Businesses of all sizes require funding from the start to purchase key items and provide a cushion during a potentially lean launch period. Many companies have turned to crowdfunding for business projects as a method to generate interest and funds for specific purposes. Profits from the sales of these final products produced by the project may then be funneled into the company as a whole. A new type of funding, commonly known as equity-based crowdfunding for business, looks to change this in the future by allowing companies to accept investments in exchange for a share of the company instead of soliciting donations and giving rewards. A few key facts about crowdfunding for business can help you determine how and why to consider it as a possible source of revenue.
Crowdfunding for business use typically must fund a project, not a company. Most major crowdfunding sites do not allow business owners or managers to solicit funds to pay their normal business bills or lifestyle expenses. Projects are often defined as a specific product, be it a song, an album, a magazine, or a physical product, which creators can then sell or give away at project completion. Crowdfunding sites often encourage those launching the project to give away the product as part of a tiered reward offering.
Most modern crowdfunding sites accept donations. These sites often expect companies launching a project to create a tiered rewards program that entices people to make donations, but these donations are not considered investments in the traditional sense. Those making the donation may receive goods and services in exchange, but these are rewards for contributions and not outright purchases. This is an important distinction if you are considering crowdfunding for business projects. Because these items or services are given away in exchange for donations, there are many different guidelines regarding taxation and invoicing that vary by state.
Equity crowdfunding for business use could change everything. The Securities and Exchange Commission only recently put forth rules that could allow equity crowdfunding sites to give investors a share of a business in exchange for funds generated through traditional crowdfunding methods. If you choose to take this route, you should understand that the investments will be covered by all of the guidelines set forth by the SEC involving investments. Many different laws and regulations govern investments in the United States, but equity-based crowdfunding does offer a way to use crowdfunding for business without the project requirements common in today's marketplace.
Most modern sites still require you to use crowdfunding for business projects instead of typical business expenses. The development of equity-based crowdfunding options may well change this, but there will be many legal hurdles for those considering that route. If you are looking to fund a specific project, remember that goods and services awarded for contributions are not direct sales and that you may not give away a share of your company under traditional rules. Crowdfunding for business projects and expenses is a great option for businesses of all sizes, but understanding the many rules and laws that govern such donations or investments remains critical.
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