The Legal Aspects of Crowdfunding

Crowdfunding is the latest and probably the most preferred alternative for businesses and individuals to fund their startup ventures. The crowdfunding model followed by most of the crowdfunding platforms allows the project owners to present their projects to potential donors. In return of a small token gift, these people donate money to get the project started. Crowdfunding websites such as Kickstarter act as a middleman between the project creators and the potential backers. However, before you get too excited about this excellent opportunity to fund your next business idea, it is important that you are well aware of the potential legal issues associated with crowdfunding. Sometimes, new ideas like these tend to create legal issues as they get ahead of the present laws and regulations.

As per current Federal Law in America, the Securities and Exchange Commission or SEC regulates the selling of securities as an investment to the public. Unless a company has approval from SEC, it is not legal on their part to receive any kind of payback relating to an investment. This is why potential equity crowdfunders need to pay very close attention to the emerging JOBS act law.

The JOBS (Jumpstart Our Business Startups) act was signed into law in 2012. As one of its key provisions, JOBS act instructed the SEC to explore alternatives so that crowdfunding can be exempted from the oppressive provisions that deny funding access from non-accredited investors.

In case you are looking to raise equity funds through crowdfunding, you must be careful about certain legal concerns. Equity investors, in general, prefer having a say on the process of managing the business. Always consider whether you have the necessary resources to handle a large number of highly demanding investors, as a business startup. It has also been observed that startup ventures that accept crowdfunding find it difficult to arrange venture capital investments at a later stage.

Crowdfunding enthusiasts must also be well aware of the probable issues related to intellectual property. Some of the most common intellectual properties for a business are its copyrights, patents and trademarks. Funding is required to bring these assets to market. Therefore, before presenting your business to a crowdfunding platform, you must take adequate measures to protect your intellectual property rights. Two types of issues relating to intellectual property are common these days. First, someone may lay claim to the content that someone else has put up in his/her crowdfunding page. Your crowdfunding page ideas may also be stolen by someone else. This is becoming more and more common in crowdfunding these days with someone seeing an impressive Kickstarter project which leads them to steal the idea for the product or service and then launch a nearly identical crowdfunding project on Indiegogo while the original, legitimate Kickstarter campaign is still running.

This leads to brand confusion and a genuine air of skepticism on the part of potential crowdfunding backers. Why are the two crowdfunding projects identical? Which one is legitimate? Which one isn’t? Which crowdfunding campaign to back? Both? Neither? One or the other and why?

Crowdfunders be very well aware of the fact that presenting a new product or idea to a crowdfunding website will definitely make that new idea susceptible to being copied. Filing a provisional patent is a good idea for businesses that have a patentable product.

It is useful to add music, video, artwork, images, etc. to the crowdfunding pages. However, don’t forget that copyright is a legal necessity for you to use any of these contents. Copyrighting will also protect your content from being stolen or copied.

At Crowdfund Buzz, we provide end to end support to help you create and manage your crowdfunding campaigns successfully. Contact us today if you have an idea that can make a difference with all the crowdfunding support you need.