- Posted by admin
- 05 September 2013
Crowd funding is a process by which a small to mid-sized business sells shares to investors of its choosing rather than on the open stock exchange. This is becoming more and more popular in today’s unstable economy, and this is because there are some benefits that simply cannot be ignored.
How it Works
Crowd funding is actually quite simple to understand, though the way it is implemented varies from country to country and depends on the scope of the business. The company is required to register stock in its home country and make all financial information public before being audited to ensure that the financial aspects of the business are all correctly reported. Then, once this is done, the company can begin to sell shares to the public directly without the help of any public trading entity. Common business investors include customers, employees, suppliers and even members of the community. Each buyer assumes risks and rewards associated with the success of the business.
Is it Legal in Singapore?
The process of crowd funding is completely legal in Singapore, and there are two companies in this country that have set records for generating capital in the past year. These funding campaigns were registered on international platforms and raised a total of almost $75,000 in capital combined—far more than any other company in Singapore has risen in this method in previous years. Essentially, these companies place portfolios online so that potential investors can review them and decide whether or not to purchase shares.
Are there Restrictions?
Whether or not there are any restrictions applied to crowd funding really determines on the location in which the business gained incorporation and the way in which the business operates. For instance, if the business operates within a single state in the United States, then there are no restrictions on the number of investors the business can have. However, there are restrictions on the amount of capital these businesses can generate in any 12-month period. Similarly, non-US companies are not eligible to crowd fund within the United States, and this means that a company in Singapore cannot have US-based investors.
Pros and Cons
Crowd funding is certainly a great way for small to mid-sized business owners to generate the capital they need to grow and expand. Since the business owner is essentially trading a portion of the business for capital, there is nothing to repay in the future. Not only this, but as the business markets shares to the community, it is also advertising its brand at the same time. Finally, there is no registration with a public stock exchange required. However, depending on the location of the business, crowdfunding can be difficult. It is often an expensive endeavor that requires administrative and accounting resources that many businesses simply cannot afford.
Any business owner who is interested in generating capital should consider crowd funding very carefully. It is a great way to launch a business and generate funding, and it also helps to get the entire community behind a business since all of the investors are vested in its success.