{"id":186214,"date":"2024-02-05T15:12:43","date_gmt":"2024-02-05T15:12:43","guid":{"rendered":"https:\/\/legalvision.co.uk\/?p=186214"},"modified":"2024-02-08T05:35:28","modified_gmt":"2024-02-08T05:35:28","slug":"crowdfunding-regulated-ecommerce-businesses","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/ecommerce-online-business\/crowdfunding-regulated-ecommerce-businesses\/","title":{"rendered":"How is Crowdfunding Regulated for eCommerce Businesses?"},"content":{"rendered":"\n

You may decide to raise some funds for your eCommerce business. Perhaps you have a new area of services or a new business you wish to branch out into. Or you might want to sell a large number of new products on your online store. You may even be one of many new small businesses that need capital to get your online store up and running. <\/p>\n\n\n\n

One way you may be able to raise finance for your eCommerce business is through a crowdfunding campaign. However, it is essential to be aware of legal rules when you run a business, which includes crowdfunding rules. This article will explain how the government regulates crowdfunding for eCommerce businesses.<\/p>\n\n\n\n

What is Crowdfunding?<\/h2>\n\n\n\n

Crowdfunding is one way of raising funds for your eCommerce business. It differs from typical ways to raise business finance, such as by taking out a bank loan. Instead, you raise money by creating a crowdfunding pitch and choosing a crowdfunding platform to place it on.<\/p>\n\n\n\n

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A crowdfunding platform website specialises in helping businesses raise money through crowdfunding. Therefore, you immediately have access to those who like investing in crowdfunding.<\/p>\n<\/div>\n\n\n\n

It is important to note that your eCommerce brand may choose from different types of crowdfunding<\/a>. You will want to select the most relevant for your eCommerce business. Whichever you choose, you should note that the regulations for each can differ. In this article, we look at the rules for loan-based crowdfunding and equity-based crowdfunding.<\/p>\n\n\n\n

Loan-based crowdfunding is when your e-commerce business receives a loan created through individual pledges. You repay it with interest, which is how the individual investors make money on the crowdfunding. <\/p>\n\n\n\n

Equity-based crowdfunding is where your internet brand offers securities to investors as a share in your business, which they cannot trade. In turn, they pledge money to your internet brand. There are also two other main types of crowdfunding: donation-based crowdfunding and pre-payment or rewards-based crowdfunding. <\/p>\n\n\n\n

How is Crowdfunding Regulated?<\/h2>\n\n\n\n

Like many forms of raising funds for a business, crowdfunding has rules. The Financial Conduct Authority (FCA) regulates crowdfunding for eCommerce businesses like yours. They provide rules that crowdfunding platforms and companies that crowdfund must legally abide by.<\/p>\n\n\n\n

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Many crowdfunding platforms also choose to abide by a voluntary code of conduct, the UK Crowdfunding Association (UKCFA). Look for platforms that choose this, as it may help you determine which crowdfunding platform to use.<\/p>\n<\/div>\n\n\n\n

Loan-Based Crowdfunding<\/h3>\n\n\n\n

As an eCommerce business raising funds through crowdfunding, you must ensure that the material you create for marketing is fair and accurate. Your adverts, for example, must be honest with potential investors. The same applies to the crowdfunding platform you use to raise funds. <\/p>\n\n\n\n

However, most rules for regulating loan-based crowdfunding place the obligation on your crowdfunding platform. They include the following:<\/p>\n\n\n\n