Regulation Crowdfunding: A Viable Option for the Franchising Industry
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Regulation Crowdfunding: A Viable Option
for the Franchising Industry?
Samuel G. Wieczorek
Since the advent of the Internet, small businesses have
sought ways to raise capital by issuing securities to the
public at large via Internet solicitations. However, they
have typically run into issues with state and federal secu-
rities laws that prohibit offering securities unless the se-
curity is registered or an exemption applies. The answer
that these businesses have traditionally tried to turn to
was crowdfunding, which generally means using the
Internet to solicit potential investors to help fund any
number of projects.1 However, in its earliest iterations,
to avoid potential securities law violations, most small Mr Wicczorck
businesses did not actually issue equity in their companies when seeking
funds from the general public over the Internet, instead opting to use ser-
vices like Kickstarter or Indiegogo to raise funds.2 Congress finally adopted
a new exemption that specifically provides for a crowdfunding exemption
from federal securities laws, and the Securities and Exchange Commission
(SEC) has recently adopted final rules related to crowdfunding, which
went into effect on May 16, 2016.
This article examines what impact crowdfunding may have on the fran-
chise industry. It will first provide a brief history of the federal laws govern-
ing securities offerings in the United States and Title III of the 2012 Jump-
start Our Business Startups Act GOBS Act), which first exempted
crowdfunded offerings from Section 5 of the Securities Act of 1933 (Securi-
ties Act). The article will then explore the actual Regulation Crowdfunding
rules issued by the SEC for qualifying for the exemption. Next, the article
1. Press Release, Sec. & Exch. Comm'n, SEC Adopts Rules to Permit Crowdfunding: Pro-
poses Amendments to Existing Rules to Facilitate Intrastate and Regional Securities Offerings
(Oct. 30, 2015), https://www.sec.gov/news/pressrelease/2015-249.html [hereinafter SEC Press
Release].
2. Scott Martin & Yuka Hayashi, SEC Opens Way for Wider Pool of Investors to Take Stakes in
Startups, WALL ST. J., Oct. 30, 2015 (Crowdfunding campaigns on Kickstarter and Indiegogo,
which don't accept equity, have helped countless small companies grow. Many have gone on to
raise traditional venture funding.)
Samuel G. Wieczorek (samuel.wieczorek@chengcohen.com) is an attorney with Cheng
Cohen LLC in Chicago.
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Regulation Crowdfunding: A Viable Option for the Franchising Industry
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