What Is Regulation Crowdfunding and How Can You Utilize It For Your Startup?

Crowdfunding has been available on the internet since for a couple decades now. It’s a way to accept donations to help start a business or a project. Starting in 2016, thanks to changes in federal laws, a new form of this practice emerged: regulation crowdfunding.

This practice isn’t based on a donation-reward model, like a lot of crowdfunding is. Instead, it offers the sale of securities in private companies. What makes regulation crowdfunding different from standard investment is it allows any individual over 18 to purchase these shares. You don’t need to be an accredited investor like you otherwise would.

How Does It Work?

Through regulation crowdfunding, companies offer buying and selling regulation A+ shares. Considered “Mini IPOs” in the market, organizations have the power to generate up to $75 million a year from the public, including individuals. These A+ shares aren’t locked up for a designated period after purchase. Instead, individuals and groups have the power to immediately sell them.

Regulations

To allow for these options, regulation crowdfunding must follow regulations established by the SEC (Securities and Exchange Commission). First, the funding process has to go through an SEC-registered funding platform. Next, the company needs to limit the number of unaccredited individuals who have the option to invest. In other words, the crux of an organization’s crowdfunding cannot be completely comprised of independent investors.

While A+ shares have the potential of being sold right after purchase, other regulation crowdfunding securities transactions must be held for one year before they are sold. If not, then the regulation crowdfunding offerings are subject to disqualification by the SEC. This is the reason all records must be promptly filed with the agency and the funding portal.

Utilization for Your Startup

The advantage of regulation crowdfunding is you aren’t restricted to just angel investors or venture capitalists. This is good news because those wealthy individuals or groups comprise a small percentage of the investing public. Instead, you have the power to enlist individuals without the required accreditation or assets.

There’s no need to have the proper connections to fund your organization. Like a standard crowdfunding campaign, your friends, family, fans, and colleagues all have the opportunity to help. They simply need the available cash to purchase the shares you offer. Plus, you don’t lose control of the company by rewarding investors with seats on the board of directors.

In the end, if you require a sizable amount of capital to start and quickly build your business, then consider regulation crowdfunding. It is often the best way to achieve a mix of regular and new investors, giving your business the best opportunity.

Of course, once you have your funding, you’ve still got work to do. Some of that work includes protecting your finances. Some owners of startups may think that it would be wise for them to postpone giving a lot of attention to accounting issues until the business has grown bigger. While it makes sense to want to focus on your product, putting off accounting can be detrimental. Paying attention to accounting issues early can help your business to grow and tolast. These are some of the important accounting functions that require attention when you’re setting up your business.

System Setup

It is important to set up an accounting system as soon as possible so that you do things right from the onset. You need to select an accounting package from the options available today. You also need to decide what format your accounting reports will take. Making these decisions as soon as you open your business will set a precedent for doing things systematically. This will make it easy to monitor your financial affairs accurately.

Bookkeeping

It is also crucial for you to record all the financial transactions that take place each day. The best approach is to avoid conducting any transactions in cash. Channeling all sales through the bank makes it easy for you to trace every purchase and reflect it in your books of accounts. Keep your business receipts so that you can double check that the transactions in your accounts are all correct.

Fraud Detection

Your small business can be an attractive target for people who wish to steal or defraud you. This is because some people may see small or new businesses as entities that don’t yet have rock-solid systems to detect fraud. Having an active fraud detection system can help you to detect issues early so that you save your young business from losing money at a time when each penny is needed to build and grow the business.

Tax Preparation

You also need help in preparing and filing your tax returns. This process can often be complicated. Many owners of new businesses might end up missing some tax advantages that would have benefited their firms if they had known how to claim them. Professional accounting help ensures that you don’t make a mistake or miss a benefit when preparing your tax returns.

It can be very expensive for a new business to hire individuals on a full-time basis to take care of accounting. An option that such businesses can explore is to hire a qualified accountant on a part-time basis. This professional will offer guidance whenever you are making decisions that can affect the bottom-line of your business. Graduate to full-time accounting employees so that you can reap all the benefits that such expertise can put at your disposal.

Regulation crowdfunding is a great way to get the funding you need for your business quickly and effectively. However, once you have that money, you need to do everything you can to protect it and to put it to good use.

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