You get shares! and coupons! and a tax bill!

Hey, remember when Oprah gave away all those cars and all the lucky recipients got a car with accompanying tax bill? We could have something like that in crowdfunding too.

For companies seeking crowdfunding, it’s natural that they will seek to market their offering to the people who love their product or service. And a company’s crowd is going to be super-happy not just to get the shares, but also more of the company’s product or service. A company producing zombie movies can give away tickets to the next premiere. A candy company can give away calorific goodies.

And that’s great, but in this regulated world we have to consider the tax and accounting implications of these campaigns. Sorry, harshed your buzz there.

Let’s look at the tax implications first. This affects both investors and the company making the offering. Investors may find that if they get “freebies” with their shares, the tax basis for their shares is lower than they thought (possibly resulting in higher capital gains if the company eventually succeeds). And any company selling a share+goodies package is likely to find that the “sale” of the goodies is treated differently from a tax point of view than the sale of the shares.

Same with accounting. Not only might the different component parts of the shares+goodies package be treated differently in the company’s financial statements, but if the company is making a Regulation A offering, it will have to produce “dilution” data in its Offering Circular, showing how much investors paid for their shares compared to the company’s insiders, and that could be affected by the value of freebies.

Not to say that companies can’t give away their services and products when making a crowdfunding offering. Many do and it’s a great option. Just make sure the investors know what they are getting and that the company’s tax and financial accountants are properly informed!

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