Crowdfunding (Essay Sample)

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Crowdfunding
Crowdfunding is a form of raising money for a project through the help of a group of people, whereby each invests small amounts (Micic, 2015). The two types of this kind of funding are " project funding" and "enterprise crowdfunding”. The "project funding" involve small contributions from the project supporters. The process is legal when it is not structured as a purchase but as a gift donation. However, a significant number of innovators and potential supporters prefer to fund already existing firms as opposed to a single project. In the "enterprise crowding" model, the supporters prefer to use equity investments that are usually structured as microloans. This arrangement is illegal under the United States securities law unless the approved under the JOB Act.
Impact of the new regulations in the JOB act
The crowdfund Act has recently been included in the JOB Act as endorsed by the United States Congress. The JOB act provides for the legal pathway required for enterprise crowd funding and introduced a number of changes that may or may not be beneficial in the long run (Micic, 2015). Before the addition of the crowdfunding act in the JOB act, the supporters would offer donations to projects as opposed to actual investments (Cunninghum, 2012). This meant that they would not share in the profits that a business makes after receiving financial support. The new act changed this arrangement and therefore, the project supporters can invest in a company and expect to share in the profits that they make. In this regard, the new structure will be beneficial to capitalists as opposed to small business owners who will be required to work hard in order to be profitable to repay the investors (Steinberg & DeMaria, 2012). Lawsuits will increase in cases where a project supporter does not receive their dues if the venture fails to be profitable.
A Significant number of changes in the JOBS Act made crowdfunding more appealing to some entrepreneurial ventures compared to other traditional financing options (Steinberg & DeMaria, 2012). For instance, the act waived the requirement for compulsory information disclosure for emerging companies, which raised the level for the firms to become a reporting company with a public disclosure mandate (Gass, 2011). The crowd funding will be more beneficial to start up intellectual Property portfolios. This is because the ventures that require safeguarding of intellectual property demand a long-standing capital outflow. A single IP asset can occur from distinct projects, although the financing structure for individual projects often excludes money for IP procurement.
Advantages and disadvantages of crowdfunding
Traditional forms of funding...