Summarize an article from the Wall Street Journal - Essay Example

s of article: Should Equity-based Crowd funding be Legal? article appeared: March 18th, 2012Article Summary: -Considering the financial crisis, small businesses are constantly face problems rooting from the lack of capital. As a result, intense debates regarding the legalization of equity-based crowd funding for small businesses have become a subject of great interest to critics and business analysts. The article highlights the general opinion of people that continue to oscillate between positive and negative views.

The article itself is in fact a contrast between the views of professionals, John M. Torrens and Dave Slavinsky who systematically discuss the pros and cons of legalization and its affect on businesses. Torrens and other Proponents of Equity-based crowd funding deem it as a blessing in times of deepening economic crises. Since businesses themselves are not in a position to increase employment, they can provide a bigger growth potential through investment opportunities. Supporter of the notion believe that such opportunities should only be provided through online outlets as it is extremely cost-effective.

It would also make the investment market more open to millions of investors (Torrens & Slavinsky, 2012). This method further enables businesses to secure and reach out to a greater client base, who are naturally motivated to help the business succeed.On the other hand, opponents of this idea believe that legalization would only cause ill-informed clients to lose their money on failing companies. It will pose a higher risk and will subsequently influence the purchasing power of people as individuals lose money due to their bad decisions.

There are high chances that it will further lead to a downward spiral of recession. Moreover, there are greater chances of foul play and fraud companies may surface that may further cause the general population to incur heavy losses. It will also significantly impact legitimate businesses, as investors are fooled into investing for fraudulent companies. Therefore, businesses should take the merits of alternate investment methods in to account. (Torrens & Slavinsky, 2012)Effect on business activities: -It is quite ostensible that though, equity based crowd funding may have several pros, but they can only be enjoyed if the businesses give the crowd massive returns on their investments.

Businesses can obtain huge number of clients, who had initially supported the company through their investments. However, from the people’s perspective, investing in equity differs from investing in stocks that can be liquefied whenever the client wants. Equity is illiquid and as a result, there is no clear way out of this investment and the customer may feel trapped. There are plenty of legal and tax ramifications that will be triggered as a result of equity-based crowd funding. Such high risks raises reservations on a legal front as it may set off countless tax evasion and criminal activities, which is detrimental to businesses and the society.

Businesses may also face lawsuits as a result along with other problems as the company is now liable to the crowds. Proponents may claim that the chances of fraud can be curbed, but the margin of foul play can never be fully eradicated; hence it becomes a clear problem. Businesses may lose potential customers and clients, and will subsequently gain them, if they incur profits. The high risk may discourage companies from considering it as an option at all and hence they will automatically move towards alternatives to crowd funding that are not that precarious in nature.

Work CitedTorrens, John M. & Slavinsky, Dave. “Should equity-based crowd funding be legal?” Wall Street Journal. 18th March, 2012. Print.