legal & transactional implications of rewards-based crowdfunding
Post on 19-Oct-2014
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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: http://crowdsourcingweek.com/TRANSCRIPT
Legal and Transactional Implications of Reward-
Based Crowdfunding
Arnaud BurgotUlule.com, CEO
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%
Nature of transactions on reward-based crowdfunding plateforms?
Wording used on platforms
English (Kickstarter): to back / backer
Wording used on platforms
French (Ulule): contribuer / soutiens
Wording used on platforms
German (Startnext): jetzt unterstützen / supporter
Wording used on platforms
Spanish (Verkami): apoyar / mecenas
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?
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.”
Back to basics
Legal definition of a « support » or of the act of « backing »
> It does not exist
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?
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. »
Simplify…again
«Give me 20 € please to help me build a new game. In exchange I will give a copy of it to you. »
Simplify…much more
« Give me 20 €, in exchange I give you a game » (… as soon as it is available)
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.
Back to basics
Legal elements necessary to trigger a sale:1. capacity to contract
2. consent3. something being sold4. reason (must be licit)
5. price
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
Most transactions on reward-based crowdfunding platformes are simply…sales
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
Two very different point of views
Legal vision:
Money vs Goods/Services = sale
…it is as old as the world…
No matter your motivations
Ok, but I have read something…
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.
A simple thruth with important consequences
Obligations of the project creator
Obligation of mean or result?
Obligation of result
> The seller (i.e. project creator) must deliver the rewards
Obligations of the project creator
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
Criminal responsibilityIf 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
Taxes
Sale = income
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)
Taxes
Sale > sales taxe / VAT
In most western countries, a company must display prices VAT included
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)
Consequences: taxes
Sale > sales taxe / VATCan 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
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!
Better to understand
before start of your
crowdfunding campaign