Crowdfunding for Small Businesses – Coming Soon
Indiana Secretary of State Connie Lawson issued an advisory to spotlight issues for small businesses and entrprepreneurs seeking to raise investment capital through crowdfunding. The advisory reminds small businesses to wait until the Securities and Exchange Commission (SEC) finalizes crowdfunding rules before selling shares in their ventures to the public – until that time, securities law prohibits publicly accessible Internet securities offerings. The advisory is on the agency’s website at:
http://www.in.gov/sos/securities/files/Crowdfunding_Small_Business_Advisory.pdf.
Crowdfunding is an online money-raising strategy that began as a way for the public to donate small amounts of money, often through social networking websites, to help artists, musicians, filmmakers and other creative people finance their projects. Through the Jumpstart Our Business Startups (JOBS) Act, small businesses and entrepreneurs will be able to tap into the “crowd” in search of investments to finance their business ventures.
“Small businesses are important to the nation’s economic growth and the crowdfunding concept has the potential to provide legitimate small, innovative enterprises with access to capital that might not otherwise be available,” said Secretary Lawson.
The advisory also notes that the JOBS Act only exempts crowdfunding equity offerings from securities law registration requirements. The requirements of federal and state securities laws regarding disclosures, including disclosures of all material facts and risks to investors, remains in place. “If you do not comply with these disclosure requirements, you and your business can be liable for securities fraud and subject to private lawsuits as well as administrative enforcement actions,” the advisory said.
Other topics covered in the advisory include the importance of choosing a proper broker or funding portal to assist with your crowdfunding offering and a reminder that state and federal laws provide additional methods for companies to raise money from a limited number of investors with little or no cost.
“Through our advisory, we want to help ensure that both small businesses and investors are fully informed as they explore the crowdfunding marketplace,” said Securities Commissioner Chris Naylor.
The JOBS Act was signed into law in April. The legislation directed the SEC to adopt rules within 270 days to implement a new exemption to allow entrepreneurs and small businesses to offer investments in their ventures through crowdfunding.
Before taking any actions, small business owners, entrepreneurs, and potential investors with questions about crowdfunding offerings should contact the Securities Division of the Secretary of State’s office at (317) 232-6681 or online at IndianaInvestmentWatch.com.
One Response to Crowdfunding for Small Businesses – Coming Soon
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Thanks for the info. I think that Crowdsourcing is a niche type funding that has very good uses. If you have a specific product idea and know how much it would take to bring to fruition, crowd sourcing works great. Don’t get the funds? The product does not happen. Essentially crowd sourcing is about pre-buying something. I think that there needs to be more assurance for people to actually make that product and not just running off. But there are already rules about that now. I worry about over regulation that might totally kill crowd sourcing if poloticians get overzellous.