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What Small Businesses Need to Know About the 2012 JOBS Act

In April 2012, President Obama and the United States Congress signed the JOBS Act into law. The Jumpstart Our Business Startups (“JOBS”) Act goes a long way towards accelerating and promoting crowdfunding. Crowdfunding is the practice of raising capital for a project or business by seeking small amounts of money from several individuals or small groups. Do you operate a small business? Are you looking for new ways to gather revenue for your growth and development? Are you an individual investor looking for your next investment project? If you answered “yes” to any of these questions, then the 2012 JOBS Act allows you to redefine your approach to future investments and business.

How Will the JOBS Act Change How Small Businesses Operate?

Since the JOBS Act passed into law, crowdfunding has increased through platforms such as Kickstarter, Indiegogo, and Fundable. These platforms have helped launch all sorts of small businesses, including startup companies, film projects, music projects, and non-profit organizations. Crowdfunding has essentially redefined traditional notions of how small businesses gather funds to support projects and growth. As such, in order to take advantage of this new opportunity, small businesses must learn to market their operations and projects to the masses. Reaching a wide array of people helps these businesses appeal to the individual investors who participate in crowdfunded business. Successful crowdfunding requires a small business to establish and maintain supporters at all stages of a project or throughout the course of a company.

What Are the Legal Implications of the JOBS Act?

In expanding crowdfunding, the JOBS Act implicates legal restrictions that the Securities and Exchange Commission (“SEC”) places on buying and sharing stocks. While crowdfunding does not grant investors an interest in the subject business or project in the way that buying stocks grants an interest, both are similar forms of investment in businesses. As such, the JOBS Act has been slow in its implementation because of various SEC regulations and limitations. However, in August 2012, shortly after President Obama and Congress signed the JOBS Act, the SEC introduced the possibility of new rules regarding crowdfunding. Essentially, under these proposed changes, companies would be free to use general solicitation to offer shares of the company to investors. SEC Chairman Mary Schapiro explained that these changes are in line with the JOBS Act initiatives in that they will allow small businesses and project managers to seek individual investors to propel and support future business. However, maintaining some accountability will also protect investors by ensuring that small businesses that participate in crowdfunding are equipped and prepared to use the funds to generate business and pursue successful ventures.

At the Law Offices of Salar Atrizadeh, we guide our clients in legal matters regarding all aspects of developing and managing a small business by using extensive knowledge and skills to create innovative solutions. Please contact us today to set up a confidential consultation.