A Survey of Legal and Regulatory Trends
Edited by P. M. Vasudev and Susan Watson
Chapter 7: Regulating equity crowdfunding in India: walking a tightrope
Start-up companies face difficulties in raising finances, and the situation has intensified since the Global Financial Crisis in 2008. As a result, crowdfunding has made its appearance as an attractive alternative capital-raising mechanism, harnessing technology (primarily the Internet) to access funding from the ‘crowd’. This chapter explores the core question of how equity crowdfunding should be regulated in a manner that both enhances its appeal to engender the development of small and new-age businesses through accessible funding opportunities, and at the same time protects investors against undue risks, such as fraud, which arise from the activity. The chapter analyses the regulatory conundrum on equity crowdfunding by examining the legal regime for crowdfunding in India. The rules relating to fund-raising by companies in India have been considerably tightened under the Companies Act, 2013, which limits crowdfunding activity. However, the Securities and Exchange Board of India (SEBI) has issued a consultation paper in 2014, Consultation Paper on Crowdfunding in India, that proposes a framework for ushering in crowdfunding in India. The chapter finds that the unduly onerous conditions imposed by SEBI have the effect of deterring rather than promoting the growth of crowdfunding. The existing (and proposed) legal framework in India has erred on the side of caution and sought to emphasize investor protection more than engendering the market for crowdfunding. Keywords: • India crowdfunding • SEBI Consultation Paper 2014 • Investor protection • Sahara India Supreme Court ruling • Accredited investors • Qualified Institutional Buyers
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