Construction Of The Investor Protection Legal System Of Equity Crowdfunding In China

Equity crowdfunding is the new method of equity financing based on Internet, involving issuer party, platform party and investor party. As one category of Internet Finance, equity crowdfunding has the same degree of risk as traditional finance, with investors loss event happened at home and abroad. Financial innovation should be encouraged, and the construction of equity crowdfunding investor protection system also should keep pace with financial innovation, protecting the interests of investors by legal system. This article introduces a failed case of equity funding to operate a café bar at beginning, and then raise theme of the investor protection in equity crowdfunding.In the first chapter, by comparative analysis of four categories of crowdfunding(The donation model, the reward model, the pre-purchase model, the lending model and the equity model), this article summarizes the definition and characteristic of equity crowdfunding. The equity crowdfunding usually refers to small and micro business raising fund from the public through Internet for establishing and developing the company. Then this article demonstrates the legitimacy risk for investors, the fraud risk of issuer, the risk for shareholders exercising their rights and the risk for fundraising and depository in turn. The legitimacy of equity crowdfunding is the basic problem which investors face. If the project that the investors participate in is illegal, the investor protection will have no underground. The authenticity of information plays primary role in the field of Internet finance, with the investors facing the risk of issuer fraud. After the investors from equity crowdfunding becoming shareholders of the company, they will take higher risks than traditional shareholders to exercise their shareholder rights. In the process of fund raising, it is highly likely that the amount of raised fund is more than expected, and it is also likely that the amount of money has not reached expected. Either of those situations results in risks for the investors. In addition, this article synoptically introduces the status of investor protection for equity crowdfunding at home and abroad, including the regulation of private equity fund, JOBS Act and SEC crowdfunding proposed rules of America, and related regulation of FCA in England.In the second chapter, this article discusses the regulation system for investor protection of equity crowdfunding platform. At first, this chapter analyzes that the equity crowdfunding platform should follow the principle of keeping balance between efficiency and safety during operation. As a basic principle of Economic law, keeping balance between efficiency and safety is also indispensible in equity crowdfunding. The efficiency includes both financing efficiency and investing efficiency, and the safety includes both financing safety and investing safety. Then this article examines the position of equity crowdfunding platform in legislative proposal of equity crowdfunding in China, the requirements of intermediary agent in JOBS Act and SEC Crowdfunding Proposed Rules and the related regulation of crowdfunding platform in England. Moreover, this article discusses the methods of investor protection of equity crowdfunding platform. First, the construction of equity crowdfunding system should ensure the legitimacy of platform, and should carry out the exemption of small amount public issuing. Second, the platform should be obliged to dual check, examine and verify the investor and the issuer. Third, the equity crowdfunding platform should trustee the investment fund to third party institution. Fourth, the equity crowdfunding platform should establish a security fund to protect the investors, and set up the Internet insurance system.In the third chapter, this article illustrates the regulation system for investor protection of equity crowdfunding issuer. At first, this article researches the doctrine of information asymmetry and summarizes the principle of information disclosure and information exchange that the issuer should follow. Then this article investigates the regulation of private equity fund managers and raising fund in China, the requirements of intermediary agent in JOBS Act and SEC Crowdfunding Proposed Rules. Therefore, the issuer should ensure the implement of information disclosure and information exchange. First, the issuer should be obliged to disclose information and reveal major and significant information. Second, the issuer should assist to establish the system of Internet information exchange to assure the exercising of shareholder’s right. Third, the issuer should be obliged to cooperate with third party service institution to investigate into the issuer and to preserve the evidence, which can take advantage of the third-party independent agency to protect the interests of investors and improve the credit level of the issuer.In the fourth chapter, this article introduces the regulation system of accredited investors and special rights of the investor. At first, by analyzing the Suitability Doctrine in financial products sales, this article summarizes the principle of investors risk grading. Then this article investigates the standard of accredited investors which is regulated in private investment regulation in China, the requirements of investors in JOBS Act, and the accredited investors and qualified degree test in England. So the related regulations of inspection standard and identified of accredited investors should be constructed. And then this chapter analyzes the theory of herd behavior to summarize the principle of special investor protection. Special rights protection system of equity crowdfunding investor also should be established, including the right of getting information,the right of regretting and the right of getting compensation through ADR.As the financial innovation of the Internet Plus Age, equity crowdfunding should be encouraged and be supported to promote the development of the modern finance industry. Meanwhile, equity crowdfunding is also an innovative way to participate in the construction of multi-level capital market. However, the risk exposed to investor and the issuers raised during practice should be valued. The risk of financial innovation should be prevented and the investors should be protected to establish the foundation of the development of financial innovation. Investor protection in equity crowdfunding proceeds from the regulations of equity crowdfunding platform, the regulations of issuer and investors themselves, and should take all the participant parties into consideration, designing related regulations of rights and obligations and creating the tight defense in multiple dimensions and multi-level.