CPA Journal, November 2014
For hundreds of years, businesses have raised equity and debt to grow and expand. The process begins when an entrepreneur has an idea that requires capital (or debt-based) investment. The entrepreneur solicits this investment from the public, which thus has the right to a certain return on investment and dividends from the enterprise. Regulations and rules have been enacted to regulate the solicitation and procurement of funds, the launch of an enterprise and its activities, and the return on investment and the payment of dividends.
Crowdfunding is the most recent iteration of investment vehicles. (The sidebar, Forms of Crowdfunding, reviews two current types of crowdfunding.) Whereas raising equity and debt for capital investment has traditionally been limited to larger investors, crowdfunding expands investing to a wider investing public; it primarily differs from traditional investment mechanisms because funds are solicited in ever-thinner slices geared toward smaller and more diverse investors. In addition, the enterprise seeking the investment capital has changed. These enterprises are relatively small, ranging from several thousand dollars up to $1 million in net assets, per enterprise.
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