There have been some very significant new developments in both Federal and State securities regulation in the last several years, and it’s not over yet. There are some proposed regulations particularly around so-called “crowdfunding” which have been proposed and are […]
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Use of “Crowdfunding” and Associated Regulations

October 19, 2015

There have been some very significant new developments in both Federal and State securities regulation in the last several years, and it’s not over yet. There are some proposed regulations particularly around so-called “crowdfunding” which have been proposed and are not finalized and are likely to change significantly between what was proposed by the NCC and what is finally adopted.

It is worth mentioning that there is a difference between the kind of funding you do on a site such as Kickstarter where you are not actually selling equity in your company. Securities law does not govern that kind of fundraising because you are not issuing a security. However, the so-called equity crowdfunding is still in the state of development and is not yet fully outlined in the securities regulations, so it is important to understand the difference between equity crowdfunding and other forms of crowdfunding.

But, even taking money from a friend or family member, you still have to comply with applicable securities laws, and you need to structure the investment appropriately for the business as it is today and for the business as it’s going to be in the future.

If the business is successful, and if it grows significantly, and especially if it grows rapidly, then there is a strong likelihood that you’re going to need more funding to expand, to develop infrastructure, to move into new markets, to develop new products and services. And, so, it’s important that the initial funding structure that you put into place works for those future funding needs and funding events.

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