Crowdfunding, raising money for a project or cause by getting small contributions from a large number of people, continues to gain traction in the United States and globally. Entrepreneurs use it to fund projects and ventures. Crowdfunding raises money for people with medical or financial needs. The legal field has been reluctant to embrace crowdfunding due to ethical concerns that may arise.
While law firms and lawyers need to proceed cautiously in this area, crowdfunding offers some benefits and may be worth serious consideration.
Ethical considerations limit the type of crowdfunding by lawyers. For example, all states forbid a lawyer from sharing fees with a nonlawyer. So, a law firm cannot offer equity in the firm.
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With crowdfunding, a client can get legal services that they cannot otherwise afford, or a law firm can bring a case that may bring about change. One of the keys to a successful crowdfunding campaign is to tell a story. Backers will get behind a project or litigation that has a good story.
If the client agrees, the firm gives the public enough information to understand the need for funding. A client may have life-long injuries, and the legal battle for compensation may take time, and the fees for experts may be significant. A client may be taking on a giant company. The relief sought may be an injunction to stop a particular environmental hazard. The client may not receive a monetary award at the end of the litigation.
According to a 2016 survey by the Pew Research Center, a majority of adults get their news from social media. A crowdfunding platform will make it easy to share a client's story or a worthy cause. People cheer for the underdog and are often willing to donate a small sum to help.
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Traditionally, plaintiffs use litigation funding, also known as legal financing or third-party funding, to fund lawsuits. The third party agrees to finance the litigation in exchange for a percentage of the money recovered by the plaintiff. Crowdfunding has the potential to eliminate the need for legal financing and broaden access to legal services by allowing law firms to take cases they might not accept otherwise.
Crowdfunding presents ethical challenges for lawyers. Crowdfunding is relatively new to the legal profession, and only a few ethics opinions specifically address the issue. However, crowdfunding implicates some deeply rooted ethical considerations:
The Philadelphia Bar Association's Professional Guidance Committee issued an opinion (2015-6) addressing the scenario where a lawyer uses crowdfunding to finance litigation. The plaintiff was seeking equitable relief against a governmental entity. Because the client could not pay the attorney for time spent on the case, the lawyer proposed putting money from crowdfunding toward attorney fees. The Committee gave some guidance:
Episode 19: Compliance In Regulation Crowdfunding With Securities Lawyer Elizabeth Carter
The New York State Bar Association issued an opinion (1062) on whether a group of recent law school graduates could use crowdfunding to raise money for their new firm. The Bar analyzed four forms of crowdfunding (donation, reward, equity and royalty). The Bar wrote that the equity and royalty models would violate the rule against fee-sharing with nonlawyers.
The Bar found the donation model was feasible as long as the lawyer made it clear that donors would receive nothing in return for their funds and that the firm was a for-profit entity. The Bar found the reward model viable if the lawyers offered things, such as pro bono work for a nonprofit legal organization, in exchange for funding.
Crowdfunding has potential benefits for law firms. A law firm using crowdfunding should exercise caution and pay close attention to ethical concerns. The law firm will want to research the most recent authority in its jurisdiction. It may also request an informal ethics opinion from its state bar on a specific scenario or an area of uncertainty.
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When researching Crowdfunding lawyers in Los Angeles, USA, entrepreneurs and technology startups should evaluate an attorney’s experience in copyright law, trademark protection, crowdfunding law, securities rules and regulations, and general contract law. With over a decade of experience in these areas of legal practice, L.A. Tech and Media Law crowdfunding lawyers in Los Angeles can answer your legal questions and help with legal due diligence when launching a crowdfunding campaign.
Crowdfunding online has disrupted startup capital and investment markets in profound ways. L.A. Tech & Media Law Firm is dedicated to providing thought leading consultation on crowdfunding law for technology startups, small businesses, and charitable campaigns.
Equity based crowdfunding, where contributors become partial owners of company stock is an emerging investment vehicle available to today’s entrepreneurs through regulated but manageable channels to accredited investors (net worth of $1 million or more). General solicitation of investors who are non-accredited, providing a much larger pool of investors, is expected to be more widely used after legalization of general solicitation set in motion by the JOBS Act in 2012. However specific rules for general solicitation of equity crowdfunding by Securities Exchange Commission are still pending.
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Despite complex legal hurdles in some categories of crowdfunding campaigns, this form of capital funding strategy is a viable platform for some startups and technology companies, can be useful to test product ideas, achieve market validation, and attract early users.
L.A. Tech & Media Law Firm attorney David N. Sharifi is a leading legal expert in crowdfunding law, and advisor to attorneys, organizations and entrepreneurs on best practices and legal due diligence in crowdfunding campaigns. David N. Sharifi was selected as moderator and panelist for the Beverly Hills Bar Association CLE Course “The Crowd is King: Benefits and Legal Pitfalls of Crowdfunding” – View Program Materials – and has been quoted in the L.A. Daily Journal as an expert on legal issues facing technology startups and crowdfunding law.
“I knew I had found an excellent lawyer to handle my business. He is knowledgeable, personable and takes the time to explain everything in detail.”Our crowdfunding offerings are expertly drafted by a crowdfunding lawyer, based on your specific funding requirements – We do not use templates, and they should never be used!
Title Iii Crowdfunding
We are one of the oldest and most experienced boutique crowdfunding firms in the country today, and few full-service securities law firms that can offer our clients the benefits described below:
We are a boutique law firm that possesses the same level of skill and experience as a mid-size or a large law firm. Each of our attorneys has more than a decade of legal experience, and most are graduates of top schools in the U.S. Our team is comprised of a former Morgan Stanley in-house attorney, a former Securities and Exchange Commission staff reviewer, a former litigator with the Illinois Attorney General’s Office, and other attorneys who were trained by and worked at large and prestigious law firms.
Why? Because we believe that this level of redundancy is necessary to draft securities offering documents in order to properly protect clients from the risk of future potential civil and criminal prosecution.
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Since we are also securities litigators, we represent investors in securities fraud actions. These are litigation actions where investors have invested in offerings and have become dissatisfied with the results of the offering.
We are the only fully staffed law firm in the US today that has an affiliated capital consulting firm that has over a decade of experience raising capital for crowdfunding type offerings. In addition, most law firms truly don’t know what is involved with raising capital due to a lack of hands-on capital markets experience. Our attorneys aren’t just former law firm attorneys; many of our attorneys have worked directly for issuers that have issued hundreds of millions of dollars in securities. This provides our lawyers with extensive real world securities distribution experience and allows us to furnish our clients with necessary direction that other less experienced attorneys cannot.
In addition, our law firm’s relationship with our capital consulting firm makes us legal and consulting experts in the area of crowdfunding. Centarus Business Consultants, Ltd, our affiliated capital consulting firm is comprised of former investment bankers who are experts with raising capital through crowdfunding.
Crowdfunding Securities Lawyers L Hamilton & Associates
Mr. Amatucci serves as the
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