What is Equity Crowdfunding?
Equity crowdfunding is considered one of the best ways for Startups to raise money. Crowdfunding as we know, is a system where you can ask for money from the public without giving them any equity, so it is something like taking a donation from the public. Equity-based Crowdfunding is an online offering of a startup to the public where the “crowd” or the public can invest in your company and thus own equity of your company.
Equity Crowdfunding was illegal in USA till now, but it will be completely legal on 16th May, 2016. This is a consequence of implementation of the JOBS Act. acronym for “Jumpstart Our Business Startup Act.” . The JOBS Act was signed into law in the month of April, 2012 but the Securities and Exchange Commission took all this time to get all of it structured and be ready to be implemented.
Why was it not legal till now? That is because Equity crowdfunding can breach various securities laws, because soliciting investments from the general public is often illegal. And only after all these years and structuring the Law in such a way that it can be possible to implement, Equity Crowdfunding is becoming legal in USA.
Seems like a great opportunity.
But When is it coming to India? Or is it at all?
This answer is tough to answer but it can be said that it is not going to get implemented at least in the next decade.
Currently, Reward or donation based Crowdfunding is Legal in India and this Reward or Donation based crowdfunding market is booming in which Ketto.org and wishberry.in being some of the major players.
But Implementing Equity based crowdfunding is going to take a long time, since currently is Strictly ILLEGAL in India. Equity Crowdfunding Violates the Section 42 of Companies Act 2013. Though in the past years, according to some reports, Securities and Exchange Board of India has been discussing on the topic.
Since we have seen that The Government of India is taking up very good schemes and policies in favor of Startups, we can expect that they will give a thought over it.