Hello, I was looking to possibly get involved in the creation of a website that allows people to invest in start-up businesses. They can invest as little or as much as they want and then take a cut of the profits, or get rewards. But I know that each business would have to be a corporation so that each investor could get a share of profits or something like that. After this my company would draw up the paperwork, and make it easy on the business owner. Would this be legal? What sort of legal problems do you guys think I might encounter? Thanks, Nick
In the U.S. what you describe would be illegal under the The Securities Exchange Act of 1934 as well as violating the Blue Sky laws of all 50 states. You cannot sell securities (shares of a company are securities) without registering the securities. Registering the securities will cost you a small fortune. There are exceptions for selling to knowledgable investors under a certain number, but that doesn't sound like what you are attempting.
It won't be legal because it should be the paperwork first to allow contributors know,what legal name to call your organization,for the bank to custody the money raised and to allow litigation should the money be mismanaged before a formal incorparetion else investors will roughhandled you.
Well Here is how it will work, Entrepreneurs will post post their business idea along with a description, a funding goal and possibly a business or marketing plan. Then average people such as us will support the businesses with investments ranging from $1 to what ever amount the entrepreneur selects. However the trick to our system that I think makes it legal is that the funds are only collected if the entrepreneur meets his/her funding goal. If he does not it is as if the project never was posted. However if he/she does then we draw up the proper paperwork and collect the funds. We of course take a small fee for our service, then we give the rest to the entrepreneur along with the proper paperwork to get him started. Since we are not collecting any funds before the paperwork is used then will it be legal?
That is my biggest problem. I was thinking towards having a general page and then maybe a investors restricted page. Any suggestions? Thanks, Nick
I would not touch this. People get real pissy when they end up loosing their money overnight...and sooner or later it will become a scheme, you loose lots of money on your first investments, then you are using your 2nd set of investments to cover your first. unless you have mega years of experience with banking, financial, securities, investments, etc...and have lots of money, and attorneys, then seek something else. rather then seeking comments with DP members, you really need to talk to an atty before doing anything. There is no doubt you will need a ton of money, and atty before you start anything, otherwise you could creating a lot of US violations, and end up in bird house before anything ever goes... You can restrict all you wont, but if the govt finds you doing anything you should not be doing, then it is your A$$ in the slammer. Besides, you think people are just going to show up, give them access, and they will dump money in your lap... What are you smoking? Its hard just to get someone to come to my site and say hi, much less getting money out of them...
Thank you for your reply, I understand what you mean. I am trying to seek legal help hence why I posted this under the legal issues section of DP. I am not looking for money. I am looking for a place to connect entrepreneurs with investors that are willing to invest in businesses pre-seed. The only money I would be receiving is a percent of the investments that are happening to maintain and keep the website. As well the reason why I will not be collecting fees until after the papers are drawn up is precisely to avoid any possible jail time. So ultimaitly the scanario would be that entrepreneurs are paying my company for the use of my investment software and promotion on my website. As well, I have been searching the internet and found a website that does a similar concept with projects. A person that needs funding for their project gets it from "backers" or supporters. Then when they complete the funding they reward the backer with something. I feel like if done properly this not only could help a lot of people start up businesses but could be a huge hit on the internet for investors and such.
you need a SEC specialist lawyer - I am positive what you are describing is going to require you to be fully registered with SEC and this probably for each venture you get involved in selling the shares of.
I do not expect this to go anywhere., and one bad investment or more, then these people will blackball you all over the internet, and then some, as investments are very risky.. if these investors loose as much as a dollar, then they will go out of their way posting negative comments all over the internet attempting to make you look bad, and it will not take long. and if you were really serious, then you would have contacted an atty, not post stuff like this in legal on DP...if people really have legal issues, then they need to contact their attorneys. You will need loads of money, you will through nothing but legal regulation red-tape, and when you are done, you will go through more legal regulations...since you are posting this on DP, I just do not see this happening for you....
Ok, I am now speaking with an atty on the matter to find out exactly what I will need. So far he said as long as the entrepreneur files and gets the paperwork taken care of before the money is transferred it should be equivalent to him just setting up a corporation and getting random investors. He also said I will have to register as a normal business but there is no reason why I would have to register as anything further since I, myself am not setting up the multiple businesses. He advised me to tread carefully though as like stated here, unless I set up the website and business right, I might be susceptible to lawsuits based on my service.
Thank You for the idea. I as well thought of this... however then I would have to have a partner with the business.