When starting a business, raising sufficient capital is often difficult. This is especially true for businesses that have a large overhead or require significant resources to deliver a product or service. Fortunately, there are funding options for certain startups with limited financial resources. One of these options is crowdfunding.
Crowdfunding involves raising small amounts of money from a significant number of people to fund a new project or business. This funding is generally done via the internet and remains a popular source of startup financing as billions of dollars in crowdfunding is raised each year globally. Although this is a great option for startups and entrepreneurs, it’s important to note, there are certain legal requirements involved.
At Hoeg Law, we specialize in working with startups and entrepreneurs to help them navigate complex laws associated with a new business venture. If you have questions about financing your new project, talk to a crowdfunding lawyer today!
How a Crowdfunding Lawyer Can Help
When raising startup financing for your new business venture, consulting with an attorney is wise to ensure compliance with SEC regulations as well as protect your interests in any deal you enter into. A crowdfunding lawyer can help in several ways including:
- Ensuring you meet criteria listed on the crowdfunding platform’s website
- Properly structure investment agreements in your best interest
- Protecting your interests when entering into contractual agreements with outside investors
- Meeting financial disclosure requirements
- Preparing the appropriate documents for required annual SEC audits
- Keeping accurate records to protect your interests against audits or litigation
- Completing any necessary registration with federal agencies
- Providing guidance and navigation through various SEC regulations and compliance laws.
Crowdfunding Securities Laws
When it comes to crowdfunding and raising capital for a startup, there are many highly complex laws that often involve the SEC. It’s paramount to work with a business law attorney who specializes in crowdfunding and SEC regulations to ensure compliance. We’re going to list some of these laws below..
JOBS Act – The Jumpstart Our Business Startups Act (JOBS) act helps investors fund small businesses by easing some of the stringent securities regulations. This act has several important provisions related to crowdfunding such as Title II, Title III, and Title IV.
Title II – Title II of the JOBS act relates to investing. This allows issues to advertise offerings as long as they make reasonable effort to ensure the buyer is accredited. There’s no cap on the amount of capital a business may raise under Title II.
Title III – Title III of the JOBS act approved securities crowd investing for startups. This was a big deal for entrepreneurs as the highly complex SEC registration requirements involved a process that often cost an upwards of $100,000+
Title IV (Regulation A+) – Regulation A of the Securities Act (Section 3(b)) allowed issuers to raise up to $5 million in capital over a years’ time frame. Certain changes under Title IV (Regulation A+) increased this amount to $50 million through two Tiers in a 12-month period. A crowdfunding attorney can provide critical legal assistance in navigating through the complex nature of Title IV and other securities laws.