Crowdfunding Growth Poses Challenges

Crowdfunding is a means of raising funds outside of the traditional fundraising platforms of banks and investment banks. Crowdfunding emerged out of the 2012 JOBS Act. This form of fundraising generally allows a project or venture to raise smaller amounts of capital from a larger number of people. Generally speaking, contributions or investments are solicited via websites crowdfunding websites, such as Kickstarter, Indiegogo, and Crowdfunder.

The Securities and Exchange Commission (SEC) is urging regulators both at home and abroad to monitor the growth of crowdfunding in an attempt to police the growing method for small companies to raise capital.

According to the SEC, one major challenge regulatory agencies face is how to strike a balance between facilitating capital raising needs of smaller businesses and making sure investors are being protected in what is typically a riskier type of investing.

In the United States, Congress has authorized equity crowdfunding, in which small businesses can raise limited capital without the extensive paperwork and regulatory oversight usually required of public securities offerings. After taking comments, the SEC finalized crowdfunding rules in October 2015. Offerings are limited to $1 million over a 12-month period, and issuers (the companies raising the money) are required to disclose certain financial information and must limit the amount of money that any one individual can invest, based on that person’s wealth. The rules will take effect in May 2016.

Contact Us Today

The attorneys at Dimond Kaplan & Rothstein, P.A. understand and have been closely monitoring the changing rules surrounding crowdfunding. If you have questions about an investment or have suffered a loss due to a failed crowdfunding effort, contact us to schedule an appointment or consultation today.

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