Federal Securities Law: Crowdfunding

A portion of crowdfunding comprises securities offerings, but much of what is called crowdfunding is merely an exchange of goods or promotional materials for cash, not involving any security offering or sale.

Securities-based crowdfunding rules will permit you to raise small amounts of money from many investors without worrying whether the investors are accredited. That’s not a great deal compared to the costs of complying with the crowdfunding rules.

Securities-based crowdfunding offerings will be more expensive for issuers:

  • Financial statement requirements in crowdfunding offerings and Rule 506 (b) and 505 offerings that include non-accredited investors can double or triple your capital raising expenses.
  • Crowdfunding’s requirement that you must continue to file reports with the SEC for an indefinite time period after you raise money is also a cost burden.

Securities-based crowdfunding will be difficult:

  • In crowdfunding offerings can be made on the Internet only if you limit yourself to a notice that is a lot like the traditional “tombstone” ads you see in the Wall Street Journal.

A long list of crowdfunding sites (identifying each site as "pledge" (non-securities) or securities-based) can be found at {ijseo_redirect id=34}.

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