Ireland: Legal Aspects Of Investment Based Crowdfunding

Last Updated: 27 July 2015
Article by Paul Foley and Andrew Clarke

Crowdfunding at its most basic level, is an open appeal to the public for funds for a specific project or for a specific objective. The range of companies using it is a lot wider than one might think.

What is Crowdfunding?

Crowdfunding at its most basic level, is an open appeal to the public for funds for a specific project or for a specific objective.

Crowdfunding can be divided into two categories, the non-financial return category (donation based, pre-payment or rewards based (people give money to receive a reward, service or product)) and the financial return models (investment in return for the issuing of equity or debt securities or units in a collective investment scheme or the lending of money in return for a financial reward) all of which have different characteristics for those seeking the money and those giving the money.

The concept of the non-financial reward model is not new and has been around for centuries: for example appeals made by charities to the public for funds to achieve certain common good objectives. Indeed, crowdfunding has been mentioned as an important future source of funds for charities.

The Emergence of Crowdfunding and for a vast arrange of projects

Crowdfunding platforms have really started to emerge as internet technology has evolved to allow two way communication and interaction between members of the crowd and the company seeking funds and also because of the financial crisis. Crowdfunding is used to raise money rapidly. The range of companies using it is a lot wider than one might think: a biotech company, a medical device manufacturer, a medical diagnostics company, an online estate agency, a brewing company, a wine producer, tech companies, and online property portal companies have all used crowdfunding either to start up or scale up. Most recently crowdfunding is being used as a means to purchase property, allowing small investors get access to property investment. In its February 2015 review, the FCA commented that about 95% of the funded deals were eligible for the Enterprise Investment Scheme or Seed EIS Schemes.

Investment based Crowdfunding

Our focus here is on investment based crowdfunding which is the financial return model of crowdfunding and is internet based. This is where people, or companies invest directly or indirectly in new or established businesses by buying shares, debt securities or units in an unregulated collective investment scheme (securities).

It is complex and of recent origin and is the category, along with loan based crowd funding that regulators are most likely to intervene. Investment based crowdfunding can provide capital to start ups and SMEs who might otherwise find it difficult to secure equity capital or loan funding from traditional sources.

In investment based crowdfunding there are generally at least three parties, the company seeking finance for a specific project (the project owner), the intermediary providing the internet crowdfunding specific platform (platform) and the investors (who are not typically professional investors) forming part of the crowd who fund the project through the platform, communicate through the intermediary and then invest.

Depending on the model used, the investor may acquire securities in the project owner either in his or her own name or through a nominee, provided by the intermediary. In another variant, the investor may acquire a security in a special purpose vehicle (SPV) or collective investment scheme (CIS). The SPV or CIS will in turn either hold securities in the project owner or have some other interest in the project owner.

In terms of who does what, the intermediary through his platform provides services to the project owner which include a mechanism for the project owner to find potential investors and commitments from those who decide to invest. The intermediary may also provide assistance in developing the promotion for the platform, legal assistance with for example the preparation of the securities issue or acting as registrar for the issuer as to the ownership of securities. The project owner will pay a fee to the intermediary where the campaign is successful. Additional fees may also be payable to the intermediary for additional services.

The intermediary may carry out limited due diligence on the project and in that context may limit the extent to which they take responsibility. Potential investors often have to register with the platform before accessing the full information on the promotion. Once the target amount is reached, the funds are transferred to the project owner or the issuer where the issuer is not the project owner, in return for the ownership of the security or, in some cases, beneficial ownership of rights in the security.

A few platforms charge fees to investors as well as to project owners.

Some platforms are within an appropriate regulatory framework where it applies and some structure the transaction so as to avoid regulation. The advantage where the transaction is structured to comply with a regulatory structure such as MiFID, is that passporting rights can be obtained, enabling the platform (assuming it is the authorised party) achieve economies of scale.

Differing approaches to investment based and loan based crowdfunding have been taken by national regulatory authorities. Indeed some national authorities do not specifically regulate investment based crowdfunding. Whether specifically regulated or not, any project owner, issuer or intermediary would want to ensure, amongst other things, that they do not infringe company law and also either fit within an exemption to the Prospectus Directive or meet any applicable requirement to publish a Prospectus. The intermediary would also need to ensure investor funds were held and transferred by an authorised payment services provider and not by the intermediary.

Risks with Crowdfunding

The risks with investment based crowdfunding are significant, and include loss of some or all of the capital (and with no access to Investor Compensation Schemes), risk of dilution, lack of dividends, limited possibility to exit, minimal information about the project (when compared to investment in a listed firm), and the potential for investors to overestimate the amount of due diligence undertaken by the platform and the potential for conflicts of interest where the intermediary is remunerated by the investors and the project owner.

FCA Regulation of Investment Based Crowdfunding

The FCA have regulated investment based crowdfunding for some time on a limited basis if it involves a person carrying on a regulated activity in the UK such as arranging deals in investments or the communication of a financial promotion.

However in 2014, the FCA changed its approach to specifically regulate firms operating investment based crowdfunding platforms. The aim was to make this market more accessible to retail clients, to help foster competition and to facilitate access to alternative finance options, while still aiming to ensure that only investors who can understand and bear the risks participate in the market. The changes are not expected to impact firms corporate finance businesses or venture capital businesses and firms carrying on regulated activities for professional clients.

The new rules which in fact commenced October 2014, apply to the sale of non-realisable securities (in short unlisted shares or unlisted debt securities).

Given the significant risks investors face when investing in unlisted securities that are hard to value independently or sell on a secondary market, the FCA require (in brief) that firms offering such investments on crowdfunding platforms (or using other media) promote only to certain types of investor. These are:

  • professional clients,
  • retail clients who are advised,
  • retail clients classified as corporate finance contacts or venture capital contacts,
  • retail clients certified as sophisticated or high net worth, or
  • retail clients who confirm that they will not invest more than 10% of their net investible assets in these products.

Where no advice has been provided to retail clients, the FCA apply the appropriateness test, so all firms (both MiFID and non-MiFID) would need to check that clients have the knowledge or experience to understand the risks involved.

In February 2015 the FCA set out what its expectations are in relation to applications for the authorisation of crowdfunding businesses. The FCA encourages firms to (i) submit a suitable and detailed regulatory business plan (setting out the activities proposed and risks, budget, and resources); (ii) have adequate financial and non-financial resources; (iii) have a website that is either up and running or at a suitably advanced stage (including a test site or app, screen shots of a planned website or app that would demonstrate the user interface and functionality available to users) to demonstrate how it will operate should the firm be authorised; (iv) understand the FCA authorisation requirements and the permission profile they wish to apply for, (v) then submit a completed application including an outline of which regulated activities the firms plan to conduct.

In the context of market supervision, the FCA emphasised, that were looking to see that platforms were disclosing all relevant information to enable potential investors to make informed decisions on whether or not to invest. This information must not be misleading.

The FCA propose to carry out a full post implementation review of the crowdfunding market and regulatory framework in 2016 to identify whether changes are required at that stage.

Given the lack as yet of a framework in Ireland for crowdfunding, but at the same time the existence here of a definitive legal framework for alternative investment funds which is complemented by the new Companies Act from the 1st of June, we have a solid base to build a framework similar to England for this innovative method of raising funds.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions