Legal Issues Encountered By Small Businesses When Looking for Crowdfunding
Online Financing which is also identified as crowdfunding is a fresh method for entrepreneurs and business to obtain finances for projects and products with the help of the Internet. The entertainment industry has been using the online financing for a number of years and entrepreneurs have now begun utilizing the Internet to publish websites and request for the funding they need to support their ideas.
Crowdfunding websites allow entrepreneurs or businesses to present their ideas to the general public who fund the project without expecting anything in return other than a small gift. The largest of the crowdfunding sites, Kickstarter presents itself as an intermediary between individuals who are in need for funding and provide them with the use their platform to project their ideas to people, who may decide to fund the product or idea with small amounts of money. Authors looking forward to obtaining funding by using this platform may decide to give copies of their book or entrepreneurs developing a product may distribute them to people who contribute significant amounts.
Businesses may become excited at the thought of a new method to raise money for the funding they need with the help of the Internet. However, they are advised to understand that there are certain legal issues which are also involved. This article is addressing some of her legal issues which are encountered by small businesses that are looking for crowdfunding.
The Legal Status Of Crowdfunding In The United States
The sale of securities to the public as an investment is regulated by the Securities And Exchange Commission [SEC] under the US federal law. It is, therefore, illegal to receive funds from an investor unless the company concerned has received approval from the SEC.
Attempts were made in 2012 to instruct the SEC to exempt crowdfunding from some of the provisions which restricted access to funds from unregistered securities offered by non-accredited investors. The SEC is still to issue its findings but some companies have been claiming that they are in the position to offer securities to accredited investors.
Equity Funding And Crowdfunding Issues
Some concerns have been raised about using crowdfunding as a method to raise funds from investors in the form of equities. They are:
- Equity investors generally want to have a say in the way a business is managed. They usually demand annual meetings for shareholders which must provide them information about the management of the company. Small businesses do not have the resources to manage a large pool of investors.
- It can become difficult for startups that accept crowdfunding to find venture-capital or other types of sophisticated investors in later stages.
- The sole reason why investing has been regulated is for the protection of investors. Investment in any business may not guarantee a return and keeping away certain information which would be available to potential investors may create issues of misrepresentation.
It is for this reason that Eric Savits from Forbes has commented that equity with the use of crowdfunding can be a legal disaster in the making.
Crowdfunding And Intellectual Property Issues
Intellectual property generally refers to business assets which are valuable. They can be in the form of patents, copyrights, trademarks, etc. These assets also need funding before they are brought into the market and crowdfunding is a popular method which is being used by businesses in possession of these assets. However, it becomes difficult to protect the rights to intellectual property when it is projected to crowdfunding sites. Two types of issues have often been noted when financing is sought for assets which are classified as intellectual property.
- People are promoting content which does not belong to them and are leaving themselves exposed to lawsuits from individuals that are owning the patent or copyright.
- Ideas projected on crowdfunding platforms can easily be stolen by the others who can also promote illegal versions of patented products.
Several instances of patented and copyrighted material being promoted on crowdfunding sites have been observed by the authorities and the concerned platforms. Projecting a new idea on a crowdfunding platform can also expose the inventor to the risk of his or her idea getting copied. Unfortunately, crowdfunding platforms do not accept liability for any such incidents.
Businesses and entrepreneurs looking forward to projecting their ideas on crowdfunding platforms must understand that they must ensure proper protection for their work and also get information about whether the idea they are promoting has already been patented by anyone. Crowdfunding certainly is an innovative idea to generate the funds needed for a new business but it also comes with a set of legal issues which if not cared for can create major problems for the business or the entrepreneur.
More in Crowd Funding
All You Need to Know about the Fall and Return of Iceland’s Sole Billionaire
To be among the wealthy places you in an invincible position. Reviewing the wealthiest celebrities today, will any of them ever...June 25, 2021
The Newest Crowdfunding Success is the New Segway Ninebot Scooter. And We Wish We had One, Too!
The KickScooter F Series was fully funded within 10 minutes of its campaign launch on Indiegogo and an outstanding success not...June 24, 2021
These Historical Tours Broke All Records and Made Millions
The lives of musicians today are vastly different from before, due to the proliferation of streaming platforms and social media access....June 23, 2021
Want a Celebrity Endorsor to Boost Your Brand’s Value? Here are Things You Need to Consider First
To get a new company off the ground, the idea of getting a celebrity endorsement for your product or service can...June 22, 2021
Celebrities are Just Like Us, They Deal with Anxiety Disorders, Too
When faced with a stressful situation, the body’s reaction is Anxiety and prolonged fear and anxiety for long periods indicates an...June 21, 2021
Can Kate Middleton and Prince William’s ‘Chat Sofa’ Parenting Technique Work with Your Children?
A “chat sofa” does sound like a talk show you half-watch while scrolling through Facebook, but it’s a parenting technique that...June 17, 2021
Sure, They Were Great Athletes in Their Heydays, but They Became More Famous After Retirements
Great athletes enjoy a successful career, but have a short professional life, retiring at 40 due to injuries and age. But...June 16, 2021
Here are the Top Ten Cars That Get Stolen in the US. The Results will Surprise You!
Car thieves rarely target flashy, costly cars and instead concentrate on common cars which do not attract much attention. Despite many...June 15, 2021
Become a Pro Online Shopper without Even Hiring a Shopping Assistant
Everyone enjoys dressing up at times and although our love for clothes exceeds everything else, it’s time we admitted that we’re...June 14, 2021