Legal & Transactional Implications of Rewards-Based Crowdfunding


Published on

Reward based crowdfunding raises questions about nature of transaction being performed thanks to crowdfunding platforms. Is it a donation, a sale, a co-production, something else? Understanding this point is key to determine the nature of project creators obligations, their responsibilities and also potential taxation of cash collected. Based on basic examples, get a view on those legal aspects which are very important to understand properly reward based crowdfunding implications.

By Arnaud Burgo, Ulule. Presented at Crowdsourcing Week Brussels 2014. More info:

Published in: Business, Economy & Finance
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Legal & Transactional Implications of Rewards-Based Crowdfunding

  1. 1. Legal and Transactional Implications of Reward-Based Crowdfunding Arnaud Burgot, CEO
  2. 2.
  3. 3.
  4. 4. Ulule in a nutshell Reward based crowdfunding, all or nothing model Creative, innovative or charity projects 6 languages : FR, GB, IT, ES, ALL, PORT Biggest european reward based crowdfunding platform: • Projects financed 5 k • Collected funds 16.6 m€ • Members 425 k • Success rate 67%
  5. 5. Nature of transactions on reward-based crowdfunding plateforms?
  6. 6. Wording used on platforms English (Kickstarter): to back / backer
  7. 7. Wording used on platforms French (Ulule): contribuer / soutiens
  8. 8. Wording used on platforms German (Startnext): jetzt unterstützen / supporter
  9. 9. Wording used on platforms Spanish (Verkami): apoyar / mecenas
  10. 10. Crowdfunding babel tower What are we really doing on those platforms: Giving? Contributing? Backing? Donating? Does any of this wording make sense on a legal point of view?
  11. 11. Back to basics Legal definition of a donation (=gift) “Donation is the act by which the owner of a thing voluntarily transfers the title and possession of the same from himself to another person, without any consideration; a gift.”
  12. 12. Back to basics Legal definition of a « support » or of the act of « backing » > It does not exist
  13. 13. It’s not what it is called On a strict legal point of view, transactions in reward based crowdfunding are neither a support, a backing, a gift, or a donation > So what is it?
  14. 14. Simplify « I want to do a game that will be astonishing. Be part of it, participate to this exciting adventure. To thank you I will give you a copy of the game, as soon as I will have finished it. »
  15. 15. Simplify…again «Give me 20 € please to help me build a new game. In exchange I will give a copy of it to you. »
  16. 16. Simplify…much more « Give me 20 €, in exchange I give you a game » (… as soon as it is available)
  17. 17. Back to basics Legal definition of a sale “A sales contract is an agreement between a buyer and seller covering the sale and delivery of goods, securities, and other personal property.
  18. 18. Back to basics Legal elements necessary to trigger a sale: 1. capacity to contract 2. consent 3. something being sold 4. reason (must be licit) 5. price
  19. 19. Back to basics > No need of a written agreement qualifying the transaction as a sale – the existence of those legal elements automatically qualify the transaction as a sale
  20. 20. Most transactions on reward-based crowdfunding platformes are simply…sales
  21. 21. Two very different point of views Psychological vision: I help, I back, I support. I am happy to have the reward, but it is only one of my motivations to contribute
  22. 22. Two very different point of views Legal vision: Money vs Goods/Services = sale …it is as old as the world… No matter your motivations
  23. 23. Ok, but I have read something…
  24. 24. Ok, but I have read something… Kickstarter or Ulule are not stores. They do not sell anything. Project creators do. A crowdfunding platform just facilitates. Technically, it is comparable to a marketplace.
  25. 25. A simple thruth with important consequences
  26. 26. Obligations of the project creator Obligation of mean or result?
  27. 27. Obligation of result > The seller (i.e. project creator) must deliver the rewards Obligations of the project creator
  28. 28. Civil responsibility > If you do not deliver rewards, you have not fulfilled your contractual obligations. You can be condemned by a court to pay compensation for damages. Responsibility of the project creator
  29. 29. Criminal responsibility If you do not deliver, maybe some people will consider they have been swindled > Fraud / misuse of funds / breach of trust… potential criminal responsibility Responsibility of the project creator
  30. 30. Taxes Sale = income
  31. 31. Taxes Sale = income • Company: Profit within your P&l statement > company income tax • Individual: Revenue to declare in your personal income > personnal income tax (and possible social charges)
  32. 32. Taxes Sale > sales taxe / VAT In most western countries, a company must display prices VAT included
  33. 33. Taxes Sale > sales taxe / VAT • Project creator subject to VAT (company) = 16 € for me and 4 € in VAT to repay to State • Project creator not subject to VAT (individual) = 20 € for me (but I will certainly pay lots of personnal income tax)
  34. 34. Consequences: taxes Sale > sales taxe / VAT Can be much more complicated if the backer (=buyer) is located abroad… applicability of VAT depending on territoriality rules > For big projects might be useful to consult an accountant
  35. 35. Consequence: funding goal Before launching your campaign assess applicability of VAT / other taxes depending on your status & project >If you are subject to VAT, your funding goal must include: funds to make the project + cost of rewards production + cost of rewards shipping + platform commission + ~20% of VAT to repay to State!
  36. 36. Better to understand before start of your crowdfunding campaign 