Legal Aspects Of Investment Based Crowdfunding

Author:Mr Paul Foley and Andrew Clarke
Profession:McKeever Rowan
 
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Crowdfunding at its most basic level, is an open appeal to the public for funds for a specific project or for a specific objective. The range of companies using it is a lot wider than one might think.

What is Crowdfunding?

Crowdfunding at its most basic level, is an open appeal to the public for funds for a specific project or for a specific objective.

Crowdfunding can be divided into two categories, the non-financial return category (donation based, pre-payment or rewards based (people give money to receive a reward, service or product)) and the financial return models (investment in return for the issuing of equity or debt securities or units in a collective investment scheme or the lending of money in return for a financial reward) all of which have different characteristics for those seeking the money and those giving the money.

The concept of the non-financial reward model is not new and has been around for centuries: for example appeals made by charities to the public for funds to achieve certain common good objectives. Indeed, crowdfunding has been mentioned as an important future source of funds for charities.

The Emergence of Crowdfunding and for a vast arrange of projects

Crowdfunding platforms have really started to emerge as internet technology has evolved to allow two way communication and interaction between members of the crowd and the company seeking funds and also because of the financial crisis. Crowdfunding is used to raise money rapidly. The range of companies using it is a lot wider than one might think: a biotech company, a medical device manufacturer, a medical diagnostics company, an online estate agency, a brewing company, a wine producer, tech companies, and online property portal companies have all used crowdfunding either to start up or scale up. Most recently crowdfunding is being used as a means to purchase property, allowing small investors get access to property investment. In its February 2015 review, the FCA commented that about 95% of the funded deals were eligible for the Enterprise Investment Scheme or Seed EIS Schemes.

Investment based Crowdfunding

Our focus here is on investment based crowdfunding which is the financial return model of crowdfunding and is internet based. This is where people, or companies invest directly or indirectly in new or established businesses by buying shares, debt securities or units in an unregulated collective investment scheme (securities).

It is complex and of recent...

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