During the last few years the world-renowned crowdfunding -phenomenon has been in mind of Finnish entrepreneurs and like-minded people. Crowdfunding is a way to seek funding for all kinds of projects, products and companies through a vast group of people, usually via online. This form of funding has been used by larger companies for years, but recently by small and medium-sized tech companies as well in order to enable fast growth. Crowdfunding has been dubbed as digitalization’s gift to entrepreneurs as it allows a relatively simple way to gather even large sums of money based on a good business idea.
Although crowdfunding seems to be a perfect solution in the ever-changing market of innovation craze, it is important to keep realities in mind when conducting business. In Finland, crowdfunding is possible even for smaller projects and without consideration. In this case the investment is handled as a gift which is more straightforward in nature than traditional business financing, although the business needs in this case a fundraising permit which is only granted to non-profit organizations and foundations. Unlike with gratuitous gifts, financing is almost always about consideration. Consideration means in this case that in exchange for funding the person gives, something is expected in return. Most common example of this is a limited liability company (Ltd / Oy), where shares can be traded openly. To simplify, the purchase price of the share constitutes the financing of the company and the share is the ownership interest in the company. The Finnish Crowdfunding Act calls this type of equity-related financing activity investment-based crowdfunding. Only a licensed crowdfunding intermediary mandated by the state can organize this kind of crowdfunding in Finland and the European Economic Area.
Crowdfunding can also work in a way that a company searches crowdfunding in order to produce and sell some kind of innovative product. Here the question is not about the funding of the functioning and future of the company (in exchange of shares), but the sale of a future product. In this case, it is not a question of financing the organization of the business in order to become proprietary, but crowdfunding can be considered as the purchase price of the product, so the main legal issue for the person seeking crowdfunding is the agreement with the financier.
However, since crowdfunding is often a business venture, it is natural for a person seeking finance to form a company. Establishing a company can at first seem like a big step, especially if you are doing it for the first time. Yrittajat.fi is a good platform on giving basic information about different company forms in Finland. Although crowdfunding is not restricted to a specific form of company, the undersigned strongly recommends to establish a limited liability company. First, a limited liability company offers the clearest connection to crowdfunding in its own right, based on the idea of open financing. Second, the owner of a limited liability company is not liable for the debts of the company unless they are guaranteed personally. Thirdly, a limited liability company is by far the most growth-oriented form of a company, for example, by making it possible for several different owners to actively invest in it.
Crowdfunding is clearly here to stay. This is no wonder, as companies based on fast innovation have succeeded in getting a quick and good start to their business in Finland. However, in order for this activity to continue on a profitable and sound footing, the undersigned recommends seeking legal consultation, for example from Autio Attorneys.
Nico Mesiäinen ja Jalmari Männistö