Can you use crowdfunded money in any way you like?

Can you use crowdfunded money in any way you like?

On Behalf of | Dec 23, 2021 | Business Formation |

You have a great business idea, which is really just a product that you’ve developed. You’re looking to form a business to produce and distribute this product. You don’t have that in place yet, but you know that it can succeed with the right infrastructure.

To get the money to launch your new company, to hire employees, to produce the actual products that you need to sell and much more, you decide to turn to crowdfunding. You raise the money that you need, and you withdraw it to your bank account. But now, how can you use that money? Can you do anything you want with it?

Crowdfunding sites have very few rules

As far as the rules from the actual crowdfunding sites are concerned, they generally don’t stipulate that you have to use the money in a specific way. People are donating to your business, so you’re expected to use the money for that business, but you’re not beholden to whatever those individuals would like you to use their money for.

For instance, someone can’t request that their money goes to pay employee wages or to do research and development. You simply get the entire fund and you can use it in any way that you need for your company.

On one hand, this flexibility is very nice. On the other, it does make some people a bit wary of being scammed.

The biggest thing to remember is that deceiving your donors or investors is a form of financial fraud. There have been cases where people have committed fraud on these sites and then been arrested. So, while people may not be able to tell you exactly how to use the money, doing something that is clearly not related to your business is likely illegal. For instance, you can’t take the money, buy yourself a new car, and decide not to start your new business after all.

Is crowdfunding right for you?

This is only one way to raise funds. You may also be interested in bringing on investors and giving them an ownership percentage, or in looking into government grants. It all depends on the type of company that you want the start, and it’s always important to know what legal steps you can take during this process.