Table of Contents
An equity crowdfunding campaign is an excellent opportunity for New Zealand start ups. These campaigns allow you to raise capital through a broader investor base to facilitate growth. However, due diligence is critical for equity crowdfunding campaigns and will help mitigate risks. This article will take you through seven legal due diligence tips for your New Zealand start up’s equity crowdfunding campaigns.
1. Understand Regulatory Obligations
You must first familiarise yourself with the regulatory obligations that come with equity crowdfunding your start up. The majority of obligations are outlined in the Financial Markets Conduct Act and the associated Regulations. These laws impose requirements related to:
- disclosure;
- investor caps; and
- reporting obligations.
Understanding these regulations allows you to adhere to them. This is critical for ensuring compliance and avoiding any sanctions or other legal and commercial repercussions.
2. Conduct A Comprehensive Legal Review
Performing a thorough review of your start up’s operations and structure is essential for identifying any potential legal risks. As part of this process, you must assess the validity and enforceability of anything that may impact your start up’s ability to attract investors. You must review your start up’s:
- employment agreements;
- shareholder agreements; and
- any other legal legal documents.
This will ensure transparency and minimise investor concerns.
Continue reading this article below the form3. Protect Your Intellectual Property Assets
Intellectual property is often a start up’s most valuable asset. This means it can have a significant impact on its valuation. Conducting due diligence on your start up’s intellectual property portfolio is essential for identifying any potential infringements and gaps in your protection. You must have trade marks, patents and any other relevant intellectual property protection in place to minimise the risk of disputes that may deter potential investors.
4. Evaluate Regulatory Compliance
You must assess your start up’s compliance with industry-specific regulations. This might include:
- data privacy laws;
- consumer protection regulations; and
- environmental regulations.
You should identify any compliance gaps and potential liabilities arising from non-compliance to develop strategies to address these issues proactively. Showing your commitment to regulatory compliance will enhance investor confidence. Additionally, it will reduce the risk of legal challenges that may disrupt your equity crowdfunding campaign.
5. Review Financial and Tax Matters
Before equity crowdfunding, you should address any financial risks or liabilities that may impact investors’ perception of your financial health. You must review your start up’s financial documents. This includes your start up’s:
- financial statements;
- tax filings; and
- accounting practices.
This is required to assess the sufficiency of your internal financial processes that help prevent fraud.
6. Disclose Material Information Transparently
Transparency is the most crucial factor when building trust with investors in an equity crowdfunding campaign. Therefore, you must disclose all material information relevant to your start up’s operations, financial condition and risks. This should be provided transparently. For example, you may provide investors with access to comprehensive disclosure documents that cover the essential facts associated with investing in your start up.
7. Engage Legal Professionals
It is strongly recommended that you seek advice and guidance from experienced legal professionals who know about equity crowdfunding and start ups. They can guide you through legal due diligence complexities, including strategy development. With expertise in start-ups, these professionals understand the challenges and opportunities of equity crowdfunding campaigns. They can leverage this knowledge to mitigate legal risks and provide valuable insights on addressing these issues.
Essential reading for anyone building their startup. This free guide includes practical advice and seven real-life case studies.
Key Takeaways
Equity crowdfunding campaigns allow start ups to raise capital through a broader investor base to facilitate growth. However, due diligence is critical for equity crowdfunding campaigns and will help reduce risks. Some key due diligence tips include:
- understanding regulatory obligations;
- conducting a compressive legal review;
- protecting your intellectual property assets;
- evaluating regulatory compliance;
- reviewing financial and tax matters;
- disclosing material information transparently; and
- engaging legal professions.
If you need assistance understanding fundraising requirements for your New Zealand start up, you can contact our experienced start up lawyers to assist as part of our LegalVision membership. You will have unlimited access to lawyers who can answer your questions and draft and review your documents for a low monthly fee. Call us today at 0800 005 570 or visit our membership page.
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