Many startups struggle to acquire funding. With over 8 million people spending more than 1.6 billion dollars in the last 6 years, Kickstarter has become one of the most popular ways for startups to get the cash that they need to get their dreams off the ground. Unfortunately, a lot of startups do not know that there are legal pitfalls involved in receiving money from backers on crowdfunding websites.
Here are the top 5 things you need to know before you start your Kickstarter campaign:
- A contract is a legally binding agreement. In Kickstarter, you are agreeing to provide something to the backer in exchange for their money. For example, if a backer gives you $30.00, you will give them a mug with the name of your company on it. This forms an enforceable contract. Seems simple enough. However, you must have a contingency plan of what you will do if you cannot follow through with this promise. If you cannot deliver the mug, then you are in a breach of contract. Fortunately, Kickstarter states that you can also provide a full refund to the donor in satisfaction of your obligations. You have to consider what you will do if you cannot furnish the original promise or the refund. Also, you have to be aware of the fact that you can get sued if you breach this contract.
- By its very nature, Kickstarter is a sharing community. If you want to raise funds, sharing on social media and other channels is very crucial. However, for obvious reasons, the more you share your idea, the more likely it is to get stolen. That is why it is very important for you to protect your intellectual property by filing for trademarks, copyrights and patents. By being the first to file, you will ensure that your property is protected and that your startup gets off the ground.
- Kickstarter is not liable for damages and does not become involved in disputes. This is very important because, if you breach the contract with your backers, misrepresent the project or otherwise get sued, Kickstarter is not going to help you. That is why it is so important that you understand all of your legal obligations before you start your crowdfunding and do everything correctly.
- Form a legal entity. If you are sued for something and the opposing side wins, they could take your personal property if you do not have a legal entity such as an llc or a corporation. To protect your personal assets, you should form an legal entity before you start fundraising.
We hope that these tips will help you get started on crowdfunding legally.