Understanding Crowdcube: Legal Considerations For Equity Crowdfunding

Crowdcube is a leading equity crowdfunding platform that is available to UK companies. It allows startups and growing businesses to raise capital by offering shares to a large pool of investors. For founders, equity crowdfunding can be an attractive alternative to traditional fundraising methods. By offering equity to many smaller investors, you can maintain more control over your company and potentially raise substantial capital. However, there are crucial legal considerations when raising funds that you should consider before pursuing equity crowdfunding. 

How Crowdcube Works 

Crowdcube enables businesses to pitch their business ideas to the public and offer shares in return for investment. BrewDog conducted one of the largest raises on the platform, raising £670,000. 

Backers can invest as little as £10, making your company accessible to many potential investors. If your campaign reaches its funding target, Crowdcube transfers the money to your business, and the investors receive equity in return. 

While the platform simplifies fundraising, the legal complexities of issuing equity remain. You must be aware of your responsibilities when offering shares and ensure compliance with UK crowdfunding regulations. 

Legal Considerations When Using Crowdcude 

1. Compliance with Financial Regulations 

The Financial Conduct Authority (FCA) regulates crowdfunding in the UK. As a startup founder engaging in equity crowdfunding, you must ensure your campaign complies with the FCA’s rules on investment-based crowdfunding. The FCA has primarily designed these rules to protect investors. 

Your legal obligations include the following:

• ensuring that your company complies with FCA regulations throughout the fundraising process; 
• providing accurate and honest information when pitching on Crowdcube; 
• informing investors about the risks of investing in early-stage companies. 

2. Issuing Shares and Shareholder Rights 

When raising funds through equity crowdfunding, you offer shares in your company to investors. This approach means that each investor becomes a shareholder with certain legal rights. 

The following table outlines two important legal considerations regarding issuing shares.

3. Corporate Governance and Reporting Obligations 

With more shareholders comes increased corporate governance responsibilities. As a founder, you must ensure that your company meets its legal obligations regarding communication with shareholders and maintains proper corporate governance.

Generally, in terms of equity investment, these obligations include the following:

• updating your company’s Companies House records when you issue new shares; 
• holding annual general meetings (AGMs) where shareholders can vote on critical business matters (depending on your company’s articles of association and shareholder agreements); and
• meeting financial reporting obligations. 

Crowdcube assists businesses in engaging and informing their investors. If you successfully raise investment through Crowdcube, you must:

• share your company’s annual accounts and reports with investors; and
• notify shareholders of upcoming general meetings and provide them copies of resolutions so they can exercise their voting rights. 

4. Managing Investor Relationships

Equity crowdfunding can help you to create a large pool of shareholders. Managing communications and investor relationships is a critical aspect of post-campaign success. 

You should establish a system to inform your shareholders about your business. While smaller investors may not require the same level of engagement as a venture capital firm, they will still expect updates on aspects of your business, such as:

• its progress; 
• financial health; and 
• any significant changes. 

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Key Takeaways 

Crowdcube enables startups to raise capital and build a community of engaged investors. However, equity crowdfunding can have significant legal implications. As a startup founder, you must understand these legal considerations to protect yourself, your business, and its investors. These include complying with FCA regulations and ensuring you invite shareholders with voting rights to participate in general meetings. 

It is also important to remember that crowdfunding is competitive, and there is no guarantee that you will meet your required target. To fulfil your capital needs, you may need to consider additional or alternate forms of financing, such as bank loans, venture capital, or angel investment. 

If you would like legal advice about equity crowdfunding or raising funds through a platform like Crowdcube, our experienced startup lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

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