Is CrowdFunding legal?

CrowdFundingA journalist writing in a blog post, states that CrowdFunding is not legal. What is he and many others talking about? Surely CrowdFunding must be legal? KickStarter and Indiegogo, the worlds most well known CrowdFunding platforms, based in the USA, must both be legal in order to raise the tens of millions that they do?

Well here comes the rub. It all comes down to the type of CrowdFunding that is being described AND the legal view of the country you are living in.

The types of CrowdFunding are many and can be largely divided into four main categories. They are CrowdFunding for

– donations
– rewards
– equity
– debt (peer to peer lending)

There are more but each one of these categories are regulated in different ways in different countries.

Lets look at a few examples.

Example one

Donation based CrowdFunding may be legal in most countries around the world but in Finland you are not allowed to ask for donations unless you are a registered charity. A recent case where somebody, living in Finland, raised money on KickStarter based in the USA, brought the money into the country and was immediately taken to task and had to refund all the money.

Example two

Equity CrowdFunding has been alive and well in Australia for the last eight years and in the UK for the last two years but it is still not allowed to function legally in the USA even though the JOBS Act has been passed. Regulation is currently being drawn up and it looks like the go-ahead will be given early 2014 for Equity funding in the USA to take place.

So yes, the comment by a journalist that CrowdFunding is not legal in the USA is only partially correct. He refers to only one type of CrowdFunding, Equity, a distinction that was not made clear in the article.

Many readers get confused about CrowdFunding precisely because CrowdFunding is being described from different points of view. If you are looking at CrowdFunding your honeymoon then you will find many CrowdFunding websites that will be able to help you. If you are looking to CrowdFund your startup you may want to consider Equity CrowdFunding. If you are looking for a loan and want to by pass the banks then lending based CrowdFunding opportunities await you. If you are able to offer rewards to those who pledge to back you and not wanting sell off equity nor ask for a loan then Rewards based CrowdFunding might be right for you.

There are over 500 different CrowdFunding websites around the world (and growing) SO before you go CrowdFunding look at where you live, understand the regulations in place based on where you live and then choose the right type of CrowdFunding website model you want to use to raise funds for your idea.

These considerations form part of two of the ten most important success factors that make for a good CrowdFunding campaign that you will find elsewhere in this blog.

May you enjoy CrowdFunding success on the right platform, in the right country, for your great idea.