Can a crowd-funding investment be used for an issuing company to purchase property (that would only be offered for sale to them) for conversion to a business use?

Chris Barsness,

startup, finance, law, and tech nerd

With the caveat that the SEC hasn't implemented its rules based upon the JOBS act yet, I will answer your question generally, but crowdfunding is not yet able to be used in many contexts until the SEC puts its rules into effect.

If you are talking about a company raising money to use to buy property, the question is what is the investor getting?  If you use a Kickstarter or similar platform which raises funds by a "pledge" or "gift" essentially and the investor doesn't really get anything in return for their money, it probably doesn't implicate any securities laws and you would probably be able to raise money that way.  However, if the investor(s) put money in in exchange for some part of your business, whether stock in a corporation, payment of profits, or some form of return through loan payments, etc., that probably involves the offer and sale of a security.  Since this question is in equity based crowdfunding, I assume you were planning on some type of stock being sold to the investor.

This would involve the offer and sale of a security and have to comply with now existing, or future changes per the JOBS Act, securities laws.  Once the regulations go into effect, you probably could complete this type of raise.  As the law stands now, you could raise money in exchange for equity and use the money for a legitimate business purpose, which could include the purchase of an asset, such as land or developing it.  There may be other issues depending upon the structure and your specific business, but generally, you could use an exemption from securities registration to raise the money.  Once the JOBS Act is fully implemented, you could likely also extend that exemption to use crowdfunding to complete the raise. 

So the short answer is, yes, you probably could do what you propose, but there are a number of legal factors to examine and you would have to wait to use crowdfunding until after the SEC implements its JOBS act rules.

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