What Are the Legal Considerations for Raising Capital Through Crowdfunding?
Raising capital has always been one of the biggest hurdles for small businesses and startups, but modern crowdfunding platforms have opened up new paths to funding. From reward-based campaigns to equity offerings, entrepreneurs in San Jose, California, and beyond are increasingly turning to crowdfunding to grow their ventures.
While these platforms are powerful tools, they also come with important legal considerations that shouldn't be overlooked. A qualified crowd funding attorney can help make sure your campaign meets both federal and state laws.
At The Law Offices of Steven E. Springer, we work with entrepreneurs across the Bay Area who are exploring creative ways to raise capital. As crowdfunding continues to evolve, it's critical that business owners understand the rules that apply to their campaigns.
Failing to follow legal guidelines can lead to penalties, investor disputes, and even federal enforcement actions. That’s why partnering with an experienced crowd funding attorney can be a game-changer before your campaign even launches.
Different Types of Crowdfunding Models
Before diving into the legal aspects, it helps to know which type of crowdfunding you're planning to pursue. Each model comes with its own legal expectations.
Reward-based crowdfunding: Supporters donate money in exchange for perks or early access to a product. Platforms like Kickstarter and Indiegogo are common for this model.
Donation-based crowdfunding: This is typically used for charitable or personal causes. Donors give money without expecting anything in return.
Equity crowdfunding: In this model, contributors receive shares in the business. This is regulated by the Securities and Exchange Commission (SEC).
Debt crowdfunding (peer-to-peer lending): Backers lend money to a business and expect repayment with interest.
Each model has different rules and disclosure requirements, so working with a crowd funding attorney helps determine the best fit for your goals.
Securities Laws Still Apply
If you're offering equity or debt through your crowdfunding campaign, you're subject to federal securities laws. These rules are designed to protect investors and maintain market integrity.
According to Fortune Business Insights, the global crowdfunding market size was valued at U.S. $1.60 billion in 2024, underscoring the growing popularity—and regulatory scrutiny—of these funding models.
SEC registration or exemption: Most small businesses use Regulation Crowdfunding (Reg CF), which allows you to raise up to $5 million in a 12-month period without traditional SEC registration.
Financial disclosures: You’ll need to provide detailed financial statements, which may need to be reviewed or audited depending on the size of your raise.
Investor limits: Reg CF sets limits on how much individuals can invest based on their income and net worth.
Use of intermediaries: Reg CF campaigns must run through a registered broker-dealer or funding portal.
Failing to comply with these rules could expose your company to liability and stop your campaign in its tracks. A can guide you through these obligations to minimize risk.
What You Need to Disclose to Investors
Transparency is key when it comes to crowdfunding, especially in equity and debt models. Investors need reliable information to make informed decisions.
Business plan and use of funds: Clearly state how you'll use the capital and what milestones you aim to achieve.
Ownership structure: Outline who currently owns the business and what kind of shares are being offered.
Risks and disclaimers: Disclose the major risks that could impact your success.
Legal obligations: Let investors know if there are any ongoing legal disputes or regulatory issues.
A skilled crowd funding attorney will see that these disclosures are accurate and legally sufficient, helping you build trust and avoid future disputes. They can review your offering documents for compliance, clarify what financial details must be shared, and guide you in presenting potential risks transparently.
Key Regulations and How They Impact Your Campaign
Several legal systems affect crowdfunding in the U.S., and it’s important to know which apply to your campaign.
Regulation Crowdfunding (Reg CF): Allows companies to raise up to $5 million per year from both accredited and non-accredited investors.
Regulation A+: Enables larger raises (up to $75 million) but comes with heavier reporting and disclosure requirements.
Rule 506(c) of Regulation D: Open only to accredited investors, but allows general solicitation and advertising.
Each rule has its trade-offs. An experienced crowd funding attorney can help determine which structure best fits your business strategy. They’ll assess your fundraising goals, investor profile, and regulatory tolerance to recommend the most suitable path forward.
Choosing the right structure from the start can save you from costly revisions, compliance issues, or missed funding opportunities later on. With proper legal guidance, you can focus on scaling your business while staying within the boundaries of the law.
State Laws May Also Come Into Play
Federal law isn’t the only consideration. California has its own set of securities and consumer protection laws.
Blue sky laws: These state-level regulations require registration or an exemption for securities offerings.
Consumer protection rules: You must avoid deceptive advertising and make sure your public statements are truthful.
Tax implications: The money you raise could carry tax consequences, depending on the structure of the campaign.
Working with a legal professional who understands both state and federal requirements can help you avoid hidden pitfalls.
Common Mistakes Clients Should Avoid
An experienced attorney has likely seen firsthand how seemingly minor missteps can cause major legal issues. Here are a few common pitfalls:
Launching without legal review
Inadequate record keeping
Improper use of funds
Misleading advertising
A crowd funding attorney can help you identify and correct these risks before they derail your fundraising efforts.
When You Need to Work With Professionals
Running a successful campaign is a team effort. The right professionals can make a big difference:
Crowd funding attorney: Helps choose the correct plan of action, draft disclosures, and provide legal compliance.
Accountant or CPA: Prepares your financial documents and handles tax issues.
Platform advisor: Offers insights on campaign setup and best practices.
Marketing expert: Checks that your messaging is both compelling and compliant.
Together, this group can help you build a campaign that’s both effective and legally sound.
Legal Documentation You Should Prepare
Before launching, you’ll need to gather essential legal documents, including:
Offering memorandum or form C (for Reg CF campaigns)
Subscription agreements
Bylaws or operating agreements
Privacy policy and terms of service (for your campaign website)
These materials not only keep you compliant but also show potential investors that you’re serious and well-prepared.
Staying Compliant After You Raise the Funds
Your responsibilities don’t end when the campaign does. Post-raise compliance is just as important.
File annual reports with the SEC
Maintain regular investor communications
Track the use of proceeds
Adhere to your corporate governance rules
Maintaining compliance helps build investor confidence and protect your business from legal scrutiny.
What Sets a Successful Campaign Apart
Successful campaigns are built on more than just a great product. They reflect strong planning and legal diligence.
A compelling story that resonates with backers
Professional presentation with strong visuals and copy
Transparent disclosures to establish credibility
A trusted group that includes a crowd funding attorney, CPA, and marketing experts
By treating your supporters like partners, you set your campaign up for lasting success.
Contact Us Today
We help entrepreneurs across San Jose, California, build legally sound crowdfunding campaigns that support long-term success. Whether you’re launching your first campaign or preparing for a larger equity raise, our experienced crowd funding attorney is here to assist. We serve clients in San Jose, Morgan Hill, and throughout Santa Clara County. Contact The Law Offices of Steven E. Springer, today to get connected with our crowdfunding services.