Illinois Lawmakers Push New Bipartisan Crowdfunding Legislation

Kickstarter, business capital, Illinois Business LawyerThe options for raising business capital, in many ways, are greater than ever before. As America continues to experience a digital revolution, crowdfunding has quickly become an extremely popular method for financing business ventures, projects, and charitable efforts. While to most Americans, the most prominent household name in crowdfunding may be Kickstarter, sites such as Indiegogo and RocketHub provide additional alternatives to those seeking startup or growth capital.

Defining Crowdfunding

Crowdfunding is based on the concept that small contributions (or donations) from a large number of people can be fairly easily obtained by most entrepreneurs. For many, such a method is preferable to seeking larger amounts from investors or in the form of business loans. While its current usefulness in business investment is relatively limited, online crowdfunding has raised hundreds of millions of dollars to help individuals in many ways, including starting companies, assisting high-profile crime victims, and financing needed medical procedures.

History of Success and Limitations in Crowdfunding Legislation

Proponents of investment crowdfunding point to Henry Ford, as he utilized a primitive version to begin the Ford Motor Company. Despite likely having larger scale financing available to him, the enterprising would-be automaker raised working capital by reaching out to his contemporary “social network,” including among his investors clerks, contractors, and bookkeepers. In exchange for their investment, Ford was able to offer them an investment share in his company and the potential for future returns.

Legislation followed shortly thereafter, however, restricting investment solicitation, as states sought to protect investors from scams or unrealistic business ventures. By creating the Securities and Exchange Commission (SEC) in 1934, the federal government imposed further restrictions on the ways in which companies could raise capital and severely limiting the pool of potential investors.

Rise of Internet Crowdfunding

As internet crowdfunding began to grow in popularity, the role it was permitted to play in business investing was significantly hampered by federal regulations. While entrepreneurs were permitted to seek startup money, they were not permitted to offer investment shares in return. Instead of offering financial returns, business owners could essentially sell product in advance or send contributors a t-shirt, for example. In 2012, however, the Jumpstart our Business Startups (JOBS) Act was enacted permitting limited investment crowdfunding.

Hope for the Future

Despite the passage of the JOBS Act, federal authorities, including the SEC, have been slow in adjusting the pertinent regulations to permit full utilization of the bill’s provisions. With the federal government at an apparent stalemate, Illinois lawmakers from both sides of the aisle have decided to take action. State Representatives Carol Sente, D-Vernon Hills, and Tom Demmer, R-Dixon, each introduced legislation recently that would allow Illinois businesses the freedom to raise the capital they require through regulated investment crowdfunding.

Similar bills have been passed in neighboring states and the legislators believe that remaining competitive is vital to the state. “There are a lot of entrepreneurs out there who have great ideas to start a business, but have no capital,” Rep. Demmer said. “This bill will give those people the opportunity to bring new and innovative business ideas to Illinois.”

The separate bills differ in some of the details, including financial limits and requirements, but both would apply only to intrastate investment. Illinois businesses would be permitted to utilize Kickstarter-type platforms to raise capital from Illinois residents through Illinois financial institutions. Expansion beyond the state would require action from federal regulators and the SEC.

If you are an Illinois entrepreneur looking to start a new business or grow an existing one, having qualified legal representation is a necessity. Contact an experienced Naperville business law attorney today for help with forming your business plan and making your vision a reality.