Problems on protection of shareholders' rights from investing in equity crowdfunding: study on limited company

Crowdfunding Platform allows SMEs with limited resources to jump from the old-fashioned funding schemes to new forms of relief via the internet. In other words, SMEs use online funding as a channel to get funding sources. Furthermore, Crowdfunding Platform has been developed to serve commercial purposes in which the investors expect seek returns from their investment. The equity provision arising out of Crowdfunding Platform basically functions the same as a corporation. The investor will receive a company’s share for a certain amount in accordance with the value of the share being offered for sale. Equity Crowdfunding, as recently adopted by the Securities and Exchange Commission (SEC), generally relies on the concept of capital increase and offering for the sale of shares in the limited company under the umbrella of the Civil and Commercial Code (CCC) and Securities and Exchange Act B.E. 2535. However, unlike that of the typical provisions, the new SEC’s rules grant the exemption to the limited company to offer the shares for sale publicly subject to the conditions imposed. In other words, it aims to unblock the restrictions of existing provisions in order to facilitate Equity Crowdfunding whereby the limited company is entitled to offer its shares for sale to other investors in addition to the original shareholders who have a shortage of funds at the early stage of the start-up and may not be able to inject more capital to continue the business. More importantly, the Crowdfunding exemption under the SEC’s Notifications allows the private limited company to raise funds by offering the shares for sale to the public or public offering which is a similar concept to that of a public limited company except this public offering by a private limited company must be done online. Equity Crowdfunding enables the issuers to launch the business model or project via a so-called Crowdfunding Portal or Funding Portal which is an online intermediary available for any prospect investor who is interested in such a project and finds it worth funding. Basically, the Crowdfunding Portals are the key intermediaries that match both parties when the target amount of contribution required in each project is achieved. In return, the contributing investors will receive the company’s shares in a certain amount as per the par value ratio and become the new shareholders with the right and liability likewise those in the limited company under the CCC.Equity Crowdfunding aims to raise funds from the retail or individual investors. That can be most of the non-sophisticated ones given its straightforward definition expressly extracted from the wordings itself which is to be funded by the crowd or to raise funds from the crowd. It is debatable whether or not they should be treated as professional investors who should bare all the risks in the ordinary course of business. Cases of fraud are taken into account as well as the level of their precaution and their bargaining power. The question remains whether or not they should be well protected in view of the consumer and to what extent they deserve such protection. In other words, how should they be protected by laws given that Equity Crowdfunding is the way to consume financial product where the fruits of this product are expected rather than the product itself. Thai law, which is SEC’s Notifications as aforementioned by virtue of Securities and Exchange Act B.E. 2535 comparing the US law and the UK law, does provide proactive measures to protect prospective investors. However, it is doubtful whether those involved in the sale afterwards continue to receive protection without a certain exit for the shareholders and whether there is an appropriate fiduciary duty for the controlling shareholders, including the controlling authority. Unlike the typical limited company whose shares belong to a close group of shareholders, Equity Crowdfunding limited companies offer its shares for sale to the public. Therefore, a comparative study of these foreign laws and Thai laws concerning the protection of shareholders’ rights in a limited company relying on Equity Crowdfunding should help in implementing effective rules to balance fundraising promotion with investors’ rights after the funds have been injected. In this regard, the laws of the United Kingdom and the United States are subject matters to study as both nations have concrete statutory laws and case laws governing Equity Crowdfunding and protection of minority shareholders for this high value industry. The significant amount of investment and the number of concerning parties that have entered into this fundraising scheme with the express purpose of promoting startups and SMEs has been taken into account as well.