Research Of Supervision System On Equity Crowdfunding

The essence of crowdfunding has been around for centuries.It is one of the ways money is raised from the public towards one particular project.However,equity crowdfunding was named specially for internet-based financing with equity as return.As a new form of finance,it enables opportunities for new start-up or small-scaled enterprises raising money directly from the investing public.Compared to other forms of finances,equity crowdfunding is flexible,efficient,and economical.It reduces cost of financing and creates a multi-layered alternatives for start-up and small-scaled enterprises,ultimately promoting economic growth.The relevant law and order is lacking or inadequate in China.Equity crowdfunding is in supervision grey zone.Governments around the world take a progressive approach in their lawmaking for equity crowdfunding.It is a challenge task for Chinese legislators to learn from overseas counterparts.China needs her legislation to balance between sustainable financial environment and reform.This paper is organized in four parts.The first part introduces the current supervision and the legal risks of equity crowdfunding.The supervision in China starts late and lacks specific law and regulations till today.The developments of supervision are in three phases.The first phase is legal definition of crowdfunding,followed by revisions of Security Law and classification management.The inadequate legal framework,credit risk and business risk associated with equity crowdfunding are main focus of this paper.The second part analyzes the reasons related to legal risks of equity crowdfunding in China.The history of equity crowdfunding in China is short.There are many issues due to the following three reasons.The legal and supervision framework in Chinese economy require improvement.The legal definition of equity crowdfunding is not explicit.There are no specific law and regulation yet.Besides,the credit system in China is not perfect.Information asymmetry,breach of fiduciary duty,and inadequate punishment are main cause of the legal risks.Last but not least,Chinese investors are immature with excessive risk preference.Therefore,business risk is magnified in China.The third part summarizes lesson from foreign jurisdiction.The paper analyzes overseas legislation governing equity crowd-funding including USA,Britain and Italy and gives some thoughts on how China could learn from other countries ’experiences.Last but not least,the paper gives detailed measures and suggestions on China’ s lawmaking related to equity crowdfunding.