Antifraud Risk And Equity Crowdfunding In Tennessee

Thursday, December 4, 2014

A new law comes into effect in 2015 that swings open the doors to equity crowdfunding in Tennessee. While it may sound tempting to use, the Invest Tennessee Exemption only offers a new path to crowdfunding for entrepreneurs with a high tolerance for risk.

Crowdfunding comes in several differing forms (e.g., donations, loans, the sale of company stock). While donation based crowdfunding took off in 2009 with the founding of Kickstarter, very few companies have found an efficient and legal means to sell business interests to investors online, a fundraising strategy referred to as “equity crowdfunding.”

Even in states that have adopted similar legislation, such as Georgia, equity crowdfunding remains on the fringe. Some attribute this unfortunate result to the legal complexities that govern investment offerings. However, one major risk repels most entrepreneurs: Antifraud liability.

There are a multitude of antifraud rules with varying standards of application that may be triggered by written or oral statements construed as misleading or simply omitted. Additionally, the crowdfunder, not the investor, carries the burden of proof in establishing that the offering was properly made to the investor.

While the Invest Tennessee Exemption removes expensive regulatory barriers to equity crowdfunding, legitimate entrepreneurs are urged to seek the advice of experienced legal counsel before soliciting investors.

For questions regarding the Invest Tennessee Exemption, please contact Bob Zeglarski at Cutwater Law PLLC via telephone at 615-933-3545 or email at bobz@cutwaterlaw.com. Bob Zeglarski

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