Research On The Protection Of Investors' Rights And Interests In The Equity Crowdfunding

As a new model of internet funding,equity crowdfunding has been developing rapidly in China recently.It has originated from difficulty solving for small and medium-sized enterprises to secure funding in China,and allowed more non-professional investors to enter and even participate in investing and capital operation.Also,it allowed a large amount of private capital to flow into financial market,and gradually dispelled concerns that entrepreneurs have regarding the difficulty for micro-sized companies to secure investments.This has helped China's economic structure to further develop into a multi-level capital market.Equity crowdfunding has entered the Chinese market since 2011.Due to being lack of laws and regulations,it has received much attention and scrutiny.With the government's introduction of guidance on equity crowdfunding and proposed laws,equity crowdfunding has gradually become legal and transparent.However,along with the rapid development of equity crowdfunding,the legal risks faced by investors and associated conflicts are becoming increasingly prominent.Compared to financial professionals and financial investment institutions,the investors in equity crowdfunding have less financial,legal,and risk awareness.There is also less information available to investors,and lack of information on the fidelity of the startup companies.Together,these factors place investors of equity crowdfunding at risk.Therefore,since investors in equity crowdfunding are in a disadvantaged position,their legal rights should be protected similar to investors in other fields.China has recently published "Private equity crowdfunding Regulations(draft)(proposal)" and "Implementation Plans of the Regulations for equity crowdfunding”.while emphasizing the protection of legal rights of investors in equity crowdfunding,there are still many deficiencies in light of China's legal system and legislations.In China's current legal policy system,there are no specific laws for equity crowdfunding,and laws specifically to protect the legal rights of investor of equity crowdfunding especially.Other than fragmented policy guidance and related drafts,2one can only look for clues to protect the legal rights of equity crowdfunding investors in the "Securities Law of the People's Republic of China","Company Law of the People's Republic of China","China Contract Law of People's Republic","Criminal Law of the People's Republic of China".Currently,although China's draft policies on equity crowdfunding offers relatively clear guidance,the degree of practicality and refinement is still somewhat inadequate and impractical in the face of real-life issues.At present,China's implementation of laws and regulations on equity crowdfunding is lagging behind in other developed countries.Only by introducing comprehensive and specific laws to regulate equity crowdfunding soon,can the government readily close the current loopholes in equity crowdfunding and protect the investors.As a newly-developed equity industry,the confidence of investors in the industry is the basic guarantee for the industry to survive.The recognition and support of investors is the fundamental force for the development of equity crowdfunding.Therefore,ignoring the protection of the interests of equity crowdfunding investors will cause significant turmoil in the investment market,which will lead serious adverse effects to the entire internet economic system.In conclusion,we need to take precautions,make the best use of the current situation,and protect the investors by developing relevant regulations on equity crowdfunding.We need to encourage the growth of the equity crowdfunding market,and also explore and standardize the protection of the legitimate rights and interests of investors.In this paper,the author begins with researching the basic theory of the operating mechanism of equity crowdfunding.Then the author will summarize and clarify China's specific needs to protect investors of equity crowdfunding.Using practical evidence of legal risks of equity crowdfunding are provided to highlight specific concerns related to equity crowdfunding in China.Through analysis and research,the benefits and costs for investors of equity crowdfunding in China are discussed.The author puts forward some suggestions on how to improve protection of rights and interests of investors in China by studying advanced legislations on equity crowdfunding from other countries.In addition to the introduction and conclusion,the body of this paper is divided 3into four parts:The first part is an overview of the protection of the rights and interests of equity crowdfunding investors.Taking into account the unique nature of equity crowdfunding,the paper describes the rights investors should have,and elaborates on the specifics of these rights,and the importance of protecting these rights.The second part is the overview of these issues which exist regarding protection of the rights of equity crowdfunding investors in China.Through investor privacy,property security right,the right to know,the right to fair trade,and the right to claim losses,to enumerate and explain how the interests of equity crowdfunding investors cannot be adequately protected in China.The third part is to analyze the reasons for the losses of the equity crowdfunding investors in China.By using examples of how the right of investors cannot be adequately protected,the author highlights five main problems why the protection is inadequate: the lack of legislations to protect the right of investors;unsound systems for information disclosure;the internal power imbalance of startup companies,the immaturity of the equity crowdfunding investment platform and the lack of legal supervision.The fourth part is to discuss and suggest recommendations to improve the protection of equity crowdfunding investors in China.From the perspective of protecting the interests of investors,five factors are considered: improving the legislations around the protection of equity crowdfunding investors,optimizing rules of information disclosure for crowd funded companies,standardizing the internal governance tructure of startup companies,optimizing the rules around equity crowdfunding platforms,and optimizing monitoring to enhance protection of investors' rights.Suggestions are made to enhance the protection of equity crowdfunding investors: establishing an appropriate entry system for financiers,optimizing the welfare system for investors,establishing ways for investors to transfer and exist the investments,improving information sharing of equity crowdfunding investments,strengthening the penalties for offenders of inadequate information sharing,optimizing the supervision of representatives of crowd funded startup companies,adopting internet based voting system for shareholders,improving the protection of privacy and safety of investor platforms,improve the depth of the second due diligence mechanism for investors,and internal dispute resolution mechanisms through third-party custodian mechanisms,to encourage investing platforms for investors to adopt consideration times and insurance funds to offset risks.Also,China's relevant government departments should establish a unified regulatory body,to improve the regulatory mechanism and finalize the legislations,as well as to strengthen the education of the investors,to achieve the ultimate goal to protect the legal rights of equity crowdfunding investors,and the healthy and orderly growth of the equity crowdfunding market.