Crowdfunding lawyer & legal expert

What we do

Crowdfunding is an interesting, alternative method of financing. Instead of traditional lenders (such as banks and the capital markets), funding is raised from the public. For private individuals, it is an alternative way to invest in business concepts or projects. Multiple parties are involved in crowdfunding: the lender, the borrower, and the crowdfunding platform.

To start a crowdfunding campaign, a number of choices must be made, such as the desired amount to be raised and the return. The return is of crucial importance to many lenders regarding their willingness to invest. There are four common forms of crowdfunding:

• Loan: repayment of the loan plus agreed interest
• Investment: in the form of the issuance of shares or bonds
• Donation: no consideration
• Sponsorship is often used to get a specific project or product off the ground. Typically, the return on a sponsored project is a reward in the form of the final product.

Crowdfunding is becoming increasingly popular. The potential reach of a crowdfunding project is vast. Because money is raised from potential customers, it also has enormous marketing value.

Various legal issues play a role in crowdfunding projects. These include:

• various agreements
• financial supervisory rules
• safeguards for the protection of consumers
• conflicts regarding breach of duty of care

We have the knowledge and expertise to assume diverse roles: from advice to dispute resolution. We have an experienced team of lawyers and legal experts in the field of crowdfunding. Contact us to discuss the possibilities.

Crowdfunding within financial law

Crowdfunding has long ceased to be a casual form of raising money: it is a regulated financial service. Anyone operating a platform or offering investments via a platform operates within financial law and is subject to strict supervision. Since 10 November 2021, the European Regulation on European crowdfunding service providers for businesses (Regulation (EU) 2020/1503, the ECSP Regulation or ECSPR) has been in effect. This regulation has direct effect in the Netherlands and, as of 10 November 2023, replaced the old national exemption and licensing requirements under the Financial Supervision Act (Wft). Whether you are an international fintech platform or the baker on the corner financing expansion with his customers: the rules apply to everyone providing crowdfunding services.

The ECSP Regulation applies to so-called investment-based and loan-based crowdfunding for enterprises. Donation and reward crowdfunding (sponsorship) are in principle excluded, as is crowdfunding in crypto assets. Are you unsure whether your business model falls under the regulation? We assess the scope and map out the correct course of action.

The ECSP license and the role of the AFM

Under Article 3 of the ECSP Regulation, crowdfunding services may only be provided by licensed legal entities. In the Netherlands, the Authority for the Financial Markets (AFM) is the competent supervisory authority that grants the license (Article 12 ECSPR) and supervises it; regarding payment transactions, De Nederlandsche Bank (DNB) also plays a role. In principle, the AFM assesses a complete application within three months. Once granted, an ECSP license acts as a European passport: it allows the platform to provide services throughout the entire European Union without having to comply with separate national crowdfunding rules.

The license is subject to ongoing requirements: a reliable and suitable board, minimum equity (prudential safeguards), adequate ICT and governance rules, a policy against conflicts of interest, a complaints procedure, and segregated asset management. Furthermore, platforms may not manage the financial flows themselves but must engage a licensed payment service provider. We guide the entire licensing process, from drafting the application to ongoing compliance.

Investor protection: KIIS, entry test and cooling-off period

The regulation places strong emphasis on the protection of the lender. Important obligations are:

• Key Investment Information (KIIS): a standardised information document must be prepared for each project. The platform verifies its completeness, accuracy, and clarity.
• Correct information: all information must be correct, clear, and not misleading, and advertisements must be recognizable as advertising.
• Entry test and risk warning: inexperienced (unqualified) investors must take a knowledge test in advance, including a simulation of the loss they can bear.
• Cooling-off period: inexperienced investors have a pre-contractual cooling-off period during which they can withdraw their investment offer free of charge.
• Default rates: platforms that facilitate loans must annually disclose the default rates of projects.

The distinction between experienced (qualified) and inexperienced investors determines which protection rules apply. An incorrect information document or a missing risk warning can lead to liability and enforcement. We assess your documentation and processes against these requirements.

The EUR 5 million threshold amount

Under the ECSP Regulation, an enterprise may raise a maximum of EUR 5 million via crowdfunding, calculated over a twelve-month period. Above that threshold, the regular prospectus regime comes into play; at that point, the project enters the realm of investment advice & prospectuses and the capital markets. Anyone approaching the threshold must revise the structure in a timely manner to avoid inadvertently becoming subject to prospectus requirements. We calculate the amount to be raised, the terms, and the relationship with previous issuances for you.

Duty of care and disputes surrounding crowdfunding

In addition to licensing, we see many conflicts in practice. Investors who lose their investment hold the platform or the project owner liable for breach of the duty of care, defective or misleading information, or improperly performed due diligence. For the project owner (the borrower), disputes arise regarding the financing agreement, arrears in interest and principal repayment, and, in the case of investment crowdfunding, regarding the issued shares or bonds. These disputes touch upon the general duty of care under Article 7:401 of the Dutch Civil Code (contract for services) and the rules regarding error (Article 6:228 of the Dutch Civil Code) and unlawful act (Article 6:162 of the Dutch Civil Code).

Our lawyers assist platforms and project owners, as well as disappointed investors, in negotiations, before the AFM, and in financial litigation. Thanks to our mixed teams of lawyers and in-house counsel, we effortlessly navigate between legal disputes and the commercial interests of a growing platform.

Why SME Lawyers at crowdfunding

Crowdfunding lies at the intersection of financial supervision, corporate law, and contract law. Our mixed teams of lawyers and legal counsel understand this combination. We help platforms obtain an ECSP license and ensure sustainable compliance, guide entrepreneurs seeking to raise capital, and assist investors who have suffered losses. Whether you are an international group, a fast-growing fintech platform, or the baker around the corner, you receive advice that aligns with both the regulations and your business model. Related expertise can be found in financial supervision and FinTech.