Businesses typically require large amounts of capital to get off the ground. Launching a company may be challenging when you’re short on resources, especially in the asset department. You may not qualify for traditional funding due to lack of collateral or backing. Crowdfunding has become a popular way for individuals and small businesses to raise money. It cuts out conventional lenders and provides a way to get funding when you need it. However, do you know what kind of legal issues may arise with this method of capital funding?

Crowdfunding Basics

When a new idea strikes, you may need some cash to make it happen. Whether it’s an innovative product, a business venture or a book, you still almost always need money to get anything off the ground. In times when traditional lending is out for one reason or another, crowdfunding is a viable alternative. It allows you to post your idea on a website and ask people to give money toward funding it. You set the goal, and people can contribute as little or as much as they want. They know they’re giving without any strings attached, and in doing so, they’re donating to your cause.

Investors and the Law

The people who sink money into a business or idea are typically considered investors. At some point in the future, it is likely that websites that allow the public to contribute in droves to startup will be put under the same scrutiny and laws that investment companies are currently under. This means that the government will regulate them and force them to report contributions as investments.

Intellectual Property Issues

Putting yourself out there is one requirement of an entrepreneur because it is risky to get an idea launched. With so much at stake, the last thing you want to think about is someone swooping in and taking that idea out from underneath you. When raising capital on crowdfunding sites, you have to present your entire process to the world, and as such, it makes it easy for people to borrow or downright steal it. This is especially easy to do with things that should be copyrighted such as books and inventions that should be patented.

Crowdfunding may seem like the logical answer to getting the funding you need to get your idea going. However, be mindful of the legal pitfalls that may befall you once you put yourself out there for all to see.