity based crowdfunding. We’ll go over the legal side of accessing funds that come from regular people. And, we’ll also share some benefits of this new practice.

The Power of Crowdfunding

Before going into the legal side, let’s take a look at the power of crowdfunding. As the name suggests, crowdfunding is the practice of collecting money from the general population. This practice was illegal in the US until May of 2016.

Since the passing of the JOBS Act, companies can ask the general population for funds.

Crowdfunding is not a new idea. There are many platforms that allow crowdfunding for certain activities. And, there are many products today that come from a similar venture.

What is Equity-Based Crowdfunding?

In a nutshell, equity-based crowdfunding is the practice of requesting money from the general population. These should go towards the production or completion of a product. In theory, companies can use this practice to get the funds they need to develop quality goods.

Is This Practice Legal?

The JOBS Act has been in effect since May 16th, 2016. Equity-based crowdfunding has been legal since, so you can take advantage of this opportunity. That said, having a reliable attorney can help you avoid legal complications.

The Benefits of Equity Based Crowdfunding

There are many benefits to equity-based crowdfunding. For a consumer’s point of view, it will open up the markets like never before. It should also help set high-quality standards. This will result in a better experience for end-users.

Companies that take advantage of equity-based crowdfunding will also see many benefits. These include:

Access to Funding

The most obvious benefit is that companies will gain access to funding the didn’t have. This can help them develop better products and increase quality standards.

Minimal Individual Risk

The potential risk is split among all of the investors. This means that starting a company represents a less individual risk.

Builds a Larger Network of Investors

Finding big money investors is difficult. You have to know contacts and get the pitch just right. Now, you can tap into a large pool of small investors. This creates a larger network, which is great news for great product developers.

Increase Exposure

Companies that collect funds will also enjoy a boost in exposure. This can help improve sales when the product goes live.

Bypass a Mountain of Paperwork

Getting funding from banks and formal investors requires a mountain of paperwork. Equity-based crowdfunding can help entrepreneurs bypass this and focus on their product.

Find a Reliable Law Firm for Your Venture

Equity based crowdfunding poses a huge opportunity for modern businesspeople. That said, you should also find a law firm you can trust to avoid any issues during your venture.

At Man Fred Law, we can help you bring your product to life. Get in touch with us today and our team of legal advisors will be glad to help.

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