Tampa business attorneys Sheryl Hunter and Ajay Singh of Hunter Business Law visited the Bay News 9 studio to talk about the “equity crowdfunding” phenomenon and the legal implications of the relatively new form of investing. Equity crowdfunding is the practice of funding a venture or a project by raising money from a large number of people online, in compliance with the JOBS ACT (Jumpstart Our Business Startups Act). Hunter explains, “While the name is a bit of a misnomer, obviously jobs are going to be made when you start small businesses and calling it the JOBS Act helped get the legislation passed.”
The concept behind equity crowdfunding is to enable small businesses to access capital in a new and different way, and to allow everyday individuals to own equity in start-ups. Until the JOBS Act, only the very wealthy (known as “accredited investors”) who had a pre-existing relationship with the founders of the company seeking money could invest in privately held companies. “Now private investors are able to invest in private businesses much like buying stock in a publicly traded company” explains Singh, who is a CPA as well as an attorney.
The biggest issue with equity crowdfunding is preventing fraud. After all, people are listing for sale ownership in their business on the internet, and accepting large sums of money in exchange for what could be worthless stock. For example, an individual may claim to have started their own business and start collecting money when there is no such business in existence. There are, however, significant regulations that the companies seeking to raise capital in this way must comply with, at a fairly significant expense. “There are disclosures that need to be submitted,” says Singh, “including disclosures about the business, who are the owners, who are the officers of the company, and then financial disclosures and in many cases audited annual financials.”
Equity crowdfunding is opening up doors for small businesses and start-ups all over the country. There are different avenues of equity crowdfunding and different ways to get involved. To learn more or to start learning how to get your company up and running with crowdfunding, visit Hunter Business Law’s website.
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