Crowdfunding as a form of fundraising for the company

Service Business

Financing your own company with capital obtained from the crowd? It sounds strange to say the least - and yet there is indeed a concept of gaining funds for an undertaking from a kind of "donation". It is about crowdfunding - crowdfunding, which consists in obtaining capital from affiliated Internet users.

Crowdfunding - what is it?

Crowdfunding uses the Internet to promote innovative projects and ventures and create a community of Internet users around them. Each of the participants can support the originator of a given idea by donating money for his purpose. The larger the group of interested people, the more capital allocated to the task can be raised - in developed communities these amounts amount to several million zlotys. There are over 600 websites devoted to crowdfunding around the world - in Poland it is still under development, but its popularity is growing over time.

Characteristics of crowdfunding

Crowdfunding is distinguished primarily by the fact that all activities aimed at supporting a given project are undertaken on the Internet. In addition, anyone can be the financing partner - there are no restrictions in this respect, so anyone who feels such a desire can provide support. Therefore, crowdfunding has the great advantage of universality and availability - with a good, interesting idea, it can mean a really good chance of success.

It is not without significance for the supporters of the project that the money donated is always allocated to a clearly defined goal from the beginning. Consequently, whoever donates their funds knows what they are going to. This is a big advantage over, for example, public collections, where the taxpayer is unable to obtain feedback.

Another specific feature of crowdfunding is the fact that the supporters receive returnable benefits. These can be specific products of a given company - a product, service, sometimes shares in the company, or specific proposals, such as participation in a closed event or in an interesting, not to every available company event.

Elements of crowdfunding and its types against the legal background

Although crowdfunding is slowly becoming the subject of interest of EU and state authorities, no unambiguous definition has yet been adopted. Anyway, it should be recognized that it is unnecessary now, because crowdfunding is constantly developing and taking new forms, and the establishment of regulations could only slow down its development. It should be noted here that crowdfunding is a phenomenon that can bring many benefits to the development of the economy. Crowdfunding is an alternative to loans, bonds, grants or loans, being a source of financing, thanks to which innovative projects can develop, which in the future may generate large profits, and also be a driving force for positive social changes.

By analyzing the current crowdfunding models, both in Poland and in other countries, common elements appearing in each of them can be distinguished. These are:

  • participants - the financier and the beneficiary, who in the vast majority of cases are joined by a third party - a crowdfunding platform, intermediating between the financier and the beneficiary,

  • community - otherwise known as a crowd crowd) from which the financing parties come,

  • subject - financing a specific goal, defined through the prism of the crowdfunding model,

  • reciprocity - means that, in return for financing, the beneficiary undertakes to provide a return which is usually not equivalent, i.e. its value does not correspond to the value of the financing.

As already mentioned, no uniform definition of crowdfunding can be established, so a distinction is made which is subsidiary but is of great importance for determining the legal and tax consequences of crowdfunding.

  1. Crowdfunding based on prizes - the financier receives a reward from the beneficiary in return for funding, which is characterized by the fact that it is not worth as much as the value of the support provided.

  2. Grant crowdfunding - the financing parties make contributions for a specific purpose and do not receive any benefits in return.

  3. Equity crowdfunding - the financiers who invest in a given venture receive shares in the share capital of the beneficiary's company.

  4. Pre-sale-based crowdfunding - the financier pays funds to create a given product, which is then delivered to him.

  5. Debt crowdfunding - the financing of the financing party is a returnable benefit.

Fundamentals of relations between crowdfunding participants

Currently, the provisions of the Civil Code apply to relations arising within crowdfunding, with some exceptions. The vast majority of these relationships arise on the basis of named contracts regulated in the code, in which there are provisions tailored to individual types of crowdfunding. So we can list:

  • donation - this is the nature of the legal relationship in subsidy crowdfunding, which will therefore be governed by the provisions of the Civil Code on donation, including those providing for the possibility of withdrawing the donation and returning the benefit provided to him by the recipient,

  • sales contract and similar contracts - this is the most common basis in crowdfunding for the relationship between the financier and the beneficiary, appearing in crowdfunding based on awards and using crowdfunding platforms. It should be emphasized that these contracts should not be equated with a sales contract, because most often the financing of the financier's award is not worth as much as the support it has provided, so we are not dealing with a price. In addition, there are currently no grounds to define the beneficiary's liability for defects in the delivered product, or to what extent he is responsible for the intended use, etc.

  • loan - occurs in debt crowdfunding, which is carried out through the crowdfunding platform. In this case, you can deal with the provisions of the Civil Code or the Act on consumer credit. We will deal with the latter if the lender is an entrepreneur, and if it is a natural person, we apply the provisions of the Civil Code on loans. As practice shows, most loans are granted by natural persons,

  • acquisition of shares / stocks - occurs in debt crowdfunding. In this case, the sale of shares or stocks is possible in the case of crowdfunding only in the case of companies concluded using the template in the ICT system and using a secure qualified signature or ePUAP profile. In addition, due to the eIDAS regulation, which entered into force on 1 July 2016, the electronic signature issued in the Member States is recognized throughout the EU, which in the future may affect the popularization of the use of electronic identification means that can be used for the sale of shares,

  • non-standard constructions - due to the lack of uniform crowdfunding regulation, it is possible to come across unnamed agreements regulating relations between beneficiaries and funders.

It should be noted that the entities acting as parties in the above legal relations are not only the beneficiary and the financing party, but also the platform operator and, respectively, the beneficiary or the financing party.

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How to present your project in crowdfunding?

It is not a difficult task, but it requires a lot of commitment and creativity. As in any marketing campaign, it will be necessary to create a good title - not too long, inventive, but also not too bizarre, so that you can find out what will be implemented under a given project. On the other hand, you can let your imagination run wild when designing a description - apart from the classic, descriptive version, the originator can also create, for example, a video or a comic book.

In the project CV, it will also be necessary to focus on finances - you must present the minimum budget that will allow the project to be implemented so that it is of the best quality. A precisely defined, well-thought-out financial goal also makes the initiator of the project more credible and responsible in the eyes of potential funders.

When presenting the project, one cannot forget about the already mentioned anticipated returnable benefits. The more attractive, the faster and easier they will reach the group of recipients willing to help in financing the project.

As you can see, crowdfunding is an interesting solution for those looking for financial support in business. In Poland, this method of obtaining capital, although not yet comprehensively regulated, is fully legal, although it requires good legal and tax preparation. Therefore, when planning to use crowdfunding, it is best to turn to professional portals that will provide protection and security.