‘CROWDFUNDING’ BUSINESSES HAVE OBLIGATIONS TO INVESTORS

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Start-up businesses are increasingly seeking funding on websites such as Kickstarter or Indiegogo, and promising small rewards to individual investors in return for micro-contributions.  Examples of these businesses include the Veronica Mars movie, which raised millions of crowdfunding dollars by promising small contributors posters, DVDs and movie scripts, and a space telescope project that offered “space selfies.”

Note to start-ups: pay attention to your legal obligations.  Recently, the State of Washington accused a Kickstarter company of reneging on its promise to send small contributors decks of horror-themed playing cards. The state is seeking restitution plus additional damages of $2,000 per contributor and the costs of bringing the suit.

Keep in mind that the promises made through crowdfunding sites establish legal obligations.  If a start-up ends up getting hundreds or even thousands of contributors by offering small rewards, the promises have to be honored.

 

Stephen Hammers

Stephen Hammers

Stephen Hammers is a California attorney with over 24 years experience in the trial of business and real estate matters. He has a 100% success rate in jury trials as lead counsel, and tries cases in all Courts of Los Angeles and Orange Counties. He is a writer and lecturer in matters involving business fraud, real estate and commercial lease litigation.
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Stephen Hammers
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