Reward-Based Crowdfunding Can Result in Legal Problems for Entrepreneurs

DuPage County business lawyersOne of the countless ways the internet has changed the business world is through the introduction of online crowdfunding. Through websites like Kickstarter and IndieGoGo, entrepreneurs can obtain the capital they need to begin businesses and create products. These websites are referred to as “reward-based crowdfunding” because there is generally an incentive for people to invest in the various projects. Funders may receive the actual product being developed or other benefits in exchange for their investment. Although raising capital in this manner has been wildly successful for some entrepreneurs, others have found themselves in legal trouble after becoming involved in a crowdfunding campaign.

You May Be Entering into a Contract Unknowingly

Because crowdfunding is relatively new, the legal ramifications of failed crowdfunded projects are not completely understood. Recent lawsuits against some entrepreneurs who used crowdfunding to gain resources prove that crowdfunding is not a perfect solution for those lacking start-up funds. If you wish to use crowdfunding to finance your project or business, it is vital that you understand the risks that should be avoided.

When an individual agrees to take money from people in exchange for certain benefits, he or she is likely entering into a contract with the funders. If you are not careful with the language you use to inform investors of your offer, you could be creating a contract without even realizing it. This means that when investors do not receive the benefits that they were promised, they can file a breach of contract claim against you. Forming an LLC is one way that you can help protect yourself from potential personal liability if your intended project fails.

False Advertising and Consumer Protection Laws

Those who wish to use crowdfunding must also be careful not to overpromise what their funders will receive or what the project objective is. Misleading language or incorrectly describing your project can make you vulnerable to claims of false advertising, negligent misrepresentation, and fraud. You can also be held accountable for under-delivering on your promises under consumer protection laws. It is essential that anyone using reward-based crowdfunding avoids misrepresenting both the project/product itself as well as the benefits investors will enjoy. Not only can claims be brought against you by funders, but claims can also be filed by governmental agencies.

Tax Implications of Crowdfunded Projects

Many people using websites like Kickstarter do not realize that the money they receive is taxable income. If you create a rewards-based campaign, you will be required to pay taxes on the money you take in from investors. Many entrepreneurs using crowdfunding to finance their project make the mistake of forgetting about this significant expense. It is crucial that anyone using a reward-based funding system consider the taxes that they will have to pay when creating the project budget.

Contact a Glen Ellyn Business Lawyer for Help

For sound legal guidance on a number of business concerns, contact the business law professionals at Stock, Carlson, Oldfield and McGrath LLC. Speak with a knowledgeable Wheaton, Illinois business law attorney by calling 630-665-2500.

Sources:

https://www.thebalancesmb.com/crowdfunding-legal-issues-for-small-businesses-398020

https://www.msn.com/en-us/news/technology/crowdfunding-is-a-popular-way-to-raise-money-just-dont-count-on-getting-a-refund-if-something-goes-wrong/ar-BBVX9FT

Questions to Ask Yourself Before Starting a Business

Wheaton business lawyerDo you work hard every day so that the owner of your company or its shareholders can make a few extra dollars? Would you not be happier if your hard work allowed more money to find its way into your pocket instead—and not just because you got paid for overtime? Nearly every person who has ever had a job has given at least some thought to owning a business someday, but only a select few ever take action on those thoughts and dreams.

If you have been thinking about starting a business, there are many things to consider. Some of them are more abstract in nature while others are more concrete and logistical. For example, you should be asking yourself:

What Would My Business Do?

It is impossible to own a business without something to sell. Some businesses sell products they make themselves. Some sell products that other companies make. Some businesses sell services like accounting and tax preparation instead of products. Once you decide what you want to sell, you will need to figure out what will make your customers choose your business. This will require research to determine what needs exist in the areas you wish to serve. If your idea is much like many other businesses that already operate in a particular area, you might want to reconsider your idea—or at least your intended location.

Are You Up to It?

Working for someone else is nothing like working for yourself, especially in the early years of your new venture. Nearly all small business owners spend the first few years working long days serving customers during business hours, then managing paperwork, compliance, and other details late into the night. If something were to go wrong, you are the one that would need to address it. Do you have the skills necessary to run your own company?

What About the Intangibles?

Running a business takes passion and determination in addition to skills and ability. If you continued to work for another person, you could essentially quit at any time and start looking for a new job. While your immediate situation might suffer, you always have that option. When you open your own business, you will not have the same luxury of such freedom to decide to pursue something else. Your team, your clients, and most likely, your creditors are counting you to be open for business.

You might have all of the necessary knowledge and skill, but your commitment is a vital part of the equation. Your business has no chance unless you dedicate yourself completely to its success. This means that if you are uncertain about opening a business, you might want to wait until you are certain.

A Wheaton Business Lawyer Can Help

As you go through the decision-making process, a qualified legal professional can provide trusted guidance and helpful advice. Contact an experienced DuPage County business law attorney for a confidential consultation by calling 630-665-2500 today.

Sources:

https://www.sba.gov/starting-business/how-start-business/20-questions-starting

https://www.thebalance.com/thinking-of-starting-a-small-business-2947258

Choosing the Right Person for a Business Partner

partner, Wheaton business law attorneyIf you are starting a new business or thinking about a potential deal that could have a dramatic impact on your existing company, it is critical to choose your partners carefully. Selecting the right partner is especially important if your business is still in its infancy.

Perhaps the best way to think of a business partnership is as similar to marriage: the two of you are uniting your interests and efforts with the idea of building something that will be successful. The comparison to a marriage is even more appropriate when you consider that you will probably be spending more time with your business partner than you do with your spouse. An experienced business lawyer can assist you in selecting the right partner for your new enterprise.

Do You Need a Partner?

The first thing that you should consider when looking for a business partner is whether you even need a partner or not. To determine your needs, you should carefully analyze your business plan, your finances, and the current state of the market. In a partnership, both—or all, as the case may be—partners must take on certain risks and work with very little financial return for a period. Depending on your situation, it may be possible for you to stay in that role by yourself and to hire an employee that you trust but who is not invested financially in the company.

What Will Your Partner Do?

Before you select a partner, you should have a solid idea of what you need from him or her. If you only need capital and investors are not a viable option, you might wish to take on a silent financial partner. Conversely, you might need a great deal of assistance with certain parts of your company. If you have good sales and marketing skills, for example, your business may need someone with a more technical background to focus on product development.

It is also helpful to understand the level of personal investment that you expect from your partner. You may be fine with working 16-hour days, but will you want your partner to do the same? It is patently unfair to surprise your partner with your expectations only after you have signed a partnership agreement. Your attorney can work with you in identifying your needs and expectations for your ideal partner. From there, you can start your search for someone who fits the bill.

Compromise May Be Necessary

While you should develop an idea of what your perfect partner would be, keep in mind that you might never find a person who checks all of the boxes on your list. For example, you might find someone whose skills complement your own almost perfectly but who cannot commit to working long hours every week. In such a case, you might need to compromise on some of your expectations. With the help of your attorney, you can customize the compensation and risk structure of your partnership to account for your compromises.

Call a Wheaton Business Lawyer for Help

If you are considering a new partnership, an experienced DuPage County business law attorney can help you address all of the important details. Call Stock, Carlson, Oldfield & McGrath LLC at 630-665-2500 today for a confidential consultation.

Sources:

https://www.inc.com/minda-zetlin/how-to-tell-if-youve-found-the-right-business-partner.html

https://www.entrepreneur.com/slideshow/300168