The Independent newspaper recently reported that last year, the Financial Conduct Authority (“FCA”) adopted responsibility for regulating crowdfunding platforms. Crowdfunding platforms allow investors to provide loans to companies looking for finance, or to allow investors to take an equity stake in companies via an acquisition of shares. Last week, the FCA warned that some crowdfunding equity investment opportunities were misleading in respect of the prospect of a potential return. However, crowdfunding offers investors generous tax breaks as most crowdfunding business investment opportunities are under the seed enterprise investment scheme. The FCA’s warning does not give much credit to the investor; investors may well view a crowdfunding platform opportunity as risky, but with potentially huge rewards and may, therefore, be prepared to involve themselves in what could be described as a financial lottery.

We have recently advised a number of start-up companies in respect of investor funding, including advice in respect to the nature of the proposed shareholder agreements and how that could restrict them in the future. The ability to deal with its assets and the freedom to implement appropriate insolvency are key to the management and survival of a company’s business. Shareholder agreements can significantly hinder a company and a director’s ability to respond to a changing and challenging market. If you are an investor or investment recipient and you want to better understand the risks of making or receiving an investment, contact us.