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Ready to take your business to the next level, but don’t want to chase just one investor? Equity crowdfunding in England offers an exciting route for startups and growing companies to raise capital by reaching a crowd of supporters – and turning them into shareholders.
But before you launch your campaign, it’s crucial to understand the legal landscape. After all, the regulations around crowdfunding in England aim to protect both business owners and the crowd of investors – and compliance is non-negotiable.
In this guide, we’ll break down what equity crowdfunding is, how the process works, the risks to watch out for, and the legal must-dos before you go live. Whether you’re a founder considering crowd equity for the first time or you’ve spotted a success story and want in, we’ll help you set up strong legal foundations – so you can raise investment the smart way.
What Is Equity Crowdfunding?
Equity crowdfunding is a way for private companies to raise investment by offering a percentage of ownership (shares) in exchange for cash from a group of investors. Unlike reward-based crowdfunding (think Kickstarter), investors in equity crowdfunding receive real stakes in the business and can benefit if your business grows or exits.
In England, this fundraising is typically run through a regulated crowdfunding platform (like Crowdcube or Seedrs). These platforms market your pitch to their investor network and manage the compliance and payments process, while you focus on making your business shine.
It’s a win-win: you raise capital, build a community of engaged supporters, and everyone who invests has skin in the game. But there are clear legal steps and regulatory standards you need to meet, right from the planning phase.
How Does Equity Crowdfunding Work in England?
Here’s a step-by-step overview of the typical crowdfunding process in England:
- Research and Select a Platform: Choose a Financial Conduct Authority (FCA)-regulated equity crowdfunding platform that fits your business size, industry, and ambitions. Each platform has its own requirements, fees, and investor base.
- Due Diligence and Application: Prepare a compelling business plan, your financials, and supporting materials. The platform will carry out due diligence to ensure you’re a fit for their investors and that your proposition is accurate and compliant.
- Create Your Campaign: Work with the platform to draft a clear, transparent pitch outlining what you do, how much you’re raising, what percentage equity you’re offering, and your growth plans.
- Approval and Launch: The platform checks your documents, regulatory compliance and approves the campaign. Your pitch goes live to the platform’s investor network (and often to the public).
- Investors Pledge Money: Investors review your campaign and pledge money in return for shares. Some platforms require a minimum target to be hit before funds are released (“all or nothing” model).
- Funds Collected, Shares Issued: If you meet your funding goal, funds are transferred (minus any platform fee). The platform usually helps manage the process of issuing shares and updating your company’s Cap Table.
- Ongoing Compliance: After fundraising, you need to keep investors informed and remain compliant with FCA regulations and company law.
Every step above has its own legal and practical considerations, so it’s wise to get early legal input to avoid costly headaches during or after your raise.
What Are the Risks and Challenges of Equity Crowdfunding?
All business fundraising comes with risks, but equity crowdfunding brings a few unique challenges you’ll need to be ready for:
- Platform Dependence: Your campaign’s success is partly in the platform’s hands – their reputation, investor pool, and process are all critical. For example, platform downtime or reputational issues could directly affect your raise.
- Regulatory Oversight: The FCA closely supervises equity crowdfunding. You, the platform, and your offer must meet strict rules on fairness, transparency, and financial promotion. Non-compliance can mean fines, your campaign being pulled, or worse.
- High Costs and Fees: Platforms may charge upfront fees, success fees (as a percentage of funds raised), and additional costs for legal, due diligence, or share registry services. Make sure you understand the full fee structure before signing up.
- Shareholder Complications: You’ll likely add dozens (sometimes hundreds) of new investors to your cap table – which can complicate future investment rounds or decision making.
- Ongoing Reporting: You’ll need to keep investors informed with updates, annual returns, and potentially even formal shareholder meetings.
- Dilution Risk: Issuing new shares reduces the percentage ownership of existing shareholders (including founders).
- Intellectual Property and Confidentiality: You’ll need to publicly disclose certain elements of your business to drum up interest – which can risk competitor attention if not handled wisely.
Ultimately, with crowd equity you’re building not just capital, but a public reputation. Transparency, compliance, and clarity are essential from day one.
Choosing a Crowdfunding Platform: What Should You Look For?
Your choice of platform will shape everything from your campaign’s visibility to your legal responsibilities. Here are key factors to consider:
- FCA Regulation: Always choose a platform that’s regulated by the Financial Conduct Authority. This is a legal requirement in the UK and gives you (and your investors) important protections.
- Track Record: Look for platforms with a strong history of successful campaigns in your sector. Ask for references – platforms should be happy to provide case studies.
- Investor Base: Some platforms specialise in particular business types (tech, green energy, consumer brands). Make sure their audience is the right fit for your offering.
- Fee Structure: Understand all platform charges – upfront fees, success fees, and additional admin or legal costs. Compare against your funding goals to work out real value.
- Support Services: Does the platform help with pitch writing, video production, regulatory filings, or post-campaign legalities?
- Processes for Handling Investors: Check what post-campaign administration the platform supports, especially regarding share issuance and communication with new shareholders.
The right platform adds genuine value beyond just raising funds – it should boost your profile, streamline compliance, and provide real investor engagement. Our guide to finding the right professional support offers additional tips on assessing service providers.
What Legal Steps Do I Need To Take Before Launching an Equity Crowdfunding Campaign?
Long before your campaign goes live, there are several legal tasks you must tick off to set your business up for safe and successful equity crowdfunding. Here’s what to focus on:
1. Review and Structure Your Company
- Company Type: Crowdfunding investors typically expect to invest in a private limited company (Ltd), not a sole trader or partnership. If you don’t already have the right structure, now’s the time to register your company. Double-check your share classes and articles of association are suitable for multiple shareholders.
- Share Structure: Review (and if needed, amend) your share classes to ensure you can accommodate new shareholders, issue new shares fairly, and manage investor rights. A clear share allocation plan will ensure your founding team remains secure.
2. Prepare Essential Documents
- Business Plan & Pitch: Develop a detailed and realistic business plan. You’ll also need an investor pitch that honestly sets out risks, rewards, and your company’s roadmap.
- Shareholder Agreements: Before inviting a crowd of new owners, have a robust shareholders agreement in place. This will cover voting rights, share transfers, drag-along/tag-along rights, and dispute resolution.
- Articles of Association: Check these documents are up to date and reflect the rights of new investors. Many crowdfunding platforms provide a standard template, but it’s wise to get advice on what’s best for your business.
- Disclosure Documents: You’ll need transparent and compliant disclosure about your business, risks, and financial status. The platform will usually help with form and content, but the legal accuracy is your responsibility.
3. Protect Your Intellectual Property (IP)
- Ensure that your trademarks, copyrights, patents, and designs are registered or at least clearly in your business’s name.
- If your business relies on unique technology, code, or content, secure confidentiality through NDAs before revealing details, even during preliminary discussions.
- Platforms and investors will check your IP position as part of their due diligence, so have documentation ready.
4. Confirm Regulatory Compliance
- FCA Compliance: Confirm that your campaign complies with all FCA rules around financial promotion, disclosure, and investor categorisation. This involves providing fair, clear and not misleading information at all times. The platform should support this – but legal responsibility still sits with you.
- GDPR & Data Protection: Collecting and storing personal details of investors? You must follow all GDPR and UK Data Protection Act 2018 obligations. You’ll need a compliant privacy policy and suitable security measures.
- Company Law Duties: Ensure your filings at Companies House are up to date, and be ready to update your register of members and submit revised statement of capital after a successful raise.
5. Consider Tax Relief Schemes
- SEIS/EIS: These government tax reliefs (Seed Enterprise Investment Scheme and Enterprise Investment Scheme) offer generous incentives for early-stage investors. Work with your accountant or legal adviser to check eligibility or get pre-approval – it can boost your campaign’s appeal.
6. Review Platform Agreements and Legal Terms
- Carefully review the platform’s fundraising terms, fee structure, privacy policies and investor handling processes. Check what happens if you don’t meet your target, who manages share issuance, and how post-funding communications and reporting will work.
Avoid using generic templates or going it alone – crowdfunding agreements and your company documents need to be tailored to your campaign for full legal protection. It’s worth having a lawyer review your contracts before you commit.
What Makes an Equity Crowdfunding Campaign Appealing to Investors?
Beyond ticking the legal boxes, the best campaigns are clear, transparent, and offer new investors a genuine chance to share in your future growth. Here’s what top campaigns do well:
- Compelling Story: Share your mission clearly – why does your business matter and where is it headed?
- Clear Terms: Be transparent about how much you’re raising, what the funds will be used for, the exact equity on offer, and what future funding might look like.
- Risk Disclosure: Don’t gloss over the risks. Investors value honesty about potential pitfalls and your plan to manage them.
- Engaged Founders: Show that your leadership team is accessible, motivated, and prepared for the long haul.
- Growth Potential: Highlight a strong pipeline, existing traction, or unique selling points that set your business apart.
- Legal Readiness: Demonstrate that you’re legally sound (with clear structures, robust agreements, and IP protection in place). This reassures both the platform and savvy investors.
If it all seems overwhelming, don’t stress – with the right research and professional guidance, you’ll be set up for crowdfunding success. Our guide to building an online marketplace can provide further tips on making your business standout online.
Where Can I Get Ongoing Legal Support for Equity Crowdfunding?
Equity crowdfunding is an ongoing journey – legal needs don’t end when your campaign closes. Investor relations, reporting, and company changes all require a solid legal foundation as your business grows.
At Sprintlaw, we offer corporate legal assistance through our membership model – providing you with access to legal experts whenever you need advice, documentation, or ongoing compliance checks. From reviewing your campaign agreements to updating shareholder structures or handling disputes, we’re here every step of the way.
We know early-stage founders need practical, plain-English advice that fits within a startup budget. No jargon – just actionable solutions to help you grow with confidence.
Key Takeaways
- Equity crowdfunding lets you raise capital by offering company shares to a wide pool of investors via FCA-regulated platforms in England.
- Choosing the right platform is crucial – look for FCA regulation, suitable investor base, clear fees, and support services.
- Prepare your company’s structure, shareholder and company documents, and intellectual property before launch.
- Carefully review platform agreements – understand fee structures, admin processes, and what investor relations will look like post-raise.
- Ensure full compliance with FCA financial promotion rules, Company Law, GDPR, and consider SEIS/EIS tax schemes for extra investor appeal.
- Avoid generic legal templates – tailored legal advice will protect you from day one and help you navigate any risks.
- Ongoing legal support is available; consider a membership approach for flexibility and peace of mind as your business grows.
If you’d like specific guidance on launching an equity crowdfunding campaign or want to discuss your legal needs in confidence, reach out to the Sprintlaw team for a free, no-obligations chat. You can contact us at [email protected] or call 08081347754. We’re here to make sure you’re protected from day one – so you can focus on growing your business.
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