Study On Legal Issues Caused By Equity-based Crowdfunding

In recent years, as the Internet Finance has been advancing at an unprecedented speed, different types of Internet Finance have come into sight, among which P2 P is one of the most promising one in the last one or two years. However there is another force to be reckoned with, that is Crowdfunding. And one of the crowdfunding called Equity-based Crowdfunding really stands out. Equity-based Crowdfunding is a process by which crowdfunding issuers put their projects on web through funding portals, and investors pick the most promising one, in order to earn profits from the stock right. Due to the lack of specific or highly targeted legal provisions and regulatory systems in China, concerns are raised about Crowdfunding among the general public. As a newly type of Internet Finance, Equity-based Crowdfunding give small business, artists and individuals a chance to show their originality through internet in order to make money. The ways of financing have therefore been diversified, and the financial plight of those small business are eased. The value of studies on Equity-based crowdfunding issues, which on one hand can help crowdfunding issuers with funding in case of legal risks, and on the hand can satisfy the needs of public for investment, is fully justified.In this thesis, relevant questions are firstly asked, and then fully analyzed before being provided feasible solutions. In addition to the introduction and the conclusion, this paper is divided into the following five parts. The first part is an introduction to the Equity-based Crowdfunding and the mode of its operation, and the main legal issues raised; the next three parts, are to explore those issues in full detail. The fifth part summarizes the measures that can be adopted to resolve such legal issues.The first part is about the concept of Equity-based Crowdfunding, and the related legal issues. The author introduce the concept and the produce of Equity-based Crowdfunding, so as to find out the legal issues caused by Equity-based Crowdfunding. In this part, the definition of Crowdfunding is given, its basic procedure is illustrated, and the legal issues are then introduced.The second part analyzes the legal relationship between three parties involved in the process of Equity-based Crowdfunding, which are crowdfunding issuers, investors, and funding portals. The purpose of this part is on the one hand to lay a foundation for further understanding of Equity-based Crowdfunding, and on the hand to propose methods of setting Equity-based Crowdfunding related parties’ rights and obligations and the construction of Equity-based Crowdfunding’s legal system.The third part discusses the risks of Equity-based Crowdfunding, reveals the legal risks of crowdfunding issuers, investors, funding portals, and offers guidance for risk management and prevention system. In the process of Equity-based Crowdfunding, issuers’ risks include illegal fund-raising, illegal issuance of securities and the infringement of intellectual property rights while investor’s risks may involve the inferior position of information, the risk of fraud and the lack of withdrawal mechanism. On the other hand, there is no clear definition of the rights and obligations on funding portals. Also, there are the risks caused by weak censorship and non forbidden zone. These risks, call for appropriate legal strategies.The fourth part focuses on the protection of investors’ rights, which requires special attention, since the loss of reward due to the investors’ blind trust, potential security risks, low quality of after service and the difficulty in defending the due rights of investors have made this a real conundrum. Therefore, it is also the focus of in the establishment of Equity-based Crowdfunding’s legal system.The fifth part is the legal measures of Equity-based Crowdfunding, combined with the analysis of the legal issues of Equity-based Crowdfunding, suggestions are made from the construction of Equity-based Crowdfunding regulatory rules, the modification of existing laws which hinder the development of Equity-based Crowdfunding, launching specific new regulation which adapt the characteristics of Equity-based Crowdfunding, strengthening,the supervision of government departments, exerting the role of industry associations, and enhancing the education of investors.