When Collecting Money for Your Business Start-up, Know the Crowdfunding Laws 

Crowdfunding is one of the newest ways to get the money you need for your business. Crowdfunding allows you to collect money from investors who are interested in making your new company successful. If you are considering crowdfunding you need to be aware of the Arizona crowdfunding laws that are in place. This intrastate legislation was signed into law by the Arizona governor in 2015.

Overview

House Bill 2591 is legislation that provides an exemption from having to register some types of securities transactions. Those who are considering crowdfunding should view the legislation in its entirety and discuss the situation with a knowledgeable commercial law attorney before moving forward.  Some of the most important points of the legislation include:

  • Cannot accept more than $10,000 from a single purchaser unless they are accredited.
  • The total sum of receipts for sales of securities cannot exceed $1 million in a one-year period, unless the issuer underwent a financial audit during the last year.
  • The total sum of receipts for sales of securities cannot exceed $2.5 million in a one-year period, if the issuer has undergone an audit in the last year.
  • All investors must provide proof that they are residents of Arizona.

Crowdfunding Basics

When crowdfunding is done properly it can provide money to the business and a boost to the overall economy. Crowdfunding is a way to solicit financial contributions from individuals, often through online sources. It is designed to provide a way for businesses to get the money they need to start their new venture. For it to be successful, the request for crowdfunding should be made as specific as possible. Create a concise plan that outlines your business and what you intend to do once you achieve your financial goal.

Help from a Business Attorney

Because crowdfunding is a new concept, there are likely to be new laws and modifications to legislation already in place. It is best to review your crowdfunding plan with a commercial law attorney to ensure that you are compliant with current state, local, and federal laws. Making even a small mistake could have serious legal and financial consequences for you and your business. Take your time in putting together a plan that works, because once you being taking money you cannot easily change your strategy. Begin raising money only after your business plan is ready and you are prepared to start working.

 

This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice regarding Crowdfunding Laws, or any other commercial litigation matters, please feel free to contact Joel E. Sannes at 480.461.5307, or log on to udallshumway.com,  or contact an attorney in your area. Udall Shumway PLC is located in Mesa, Arizona and is a full service law firm. We assist Individuals, families, businesses, schools and municipalities in Mesa and the Phoenix/East Valley.