Contractual crowdfunding is transactional and the instrument in this case may be factoring agreements, royalty agreements, profit or revenue sharing agreements as well as impact or sustainability driven agreements.
Investments through contractual crowdfunding are available with businesses that are thoroughly vetted by the Crowdfunding Intermediary to meet the requirements of the Securities and Exchange Commission. The issuer, that is the business raising the fund is required to submit an offering document stating the nature of the instruments being offered for investment.
The business entity is profiled with details including name of business, nature of business, location of business, legal status, ownership structure, capital required and minimum investment amount. The offering document for the fundraising is made available for prospective investors.
Under contractual crowdfunding, the amount invested or capital contributed is held in an escrow account until fundraising is closed.
Once the fundraising target is reached, documentation is completed to seal the agreements and issue investment certificates to each contributor or investor, and funds are transferred to the issuer.
When the minimum target amount to be raised is not reached upon closure, capital contributions or amounts invested are returned to the capital contributors or investors.
