Your Entreprenuerial Clients Need To Know: The SEC Is Warning Small Businesses Not To Engage In Crowdfunding Until New Rules Are In Force

Tuesday, August 14, 2012 07:05
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Your Entreprenuerial Clients Need To Know: The SEC Is Warning Small Businesses Not To Engage In Crowdfunding Until New Rules Are In Force

Tags: business owners | business strategy | client education

If you have clients who want to start a small business, they may be looking to crowd funding as a source of capital. If so, they definitely need your guidance to stay out of trouble.
 
The SEC is warning that, until the rulemaking on equity crowdfunding is finalized, small businesses and entrepreneurs could be setting themselves up for securities fraud allegations and civil suits.

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Crowd funding allows small businesses and entrepreneurs to raise money on the internet through internet funding portals. The new Jumpstart Our Business Startups Act (JOBS) mandates the SEC get something in place within 270 days that will allow small businesses and entrepreneurs to offer equity stakes in their businesses online.
 
Mary Schapiro, SEC head, said that the SEC’s Corporate Finance and Trading and Markets divisions were working furiously along with agency economists to formulate recommendations for the commission.
 
Crowdfunding has been in existence for years, allowing small businesses and entrepreneurs to raise money as donations through the internet funding portals.  The new JOBS Act exempts the equity offerings from having to be registered but it does not exempt them from disclosure requirements already in place.
 
New business growth is vital for a flagging economy. With credit conditions still so tight as a result of the 2008 crisis and banks’ unwillingness to lend, crowdfunding enables new businesses to have easier access to the funding they need.

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