The Securities and Exchange Commission (SEC) finally adopted exciting new rules that permit companies to raise money through crowdfunding. As a result, companies will be able to raise up to $1 million in any 12-month period from a broad base of ordinary investors through the internet.
Persons contributing money will receive either an interest in the company (an equity stake) or a repayment of principal invested plus interest (through a debt instrument). Unsurprisingly, the jurisdiction of choice for most crowdfunding campaigns to incorporate is Delaware, because the Delaware corporate law structure is the best in the world.
Previously, raising money through crowdfunding involved one party providing money to an individual or company in exchange for some tangible goods. For example, a band raising money for a new album would accept contributions from fans in exchange for future free copies of the new album or band-related goods like T-shirts, concert tickets or key chains.
These crowdfunding offerings—tokens of gratitude, in a way—were conducted through popular internet sites such as Kickstarter and Indiegogo. Now, however, crowdfunding investors can obtain a piece of the actual company or make a loan to the company instead of an investment. Soon there will be other new and innovative crowdfunding campaign platforms to capitalize on the new rules enacted by the SEC.
However, the new SEC rules impose a number of requirements upon companies seeking to raise money through crowdfunding:
With the arrival of the new Securities and Exchange Commission rules, the crowdfunding community now has clear definition on how to progress and how to further the potential of crowdfunding campaigns.
Please feel free to contact us with any questions or concerns about starting a Delaware entity for your crowdfunding campaign. We will be glad to assist you.