New Crowdfunding Laws for Small Investors

Description: When it comes to crowdfunding, knowing and understand the laws is important – here is some background on laws and legislations concerning crowdfunding and small investors.

Crowdfunding and kick-starter websites have become useful sources of start-up funds. New businesses and startups have used crowdfunding to raise initial capital, expansion funds, and venture financing. In a typical arrangement, investors make donations and receive only token gifts in return. Because of a firm legal barrier, they do not and cannot take any stake in the business. For Indiana and Nebraska and as many as twenty other states, that may be about to change. In a new trend in state laws, investors will be able to select ownership stakes. Investors will get an agreed piece of the ownership for their investments. These alternative sources of business capital have a great potential for small businesses and new businesses. However, the growth of non-traditional sources of funds places greater importance on sound management, accurate accounting, and other business basics. Owners, managers, and entrepreneurs can improve chances of obtaining financing from alternative sources with online business tools and free personal finance software.
Small Investors Have Big Impact
A nation of consumers in a fundamental sense are also investors, they provide funds that make businesses successful by buying products and services. For many people with only small amounts of funds to invest, the idea of owning a piece of a favored company or local enterprise seems remote and out of reach. Crowdfunding has grown in popularity in part because it has these characteristics, investors can participate in small amounts, and the amounts are within the range they can afford to donate without a tangible return. The Nebraska Bill proposes an overall limit of two million dollars per company, and an individual investment cap of five thousand dollars per company. While the investment amounts may be small, the impact on the businesses is important.

The Indiana Law
In 2014, the State of Indiana passed a law that permits small investors to take an ownership interest in companies in which they make small investments. The law relaxes the disclosure and legal formalities that the business and investor must observe. The restrictions are less formal and demanding than securities and investment rules that apply to stocks and bonds. The Indiana law provides special notice provisions to protect small investors and persons unfamiliar with business investing. The scope of these laws is important, they are meant to apply to local investors and local businesses. They are not intended for those clearly seeking to work outside the state, in multiple locations, and outside of a local area. The law requires notices that clearly state the risk of loss. Under federal and most state securities laws, investors must work through licensed brokers or qualify on the basis of wealth, income and experience as seasoned investors. The federal government has a similar idea under consideration with the Securities and Exchange Commission.
A Local Investment Exchange
The basic idea of the Nebraska Bill and similar state laws is to permit a formal organization to do the work of a kick-starter website. Rather than make donations without compensation, donors would become small investors entitled to receive a share of the business. The potential of these sites is meant to be small and localized in terms of overall dollars. Nebraska, for example, the bill’s sponsor projects an overall estimate of less than fifty participants per year. However, an idea can take off and, in the case of startups and new businesses, accessible sources of capital tend to attract many participants. With a proposed $200 participation fee, the Nebraska model is within reach of nearly every small business.
Startups and New Business Accounting
A critical element for new businesses and startups is the ability to control costs and expenses. When preparing for financing, one must also show that there is a likelihood of future success. Reports for investors can make the difference when using crowdfunding sites or agencies such as the proposed investor exchanges. Whether describing existing operations or pointing to a planned or future course, business reports play a key role in presenting facts.
A Legislative Trend
Working with guidance of model legislation, more than twenty states have considered legislation to establish local investment exchanges. It is an idea that appeals to legislators eager to help expand the numbers of local small businesses. By encouraging investment, these laws have the potential to increase local employment and improve local economic conditions. It also recognizes the importance of startups and new enterprises as career options. People with varied experiences and backgrounds can successfully start and build a business. Online resources improve readiness and skills, and as in the case of business demonstrations and free personal finance software, they provide tools for getting started on a solid base.
A Competition for Funds
The local investment exchanges created in Indiana and proposed in Nebraska are competition-based business opportunities. Participating companies have no guarantee of success; they must provide effective presentations to attract investors. For this task, management information and business accounting tools are critical. In the case of existing businesses, invoice management and receivables are important to investors; they indicate the overall condition of the business. The investors have a similar situation; they must select successful investments and participate before the offering party meet their funding goals.

Ideal Software for New Business
The accounting and recordkeeping needs of young businesses and startups are different than mature businesses. In many new companies, a few people must perform many tasks. Accounting software such as the ones from Sage.com can take the burden off the shoulders of owners and managers who must perform many functions. This essential software can save time and effort while providing excellent results. Cash flow, financial statements, payroll, invoice management are some of the important functions that accounting software can perform. Sage One has solutions that work very well with the startup and new business environment. Companies can get a full demonstration of the software’s capabilities at http://na.sage.com/us/sage-one. Business owners and managers can get business accounting packages that also work well as free personal finance software for solo entrepreneurs and proprietors.