In recent years, crowdfunding has become a popular means of financing ventures using the Internet. Thanks to a new law in Arizona, crowdfunding will be available to small and medium sized Arizona businesses as a source of capital to help them grow. Attorney Jonathan Frutkin discusses the new law in this report. Frutkin is also the author of the book, “Equity Crowdfunding: Transforming Customers into Loyal Owners.”
As Frutkin explains, the new bill changes prior law that only “accredited shareholders” could become shareholders in privately-owned companies. Accredited investors are people who make at least $200,000 yearly and have a net worth, exclusive of their home, of at least $1 million. This standard limited the pool of potential investors rather severely. The Arizona law follows congressional action in 2012 to permit equity crowdfunding. Colorado has also enacted a crowdfunding law.
The new law will allow Arizona residents to invest up to $10,000 in a local business regardless of their income or net worth. Frutkin believes that “this is a huge opportunity for customer-facing brands to raise money.” This will give small businesses a ready source of new capital to permit them to expand and grow, and it will allow loyal customers the rare opportunity to become investors. The customers who invest will be able to receive financial benefits from their investments. From the perspective of the businesses, their customers are now able to be owners.
Frutkin feels that the new Arizona law will be of particular benefit to local businesses that people already know about, “that have already developed a crowd.” The new law will let a business convert those customers into owners. Bars and restaurants are two kinds of businesses that stand out as likely beneficiaries of crowdfunding. Car dealerships might also benefit from crowdfunding. “For business owners that are looking to grow and engage with their customers, this is a huge opportunity.” Companies just starting with no established customer base are not likely to benefit from the crowdfunding approach.
Jonathan Frutkin is the principal in The Frutkin Law Firm, PLC, Phoenix, Arizona. He has a long history as a business executive and owner. He has owned a website design business, a software company, a real estate development company and was the developer for a national ice cream chain. His practice focus is on providing general counsel, including capital formation, mergers and acquisitions, litigation strategy and intellectual property. The Legal Broadcast Network is a featured network of the Sequence Media Group.