Starting a new business can be a rewarding endeavor, but it’s one that also takes considerable work. For some individuals who want to open their own company, financing is a major hurdle. People turn to various ways of getting the funds they need, including taking out loans, applying for grants or using crowdfunding.
Crowdfunding can be a valuable way to raise funds for your business, but it’s essential to be aware of the legal factors that may come into play if you take advantage of this opportunity.
Type of crowdfunding
There are various types of crowdfunding, including donation-based, rewards-based, equity-based and debt-based. Each type has different legal implications, so make sure you understand the rules and regulations governing any type(s) you choose.
If you opt for equity crowdfunding, you’ll need to comply with securities laws, which may require registration with regulatory authorities like the SEC in the United States. Familiarize yourself with the rules and exemptions applicable to your campaign before launching one.
Intellectual property protection
Protect your business ideas, trademarks, patents and copyrights before sharing them publicly. Register your intellectual property and consider using non-disclosure agreements when discussing your project with others.
Legal structure of your business
Consider the legal structure of your business and its implications in re: liability and regulatory compliance. Funds raised through crowdfunding may be considered taxable income. Understand your tax obligations and consult with a tax professional to ensure compliance. You must ensure that you’re complying with all applicable laws and regulations related to your crowdfunding efforts, as failing to comply can become a costly issue for your business.