Crowdfunding Legal Issues a Lawyer Can Help With
Crowdfunding is on the rise. The tool has allowed startups to collect billions of dollars. The tool raised an estimated $2.1 billion globally for startups in 2015 alone.
Wonder if crowdfunding is a flash in the pan internet trend? Don’t count on it. By 2025 the crowdfunding industry is anticipated to be valued at more than $300 billion.
Crowdfunding is everywhere. The tool helped educators raise well over $100 million for schools and educators in 2016.
The World Bank has even pointed to crowdfunding’s potential to help entrepreneurs all over the world. Crowdfunding is a global phenomenon that is clearly set to expand.
And with every other booming market, crowdfunding comes with its own unique issues. Unfortunately, crowdfunding legal issues exist which can hamper the process and place users into financial and legal trouble.
Whether you are already using crowdfunding as a tool for your startup or non-profit organization, or if you plan on trying it out, it’s important to understand the law. We can help.
As with any other business law, expert advice is required to navigate the process. And there are many crowdfunding legal issues a lawyer can help with. Let us get you the facts so you know what to look out for.
Here we go:
Crowdfunding Legal Issues
Despite its unique ability to raise money for private companies and non-profit organizations alike, crowdfunding comes with some classic legal issues.
These issues involve:
- Contract Law
- Partnerships & Relationships
- Legal Filings
- SEC Regulations
- Tax Law
- Planning for the Future
Before you even begin using a specific tool for crowdfunding you need to understand the contract you are signing with that provider.
As with any other service provider, you will be signing an agreement when agreeing to use a crowdfunding tool for your business or organization. As each of these providers is unique, their expectations are as well.
Contract analysis will help you choose the best relationship for your goals. Signing the wrong agreement can keep you stuck and penalized later for items you didn’t pay close enough attention to.
Contract law is of primary importance in crowdfunding efforts. You will also be considering signing individual contracts with funders.
These agreements could be in the form of services and goods you will provide depending on varying funding levels. They also might grant investors a portion of your company.
In both cases, your contract language needs to be beneficial to you before it is offered.
Beyond contracts with your crowdfunding service provider and your potential funders, you will also want some relationships in place before you begin.
An experienced legal team can help form these partnerships.
Partnerships & Relationships
As a non-profit or business owner, you will want to hire a few people right away. One is an experienced legal team to represent your interests in the entire crowdfunding process.
As crowdfunding is a great way for start-ups to increase their operating capital a legal team can help you navigate the partnerships and relationships that will form. Offering an investor a stake in your company as part of its investment return will require contracts.
This may also include brokers who arrange deals. Or a tax advisor.
While these authorities may be members of your legal team, that isn’t always the case.
If you’re hiring brokers to arrange larger deals in exchange for large infusions of capital, you will want to create a working partnership that spells out the terms of the relationship.
The same is true for relationships with tax professionals. Any or all of these relationships may also have intellectual property concerns that a legal advisor will help you account for as well.
Whatever offerings you plan on giving in return for funds, processes will need to be put in place to comply with their expectations.
You may even need to file documents with the SEC depending on the offerings.
Crowdfunding Legal Issues and the SEC
The Securities and Exchange Commission (SEC) has adopted rules that permit companies to offer and sell securities through crowdfunding. These rules also facilitate intrastate and regional securities offerings. Meant to assist smaller companies with forming capital, and to provide investors with additional protections, the SEC acts as a governing body for certain aspects of crowdfunding activity.
To make sure your company or organization is in full compliance, working with an experienced team is essential. Further, they will assist in directing you through various financial relationships and SEC filings.
An infusion of capital creates tax implications. Tax problems can often be headed off by a detailed planning process that starts and ends with expert legal advice.
From the structure of contracts to the types of donations and capital that are permitted, tax laws demand compliance. Adherence to these rules can mean the difference between an infusion of funds and a tax bill you can’t afford to pay.
The Future of Crowdsourcing
Crowdfunding is sure to continue to grow and change. Even the largest internet giants are frequently changing their stand on crowdfunding.
Facebook once limited users to using crowdfunding tools for non-profit organizations and charitable contributions. In 2017, the online mega-player expanded their tools to allow personal fundraising as well.
As explained earlier, World Bank has endorsed the tool in “Crowdfunding’s Potential for the Developing World.” Politicians are calling for an infusion of private financing to restore the nation’s infrastructure as well.
Crowdfunding is certain to expand in use. And with continued use, there will be changing regulations and enduring crowdfunding legal issues.
Expert advice is a must when using crowdfunding for your startup or non-profit.
Getting Expert Advice
As you know, the best way to get guidance on any legal issue is to contact a lawyer. Crowdfunding legal issues are no different. And since crowdfunding is a relatively new tool with changing rules and an intense growth rate, you need expert legal advice more than ever.
Manfred Sternberg & Associates is here to help. We offer clients a practical view of the law. Don’t wait another moment to get the personalized legal advice you need. Your initial consultation is free. Contact us today to make an appointment and discuss your collections, commercial law, business law or consumer law matter.