Crowdfunding for Dummies

By Schuyler Moore,

The term “crowdfunding” is being bantered around as the latest savior of those seeking independent film financing (referred to as film companies in this article).  There are several different types of crowdfunding, and it is helpful to be clear on which type is being discussed, so here is a course 101 summary of the different types:

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Donative Crowdfunding.  One kind (think Kickstarter) is basically a donation model, where wannabe entrepreneurs with bright ideas (for Kickstarter, it is limited to “creative ideas,” which basically means the arts) submit the ideas on the website and solicit funding from the public, usually in exchange for some small goodie, like a free copy of whatever the product to be produced is, but the contributors do not receive any equity or ownership in the project.  The good news is that this type of crowdfunding is not subject to the federal or state securities laws, because it is not offering any investment opportunity, since the contributors do not receive any economic return.  The bad news is that the cash paid is immediately taxable to the film company, since the only arguable exemption (a gift) doesn’t work because of the small goodie the payors get, and the payors can’t deduct the payments as a charitable contribution, since the film companies are not tax-exempt 501(c)(3) organizations.

$1 Million Limit Crowdfunding.  Another type of crowdfunding is based on a law that permits equity or debt offerings of not more than $1 million through “funding portals,” envisioned as web sites that match investors to investments.  The good news is that this type of crowdfunding is exempt from registration with the SEC, but the law actually makes this type of crowdfunding a chimera because it adds so many hurdles and restrictions that it makes this type of crowdfunding cost more than the money raised.  Because of these restrictions, very few brave souls have attempted this type of crowdfunding.

Red more full article  http://www.forbes.com/sites/schuylermoore/2014/06/14/crowdfunding-for-dummies/

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