Equity crowdfunding allows a business to raise capital by issuing shares to multiple investors, usually through an online platform. In England and Wales, the platform and the fundraising communications must comply with applicable financial services rules. The Financial Conduct Authority (FCA) regulates investment-based crowdfunding platforms, while financial promotions must be approved or communicated in accordance with the Financial Services and Markets Act 2000. The business must also provide information that is fair, clear and not misleading.
Harper James is a UK full-service commercial law firm advising businesses on the laws of England and Wales, including fundraising and corporate matters.
Before launching a campaign, the company should confirm the number and class of shares being issued, the subscription price, voting rights, dividend rights and rights on a sale or winding-up. Its articles of association and any existing shareholders’ agreement must be reviewed for restrictions on issuing or transferring shares, investor consent requirements and pre-emption rights. The directors must have authority to allot the shares, and the company must file the required details with Companies House after completion.
A clear cap table is essential. It should show existing holdings, the new issue, any options or other rights to acquire shares, and the resulting ownership percentages. The fundraising documents should explain dilution for existing shareholders and identify whether investors will hold shares directly or through a nominee arrangement operated by the platform.
Investors need accurate information about the company, its business model, financial position, material contracts, intellectual property, litigation, employees and planned use of funds. Statements about forecasts, valuation and expected growth should have a reasonable basis and be presented with their assumptions. The company should also identify information that must be disclosed to prevent campaign materials from becoming misleading.
Many early-stage fundraisings consider the Seed Enterprise Investment Scheme (SEIS) or Enterprise Investment Scheme (EIS). Eligibility depends on statutory conditions concerning the company, investment, shares and use of funds. Advance assurance from HM Revenue and Customs is not a guarantee that the relief will apply, so the proposed structure and investor communications should be checked against the relevant requirements.
A large shareholder base creates ongoing administration. The company must maintain an accurate register of members, issue share certificates or equivalent records, record transfers and allotments, and make required statutory filings. Its directors must continue to comply with duties under the Companies Act 2006, including duties concerning the company’s interests, conflicts and proper decision-making.
The company should establish how it will communicate with investors, approve future share issues and handle transfers, information rights and shareholder votes. These arrangements are particularly relevant when the business later seeks institutional investment, grants investor consent rights, or prepares for a sale. A legal review before launch helps align the crowdfunding documents, constitutional documents and post-investment governance arrangements.