With the advent of crowdfunding portals, undoubtedly crowdfunding has reached new heights. Crowdfunding in itself is a concept of funding projects or charities. People find crowdfunding attractive above all means of funding their cause. Crowdfunding portals are means through which these projects get a chance to display themselves in front of the whole world. Crowdfunding portals are basically online platforms which gives user-friendly and smooth options to both the creators of the project and investors in the project.
The popularity of crowd funding portals depend on various factors such as ease of access, successful projects over them, commissions they demand and many more things. Once crowdfunding portals go successful, it is important for them to give repeated successful performances in order to keep them established in the crowdfunding market. Crowdfunding portals are basically of three types: one which helps start-ups to grow, second which helps charities to flourish and third which allow both on their website.
However, other side features of crowd funding portals include allowing angel investors and venture capitalist to invest through them and also promote lending and borrowing on their platform.
Rules in the US related to crowdfunding portals
The famous JOBS Act in the US for regulating the process of crowdfunding also has specific sections which define the guidelines for crowdfunding portals. According to it, crowd funding portals will act as intermediaries to serve various projects which want to go for crowdfunding in order to reach their required finance targets.
Crowdfunding portals are mostly online platforms but according to the definition of JOBS Act they can be both brokers who are registered with the government and websites which are approved by SEC. Crowdfunding portals do not have any rigorous rules for registration but have to be registered with the government department of SRO and FINRA. The SRO stands for self-regulatory organisation, under which only applicable crowd funding portals need to get registered.
Crowdfunding portals must provide the documentation of all risks involved with the investment, and also provide tutorials for the process of investment over their interface. It must also ensure privacy to all its investors and also make sure that the investors do not land in a situation when they have invested beyond a permissible limit.
Restrictions on crowdfunding portals under JOBS Act
Also, there are certain restrictions which bind the crowdfunding portals. These restrictions are important so as to ensure that these crowd funding portals are unbiased and do not try to effect any individual’s investment, intentionally. As a result, they are barred from giving any kind of investment advice to investors.
Other restrictions imposed on crowd funding portals is not allowing then to lobby for any kind of transaction directly or indirectly. Here indirect lobbying means compensating anyone who does the lobbying on behalf of crowd funding portals. Further transacting or holding funds on behalf of investors is an act which is prohibited for crowd funding portals.
Another important restriction is not allowing the higher officials related to crowd funding portals invest in the projects displayed on their interface.
