Everyone has heard about websites like Kisskissbankbank, Kickstarters, or Ulule, crowdfunding platforms that help you raise funds to turn your ideas into projects and your projects into reality.
But what is really hidden behind these beautiful dreams and promises?
With crowdfunding, the public financially and collectively supports an appealing idea or project.
There are three kinds of crowdfunding that imply various consequences and duties for the public and the Project Creator, i.e., you!
First, the investor can decide to give money, without receiving anything in exchange or receiving only something symbolic, to support your project. This kind of crowdfunding mainly applies to charities.
The investor can also give money in return for something such as a gift from the creator: for example, this could be an invitation to a concert for an artist. Kickstarter and KissKissbankbank offer this kind of crowdfunding.
Second, crowdlending is another kind of crowdfunding that is closer to a loan. People lend money to a company or a person who is raising money and then, when the creator makes money, they are refunded with interest on what they lent.
And equity crowdfunding is the last kind of crowdfunding, in which investors are more involved in the company’s life.
Indeed, when someone invests in a company through crowd-equity, they get something real in return: shares in the company! Investors become shareholders.
As this kind of crowdfunding is very attractive, creators can raise a lot money in a very short time.
With crowd-equity, French people also have the possibility of benefiting from tax deductions on income tax and wealth tax : Reduction is equal to 18% of the payment in the annual limit of €100,000 (married / PACS taxpayers). And an investment of €25,000 qualifies for an income tax reduction of € 4,500. The reduction of Wealth Tax is it more significant: 50% of the investment but capped at €45,000. Thus, for the same investment of €25,000, the wealth tax reduction is €12,500. These methods are not cumulative and the investor taxpayer will choose, depending on their personal situation, either the income tax reduction or the wealth tax.
In France, crowdfunding has grown fast and is considered as very attractive.
That’s why legal regulations have been implemented starting early in 2014 and created the intermediary in crowdfunding and Advisor Crowdfunding (see the ordinance). To operate, these entities have to be qualified by AMF and registered with a public Organization ORIAS.
Can you leverage the benefit of crowdfunding for your own project?
You first need to have a company. French companies using the form of a SAS cannot go for a public offering… but they can certainly use crowdfunding without all the constraints of public offering (no prospectus for ex.)! Still, they are some manageable constraints to follow as for example, publishing the financial statements and including some legal provisions into the Bylaws.
The goal of these restrictions is to avoid minority shareholders from not having any power or any voting rights, especially as SAS Bylaws are much more flexible than other forms of company and usually determined by the founders. For example the Bylaws must include provisions relating to voting rights (no shares with double voting rights or veto rights), division of powers, quorum and majority of ordinary and extraordinary general meetings, rules of organisation of general meetings (obligation to debate what has been listed on the agenda etc.). Note that these new rules will prevail over any contrary statutory provision as from the date on which the securities will be offered on the internet.