Legal Regulations On The Protection Of Equity Crowdfunding Investors In China

Under the strong demand of the market,the bank-dominated corporate financing model in China had been replaced by the capital-dominated one.Equity crowdfunding has received many attentions since it was launched.Being a new type of the Internet financial model,equity crowdfunding,with its advantages like high efficiency and low cost,has compensated for flaws of traditional financing models like high costs and restricted conditions.Such model is able to effectively alleviate the current financing difficulties of micro enterprises and start-ups in China.Moreover,it has opened up more investment channels for the medium and small investors,thereby attracting a large number of investment and financing entities to participate which leads to the further development of market financing.No barriers to entry and no industry standards show the absence of the laws and regulations about equity crowdfunding in China for a long time.Practitioners in relevant market have to cautiously strive in gray areas.In such market,crowdfunding platforms and financiers are easily take the stereotype of “myopia effect”,which only focuses on the vested interest regardless sustained and stable trading relationship,based on the profitability of commercial entities.Therefore,investors' rights and interests have been repeatedly violated.Protecting investors' rights and interests is of great significance to the sustainable development of the equity crowdfunding market since investors are important participants in this market.Due to the eternal information asymmetry of securities supervision,that is,the lack of investor protection system caused by lagging supervision,coupled with the crowdfunding of equity,which naturally has the characteristics of popularization and risk dispersion,investors often face multi-level risks including fraud,irrational investment,and investment against investors' will,etc.Given the regulatory vacancy and multiple risks above,the poor protection of investors' rights and interests has gradually become a prominent issue and thus an obstacle to the healthy development of the industry.However,an over-emphasis on investor protection does not necessarily benefit the industry.The balance and improvement of the approaches between financing economy and investor protection are the core of this thesis.The author believes that the protection of investors is not necessarily achieved through empowerment.Too many rights may induce investors to excessively interfere with financiers,and variety of restrictions will also discourage financiers' enthusiasm for financing and force companies to seek other financing models.Such behaviors are unfavorable for the benign development of the equity crowdfunding market.Considering how to pass laws and regulations not only to protect the investors' rights and interests,but also to stimulate the market vitality of the financiers and to open up the gate between investors' and financiers' value claims to find a balance is a must for the rule design.This thesis takes the investor protection as the starting point,striving to form a two-sided open pathway from the tripartite basic legal relations in organic law and through the pre-,inter-,and post-transaction in behavior law.Plus,based on the existing research,this thesis presents the supplementary exploration in accordance with the established rules and regulations of the external market.The thesis first discusses the normative background of equity crowdfunding,clarifies the growth environment and regulatory base of the equity crowdfunding by analyzing the current situation of the Internet finance.Then,it presents the analysis of the protection of investors in crowdfunding and deliberates the connotation between the protection of investors at the level of regulatory norms and self-regulatory rules.The protection of one juristic entity will inevitably require the cooperation of other participating entities.The next step is a brief review of the tripartite basic legal relationship in crowdfunding and their inter-relationship,to secure the entity of investor protection obligations.Furthermore,through the overview of the evolution of the market format and the current situation,the thesis demonstrates the main problem exists widely in the settings of crowdfunding and market transactions at present,and briefly analyzes the logical relationship among the main problems.The thesis,taking into account that the current laws and regulations and regulatory authorities have not yet formulated clear regulations and unified regulatory opinions on equity crowdfunding,analyzes the institutional flaws at three levels of issues about the legal risks of protections for crowdfunding investors,which mainly concentrates on market access,information disclosure and project governance,from the perspective of the tripartite entity and proposes correspondent improving suggestions.Regarding market access: Driving by the profit,financiers usually risk to do financing fraud at first.By referring to the external investor research of listed companies to establish a corresponding credit evaluation system,they can provide useful value judgments for investors' investment needs;At present,China has three independent crowdfunding platforms that obtained pilot licenses for equity crowdfunding.Before the introduction of the “Administrative Measures for Equity Crowdfunding Pilots”,in order to avoid breaking the legal line,financiers were only engaged in the financing of Internet non-public equity financing business.From the perspective of the threshold of behavior law,the regulatory authority seems to be too restrictive,while under the analysis of the threshold of organic law,the regulatory authority aims at integrating the equity crowdfunding platform into the financial supervision system;Unspecified investors varies in terms of information acquisition,professional qualifications,investment experience,asset size,etc.To prevent investors to get into risks from blindly follows,ceiling rules for the maximum investment amount should be considered at the same time when setting the entry threshold.Regarding information disclosure: the unstandardized information disclosure caused by qualitative deviations,often imposes an excessive information disclosure burden on financiers.Featured Layer requires the innovative corporate to combine mandatory and willing disclosure of the information in order to realize the protections for both investors and financiers.By studying such requirement,we can coordinate the effectiveness of information disclosure with the economy of financing;As a transaction intermediary,the equity crowdfunding platform should always maintain an independent legal status.It should clarify the nature of its information intermediary,and based on this,refer to the articles of incorporation and management measures to further explore the scope of its responsibility;Investors who obtain shareholder status through capital contributions should have the right to know the information about the financing party and the financing project.Such rights can be ensured by establishing information communication channels before the transaction and holding regular meetings to obtain effective information after acquiring shareholder status.Regarding project governance: As the controlling shareholder,the financing party can usually exert a decisive influence on the project decision,accompanied by the moral risk of unfair connected transactions and managerial competition in the industry.It can be regulated through the information disclosure +the supervision rule of majority shareholders' decision thus to make financiers fulfill their responsibilities diligently;The crowdfunding platform takes the core function of information exchange between investment and financing parties and facilitates transactions.In order to prevent the formation of a pool of funds and trigger the transfer or withdrawal of risks from the crowdfunding platform,after referring to the functions and rules of the China Securities Regulatory Commission,a third party is set up.The custodian institution conducts centralized registration and custody of funds,while performing capital verification and right confirmation functions,and liberating the excessive weight of the crowdfunding platform and returning it to the legal status of an independent intermediary;Investors are stuck in a decentralized and small investment model.It is hard for shareholders to effectively participate in corporate governance.Building an investor voting trust,and concentrate decentralized rights in the hands of the lead investor as a trustee could help reconnect the investors and the governance of the corporate to secure their rights and interests.