Is Crowdfunding Legal in Colorado?
For the purposes of this blog, we’ll refer to crowdfunding as the “equity fundraising” used to by entrepreneurs, inventors, and those trying to start up a business or enterprise of their own. There are actually a few well-established, rewards-based websites, or intermediaries as they are called, that have completed the necessary documentation to serve as online crowdfunding sites in Colorado that folks can use to raise capital, including:
- Colorado Equity Crowdfunding
- EquityEats, Inc.
- EzyXchange Ltd
- MassVenture CO, Inc.
- Invest Local, LLC
- CFEX Holdings, LLC
On April 13, 2015, Gov. John Hickenlooper signed the Colorado Crowdfunding Act into law, making it legal to use crowdfunding sources and websites to acquire debt or equity interests from investors for an aspiring company or enterprise.
Colorado Crowdfunding Rules and Guidelines
This is by no means a complete picture of all that may need to take place to make a crowdfunding project go live, but it does capture the big picture snapshot of what needs to be done. The State of Colorado has three important guidelines it points out to those wishing to start a crowdfunding campaign:
- The person issuing the crowdfunding campaign must first file some important documentation with the Colorado Division of Securities before beginning the actual fundraising, including:
- The crowdfunding issuer must file a fee that is to be sent in with Form CF-1 with the Securities Commissioner.
- The crowdfunding intermediary (crowdfunding website) must also submit a fee to be sent in with filing Form CF-3 with the Securities Commissioner.
- The issuer must also send in “consent to service of process” by filing NASSA Form U-2 at the same time Form CF-2 is filed with the Securities Commission.
- There is also a 10-day waiting period before the issuer can commence with crowdfunding activity. This period begins once fees and forms have been filed with the Securities Commissioner.
- There are clear limits on how much capital the crowdfunding issuer can raise as well as how much investors can put in. In Colorado, the securities limitation is $1 million. But, the issuer can raise the total stake to $2 million, if they provide audited financial statements to the Securities Commissioner.
- Lastly, the whole crowdfunding activity must only take place between Colorado residents and entities. Any transactions that have the appearance of being made outside of Colorado could violate federal securities laws.
How Does the Crowdfunding Work?
Once the proper paperwork has been filed and the waiting period is over, the issuer or company owner may solicit monetary contributions from investors to start a company, project, or venture. The investors are rewarded with either products developed under the concept or with financial dividends based on funding goals and the company’s success. The crowdfunding goal must be met financially by an established deadline, otherwise all funds will be returned to the stakeholders.
Contact the Denver Business Law Attorneys at Lohf, Shaiman, Jacobs PC
There are several legal issues that go along with starting a company as well as raising the capital to make it a successful venture. If you need legal consultation on these matters, contact the Denver Business Law Attorneys at Lohf, Shaiman, Jacobs PC to set up an initial meeting to discuss your crowdfunding project. To schedule a meeting with us, call 303-974-4411 or email us using the contact form on this page.