Crowdfunding: A Guide to Raising Capital on the Internet

CHAPTER 10

The Legal Aspects of Crowdfunding and U.S. Law

Joan MacLeod Heminway

The University of Tennessee

Like all financings (and other forms of business transactions, for that matter), crowdfunding has a legal context that constrains and otherwise shapes behavior. The legal aspects of crowdfunding can be quite complex, especially when crowdfunding is used to offer and sell financial instruments that are considered securities under U.S. federal or state law. All forms of crowdfunding, however, involve interactions with various laws—both statutory (enacted by legislatures) and decisional (adopted by judges). This chapter outlines the key areas of U.S. law that engage with crowdfunding in the for-profit context. (Funding not-for-profit businesses and projects engages a wholly different set of laws and regulations, as mentioned briefly below.) The topics addressed at length in this chapter are among the most important, fundamental issues involving crowdfunding and U.S. law. The chapter concludes, however, with a brief mention of other significant U.S. laws that interrelate or may interrelate with crowdfunding. For purposes of this chapter, state law does not generally include the law of U.S. territories and possessions, even those that have their own bodies of law governed under the U.S. federal system. Those needing guidance on the laws in those jurisdictions should seek separate guidance.

Crowdfunding, as a method for soliciting financial backing for businesses and projects from ...