Small companies will soon have a new option to obtain financing through crowdfunding, but there are some cautions to consider.The so-called crowdfunding term essentially means pooling resources or money together from a group. Under the Jumpstart Our Business Startups Act, or JOBS Act, small companies will have the ability to raise up to $1 million in equity on an annual basis through crowdfunding, without having to go through the rigorous disclosure process by the Securities and Exchange Commission.
Here are some crowdfunding cautions for small businesses:
*Companies will also need to be aware of the applicable disclosure requirements,which will depend on how much money they are seeking.
*Companies will also have to consider how much control do they ultimately want to give up? Investor accountability will be of the utmost importance.At minimum, the process will be rigorous and time consuming.
*A third issue to consider:Crowdfunding is a not a panacea to small-business financing.
*Another issue is the investors themselves.There is the now the potential for unsophisticated investors to get in on something they may think is an opportunity.
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