Crowdfunding sometimes comes up as this out-there, nuanced, and vague term used by glamourous tech-startups. It’s also usable by small, service or product businesses in our region. Here’s a quick overview of crowdfunding.
What is crowdfunding? Businesses use crowdfunding to fund a project or venture by asking people or other organizations to make micro-investments. The sum of these micro-investments is the total amount of funding. To pay back the micro-investors, the business either promises some kind of product or service in return for the micro-investment. For example, if I create the next new water bottle, I could get crowdfunding for $15 increments and give everyone a water bottle if the crowdfunding is successful. Alternatively, if I am providing a service, I could give vouchers for the service at certain amounts donated.
Who crowdfunds? Anyone. However, successful crowd funders include outdoor companies, product companies, non-profits with service benefits, media-creators, writers, artists, and service companies. What’s more important than the end product is creating a successful campaign. There are many resources online if you google, “successful crowdfunding campaigns.”
Why would I crowdfund? It’s hip. No really, why? You are struggling for traditional funding or don’t have any investors. You need an insurgence of cash flow for a new product or service. You can use it to market yourself and your services to a broad, i.e. national / international, group of potential customers and future investors. You want to try something new.
When do I crowdfund? Any time you have a product or service you’re ready to launch. As most markets vary through the year, research and consider the best timing to start your crowdfunding process.
How do I crowdfund? The two large companies for crowdfunding are Kickstarter and Indiegogo. Start by browsing the websites and reviewing successful campaigns to better understand the process. Remember, these sites make money from your funding process. Between service and transaction costs, the crowdfunding site typically costs about 8% of your funding request.
Are there any legal issues with crowdfunding? Yes. When you crowdfund, you may provide a service/product voucher as the recoup on investment or may consider the shareholder and securities process, which can get complicated.
If you choose to enter the shareholder and securities process, make sure you understand the legal limitations. Under the Jobs Act, enacted in 2012, the total amount of securities (shares or debts) an issuer can sell in a crowdfund campaign is $1 million over a twelve month period. Investors with less than $100,000 in net worth or annual income are limited to providing the greater of $2000 or 5% of their annual income or net worth. Investors with greater than $100,000 net worth/annual income can invest 10% of their annual income or net worth. This policy is meant to reduce the risk for small investors. The Securities Exchange Commission has additional regulations for buying and selling shares. Please read these or consult a securities lawyer before starting the investment process.
Should you crowdfund your business idea? I can’t answer that question for you, but I recommend researching other crowdfunding success and failures to determine if the time and energy would be beneficial for your idea.
Disclaimer. As always, my column is not legal advice, instead merely insight into the law and legal profession. If you have a general question about the law or legal profession, please email me at email@example.com or call 435.610.1431.
Published in the 09/19 Wayne & Garfield County Insider.
If you ever have an idea for how to “make things better” or feel, “if only” or “ah-ha” as you invent the next idea or product or some other aspirational desire to create, you are like many people. You differentiate yourself by taking your idea/thought/aspiration from the abstract to realistic through proper notetaking. And organization of your documents.
Creating a Business. Businesses require three things: passion, finances, and proper registration. If you want to start a business, thoroughly review your idea and research its viability. Is there already someone producing your product or providing your services? What makes you stand out? What is your competitive edge? Listen to others and do your own research. Write your business plan and prepare to pitch it to a potential financer such as a bank, friend, or family member.
You may see a need that others cannot imagine or perceive as possible. And that’s okay. Just do it (with a realistic vision and some kind of market research). Throughout your business creation process, make sure to register your business with the State of Utah and your municipality or county. Have an operating agreement and start drafting a policy handbook. Decide if you want to create a partnership and consider the investments of each leader in your business.
Creating a non-profit or grassroots organization. Is there a social need in your community? A cultural need? Many people have a pivoting moment in their life then decide they would like to participate or create a group, nonprofit, or start a branch of an already existing, established organization to help with social or cultural issues in their community.
If you decide to create a chapter of branch of an existing organization, take a moment to review their constitution and bylaws. These documents control everything from the purpose of the group to how meetings are managed and people are chosen for leadership positions.
If you choose to create your own organization, decide if you should establish it as an organized non-profit organization with board members and filing requirements with the state and federal government. Information about starting a non-profit organization can be found by googling the Utah Nonprofit Association.
Like starting a business, consider what other organizations are doing similar actions compared to your organization or how your organization or chapter can add value to your community. If you choose to create a nonprofit organization, make sure to have your bookkeeping and documents kept in compliance with Utah and federal laws.
Patenting an invention. Did you create a new tool or item that would be useful to someone else? If so, keep careful record of your invention. Record every step of your invention process and describe and diagram every modification of your invention and how you came up with it. If you create a prototype, record that information in your notebook. The key to defending your patent is in your record keeping and note organization.
Next, you want to file for a patent, make sure no one else has patented your idea. You can do this through the United States Patenting Trademark Office (google it). There, you can also file for a patent application. There are many resources online for learning how to patent an invention yourself. However, if it is too complicated, you may want to hire an attorney.
If you stay organized and read the small print, your organization skills will be thanked later when there are questions about the formation, policies, or decisions you made. Not all ideas for businesses, organizations, or inventions will come to fruition. And not all ideas are good or realistic ideas. Just remember, not everything will flower, but nothing flowers without roots. Your current idea could be the basis the next great business, organization, or patent.
Disclaimer. As always, my column is not legal advice, instead merely insight into the law and legal profession. If you have a general question about the law or legal profession, please email me at firstname.lastname@example.org or call my office at 435.610.1431
Published in the 6/13 Wayne & Garfield County Insider.
The week of Memorial Day always feels like the first week of summer, even if we officially have another
three weeks of spring. School’s out, or nearly so, and you or your family might be thinking about starting
a business mowing lawns, opening an ice shack, or working on other projects. Just buying the equipment and starting to work may seem like the easiest option. And it is; in the short term. However, you run a lot of risks if you do not become a bona fide and registered business.
Register your business. If you are doing a business in the state of Utah, you are required to have a
business license. Failure to do so is a class B Misdemeanor. So, if you are opening your soda shack, make
sure to get your Federal EIN number and state and local business licenses.
Liability. Businesses organized as limited liability corporations, s-corporations, or corporations create a
boundary between your personal assets and business assets, as long as those assets are easily
separated. They also protect you from being personally sued when you are working for your business.
To avoid a forced liquidation of your business, make sure to have liability insurance in case you were
sued. Partnerships create less of a boundary between your personal and business assets.
Separate finances. Do not use your personal checking account as your business operating account. Open
a new bank account for your business. Only use this bank account for operating the business. Do not mix
your business and personal funds. If you are concerned about taxes, open a second bank account and
periodically put money in the “tax” account to prepare for tax season. You will thank yourself later.
Taxes. The state or federal government will find you, even in remote Wayne and Garfield Counties: at
least your mailing address. If you start a business selling jewelry or wood carvings but do not pay the
appropriate sales taxes or income taxes, you could face your day in court and have a tax lien filed
against you, your property, or your business property. Like student loans, a tax lien cannot be dissolved
in bankruptcy and a lien on your property can prevent you from refinancing your mortgage or taking out
additional loans with your property as collateral.
Operating agreement. Write down your business procedures. Do you pay yourself as revenue is
generated or once a month? Are you partnering with others? If you are starting a partnership, how will
profits, losses, and decisions be determined? If you have your own business, just start writing down in a
notebook or word documents the procedures of your business as they occur. This way, if you were ever
challenged with a lawsuit against your business, you can show you were acting on behalf of the business
and protect your personal assets from liability.
So what about that small, one time job, you did for your elderly neighbor? If you feel you are not
running a business and just doing some small things for one person or a few people, you run the risk of
personal liability if you are sued. However, if you are willing to take on the risks of not registering your
business, reduce your tax risk by noting the earned income on your taxes.
Richfield Reaper Best of the Best. Lastly, thank you to the readers of The Wayne & Garfield County Insider and
Richfield Reaper for voting me as the 2017 best attorney. I enjoy helping you and writing this column. As
always, please let me know what I can do to better serve you!
Disclaimer. As always, my column is not legal advice, instead merely insight into the law and legal
profession. If you have a general question about the law or legal profession, please email me at
email@example.com or call my office at 435.610.1431.
Published 5/25 in the Wayne & Garfield County Insider.