Those who use this model can avoid securities law problems by using a donor model, which is fine in itself.
Traditional donations, however, are made to charities and similar 501(c)(3) organizations that are bound by pretty strict rules and by fiduciary duties which, among other things, require that: (1) all assets must be permanently dedicated to the charitable purpose; (2) those who manage the charity cannot misdirect assets for their personal profit or pay themselves inflated salaries that amount to misappropriation; (3) those who manage are bound by fiduciary duties to do so consistent with the purposes of the organization and face severe penalties for violating such fiduciary duties; and (4) those who manage must render a strict financial accounting for their activities and make their books and records available for appropriate inspection to assure integrity.
No such safeguards are built into crowd funding, as the system really depends on a "trust me" attitude. This may be fine in any given project if the founders have the talent, vision, and integrity to comport themselves consistently with the trust placed in them to do what they say they will do when they solicit the donations. If they do not have integrity, however, I am not sure what remedies might exist if they should prove less than scrupulous in dealing with the donated funds.
This is a pretty new area and I'm not very familiar with it. But it would appear on the surface that there is not much that can be done if founders in such situations choose to abuse the trust reposed in them by the donors. Given this problem, I don't see how this model can easily be replicated across a meaningful spectrum of situations, even though it might work for select high profile cases.
Spreedly just finished their crowdsourced funding on Kickstarter on May 6. I have to presume that they've had some lawyers help out since then. I'd really love to see what they came up with to find a clear path. If there really is a viable donor model path for funding (I believe that Blogger did this for a bit as well) that is replicable, that could really change things nicely. Then you've got product/market fit, MVP, paying customers, and all the other stuff in one nice, neat package.
Spreedly's Kickstart package was different than Kickstarter the bounty site. Spreedly actually sold an expensive, "lifetime" service rather than just asking for money to do anything.
We bought one, I think it was $700 for a lifetime of no monthly fees and transaction fees pegged at 1%.
Can anyone reading this thread with expertise comment on the idea that such 'donations' to a for-profit entity (or other project/implicit partnership) would be subject to income or gift taxes?
Those who use this model can avoid securities law problems by using a donor model, which is fine in itself.
Traditional donations, however, are made to charities and similar 501(c)(3) organizations that are bound by pretty strict rules and by fiduciary duties which, among other things, require that: (1) all assets must be permanently dedicated to the charitable purpose; (2) those who manage the charity cannot misdirect assets for their personal profit or pay themselves inflated salaries that amount to misappropriation; (3) those who manage are bound by fiduciary duties to do so consistent with the purposes of the organization and face severe penalties for violating such fiduciary duties; and (4) those who manage must render a strict financial accounting for their activities and make their books and records available for appropriate inspection to assure integrity.
No such safeguards are built into crowd funding, as the system really depends on a "trust me" attitude. This may be fine in any given project if the founders have the talent, vision, and integrity to comport themselves consistently with the trust placed in them to do what they say they will do when they solicit the donations. If they do not have integrity, however, I am not sure what remedies might exist if they should prove less than scrupulous in dealing with the donated funds.
This is a pretty new area and I'm not very familiar with it. But it would appear on the surface that there is not much that can be done if founders in such situations choose to abuse the trust reposed in them by the donors. Given this problem, I don't see how this model can easily be replicated across a meaningful spectrum of situations, even though it might work for select high profile cases.