Paper on Crowdfunding

Arjya Majumdar and I have a
paper titled “Regulating
Equity Crowdfunding in India: Walking a Tightrope
” that is available on
SSRN. The abstract is as follows:
Start-up
companies face difficulties in raising finances, and the situation has
exacerbated since the global financial crisis in 2008. As a result,
crowdfunding has made its appearance as an attractive alternative
capital-raising mechanism by harnessing technology (primarily the Internet) to
access funding from the “crowd”.

In this chapter, we explore the core question of
how should one regulate equity crowdfunding in a manner that enhances its
appeal to engender the development of small and new-age businesses through
accessible funding opportunities and at the same time protect investors against
undue risks, such as fraud, which arise from the activity. We analyse the
regulatory conundrum on equity crowdfunding by examining the legal regime for
crowdfunding in India.

The rules relating to fundraising by companies in
India have been considerably tightened under the Companies Act, 2013 that
limits crowdfunding activity. However, the Securities and Exchange Board of
India (SEBI) has issued a consultation paper that proposes a framework for
ushering in crowdfunding in India. We find 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 have
erred on the side of caution and sought to emphasise more on investor
protection than to engender the market for crowdfunding.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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