Crowdfunding Rules In India: Is it Legal?

crowdfunding rules

If you’re having a rock-solid project or a venture and you’re lacking money, the first thing you look for on the internet is ways to fund your venture.

You discover an amazing practice known as “Crowdfunding”. Crowdfunding is nothing but raising money for your venture from a large number of people, especially over the internet. This is not a new practice, in fact, it’s being practiced since a long time.
It may have originated from the west, but It is being practiced in India in the form of ‘Chanda’ to fund various religious activities.
It is, in fact, the biggest thing that has ever happened to the industry. Before getting into it, you have to be aware of the crowdfunding rules, which differ from one country to another.

Before we jump on to the topic of the rules in crowdfunding, We need to keep in mind of the legalities associated with Crowdfunding.

Is Crowdfunding even legal?
Yes, to a certain extent.

There are different types in it:

  1. Equity-based crowdfunding
  2. Donor-based crowdfunding
  3. Reward-based crowdfunding

According to the rules in India, equity-based crowdfunding is illegal. While the Donor-based and Reward-based are totally legal.

Approaching VCs for funding your project might be a tedious process the startups of today face. .If you’re a budding startup, crowdfunding is something that you must look forward to.

How Does Crowdfunding Take Place?

Crowdfunding takes place generally via online platforms like Kickstarter. If you’re someone who’s looking for funds, you generally set up a campaign on one of the platforms, describe your project, explain your goals and hope to get funding.
Your venture can be something creative or be regarding something charitable or educational, and even a personal project. There is also a set target by which your project must attain a certain amount of funding.

Why Should you choose Crowdfunding?

You must resort to crowdfunding If any of these following advantages attract you:

1) Good Way to market:
It can be considered a good way to market your brand or project as it reaches to millions of people over the internet and your brand gets a good exposure even before you’ve excelled in your project.

2) No banks, No VCs:
No more waiting for appointments of certain unreachable people or convincing banks to get funding.

3) A refined way Of Presenting:
Before you get the funding you find ways of presenting your project in a most appealing manner and think of your project from different perspectives which make you refine your project.
and much more.

So, by now you might be aware of the potential crowdfunding has got.

Without wasting further let’s get into the legalities:
There were no proper regulations at the start, but now
Crowdfunding rules in India is monitored by the market regulator SEBI(Securities and Exchange Board of India).

Here are the Crowdfunding Rules In India You Have to be Aware Of:

  • When it comes to retail investors, the maximum amount of contribution you can get is Rs.60,000/-.
  • The Startups which are aged more than 2 years are not allowed to participate in any crowdfunding activities.
  • The Crowdfunding platform in which a startup is going to raise their funds must adhere to certain regulatory checks.
  • In many cases only accredited Investors may invest.
  • The startup must disclose their plans such as their business plans, their intent of using the funds and the financial statements which are properly audited.

Demonetisation has indeed contributed to this platform, but the SEBI is still skeptical about the startups getting funded online.

According to SEBI,/crowdfunding is nothing but “solicitation of funds (small amount) from multiple investors through a web-based platform or social networking site for a specific project, business venture or social cause.”

In India, Certainly the process of crowdfunding has a long way to go. But, It has been implemented by few platforms like NASSCOM, PayUmoney.etc and they’ve achieved their goals.

You must definitely think of it for funding your project.

Add a Comment

Your email address will not be published. Required fields are marked *