The Promise and Perils of Crowdfunding: Between Corporate Finance and Consumer Contracts

34 Pages Posted: 12 Jan 2018

See all articles by John Armour

John Armour

University of Oxford - Faculty of Law; University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)

Luca Enriques

University of Oxford Faculty of Law; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2018

Abstract

‘Crowdfunding’ is a burgeoning phenomenon. Its still‐evolving status is reflected in diversity of contracting practices: for example, ‘equity’ crowdfunders invest in shares, whereas ‘reward’ crowdfunders get advance units of product. These practices occupy a hinterland between existing regimes of securities law and consumer contract law. Consumer protection law in the UK (but not the US) imposes mandatory terms that impede risk‐sharing in reward crowdfunding, whereas US (but not UK) securities law mandates expensive disclosures that hinder equity crowdfunding. This article suggests that while crowdfunding poses real risks for funders, the classical regulatory techniques of securities and consumer law provide an ineffective response. Yet, a review of rapidly‐developing market mechanisms suggests they may provide meaningful protection for funders. An initially permissive regulatory approach, open to learning from market developments yet with a credible threat of intervention should markets fail to protect consumers, is justified.

Suggested Citation

Armour, John and Enriques, Luca, The Promise and Perils of Crowdfunding: Between Corporate Finance and Consumer Contracts (January 2018). The Modern Law Review, Vol. 81, Issue 1, pp. 51-84, 2018. Available at SSRN: https://ssrn.com/abstract=3100474 or http://dx.doi.org/10.1111/1468-2230.12316

John Armour (Contact Author)

University of Oxford - Faculty of Law ( email )

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University of Oxford - Said Business School ( email )

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European Corporate Governance Institute (ECGI) ( email )

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HOME PAGE: http://www.ecgi.org

Luca Enriques

University of Oxford Faculty of Law ( email )

St Cross Building
St Cross Road
Oxford, OX1 3UL
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http:/www.ecgi.org

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