Get Organized Before You Kick Start Your Crowdfunding Effort

August 2, 2012  |  

Image: Shutterstock, Rafal Olechowski

St. Mark’s Bookshop, a 35-year-old bookseller in New York’s Greenwich Village, is trying to save itself by appealing to others. Using Lucky Ant, a crowdfunding site that caters to local businesses, the bookshop’s owners are trying to raise $23,000 to move to a less expensive location.

St. Mark’s Bookshop is among the tons of aspiring small businesses that are using crowdfunding sites to get the cash it needs. Over on Kickstarter, perhaps the most popular of these sites, Live & Let Dye is looking for funding to “take our printing operation to the next step”; a band called Secret Mountains seeks cash to put the “finishing touches” on their debut album; and the filmmakers behind a documentary called The Wireless Generation is asking for funding to complete their movie and go on a screening tour.

But before you open up an account on one of these sites and start your fundraising efforts, there are a few legal things you ought to know about.

President Obama signed the JOBS Act in April, which gave the average Joe the opportunity to invest in a private company even though their net worth is less than $1 million. However, come January 2013, there will be new Securities and Exchange Commission regulations that entrepreneurs will need to suss out.  Donations have always been acceptable, but now there will be rules for large projects.

“…[I]t’s expected that all companies pursuing a crowdfunding path will need to have their financial statements in order, certified by an accountant if seeking more than $100,000, and audited and prepared by an accountant if raising in excess $500,000,” writes Reuters. Overall, the key word is “transparency.” The new rules will require a business plan (which you should already have, to be honest) and, overall, paperwork to account for your dealings.

Crowdfunding supporters say these sites give ordinary people willing to take a risk the chance to invest in what could be “the next big thing.” That may be true, but the government is trying to keep scammers from taking advantage of these sites as well. Meaning anyone who’d like to turn to crowdfunding will have to have their house in order before they do so.

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