Crowdfunding is a way to raise money through public donations — and sites like Indiegogo and Kickstarter have allowed entrepreneurs of all kinds to take their fundraising efforts directly to the internet, potential investors and future consumers.
However, there’s a number of critical legal issues that need to be addressed before you start crowdfunding. These include:
1. Your business structure
You should form a business entity before you start your crowdfunding campaign. That means setting up your company’s bank account, filling out the appropriate tax forms and handling all the other necessary paperwork that goes along with the business structure you choose. Creating a business entity helps protect you from personal liability if something goes wrong. It also helps you handle the taxes related to the donations you receive.
2. Your contractual obligations
Most crowdfunding campaigns related to startups offer investors something in return for their donation — whether it’s an advance product or something else. You need to understand exactly what contract you are creating with your investors — and how that can affect you if you aren’t able to deliver on your end of the bargain for some reason. You can end up in serious legal trouble if you’re accused of deceiving your backers.
3. Intellectual property concerns
You don’t want your ideas to be stolen — which means you need to take steps to protect your intellectual property through trademarks and copyrights. Similarly, you don’t want to end up in a lawsuit because you infringed on someone else’s work, including images or symbols you use in your campaign without the right permission.
4. The limits of a particular platform
You have to make sure that you obey the terms of service of the platform that you use. Make sure that you understand the differences between the available platforms so that you know which one will best meet your needs. You also need to know how you can market your campaign and what the platform does to support that — and what limits it imposes.
Crowdfunding campaigns have helped many entrepreneurs achieve their dreams — but they’re also fraught with legal complications. Minimize your risk by taking the process slowly and carefully — and get some experienced advice when you need it.