INVESTMENT-BASED CROWDFUNDING

Study XCI - Model Law or Legal Guide on the Legal and Regulatory Aspects of Investment-Based Crowdfunding

Investment-based crowdfunding has emerged as an increasingly important alternative finance mechanism through which small and medium-sized enterprises may raise capital from a vast, global pool of investors. Since the capital-raising process may involve the issuance, offering or transfer of securities, the regulatory framework commonly seeks to balance the facilitation of access to finance with appropriate investor protection safeguards.

 

Significant disparities endure across jurisdictions, reflecting divergent levels of market maturity, regulatory approaches and legal traditions. While these disparities are frequently addressed from a regulatory perspective, this novel transaction model also raises private law issues concerning the rights and obligations of market participants such as crowdfunding platforms, issuers, investors and intermediaries. The fragmentation, compounded with limited international guidance, creates legal uncertainty for both domestic and cross-border crowdfunding investments, exposing market participants to risks which could be effectively mitigated by modern, coherent and coordinated legal frameworks.

On 28 March 2025, the World Bank Group (WBG) submitted a proposal to UNIDROIT concerning the development of a “Model Law or Legal Guide on the Legal and Regulatory Aspects of Investment-Based Crowdfunding (debt and equity)”.

 

At its 85th session (Rome, 11 December 2025), the Unidroit General Assembly endorsed the Governing Council’s recommendation to include the proposal from the WBG concerning Investment-Based Crowdfunding in the 2026-2028 Work Programme with high priority (UNIDROIT 2025 – A.G. (85) 14, Item no. 6, para. 65; UNIDROIT 2025 – C.D. (105) 32, para. 78).

 

The project is expected to address both the private-law and regulatory dimensions of investment-based crowdfunding, with UNIDROIT contributing primarily to the consideration of the former. The private-law issues to be examined may include, on a non-exhaustive basis, matters relating to contract law, liability, property, and corporate law, as well as insolvency law:

 

  • Contract law: The tripartite crowdfunding relationships between the issuers, platform operators and investors may give rise to distinct questions concerning the allocation of rights and obligations, investor protection, default risk, disclosure, and dispute resolution matters. All of these matters may be further complicated by the cross-border nature of the transaction.

 

  • Liability: Liability may arise from the conduct of any of the principal actors on a variety of grounds, including, for example, misrepresentation, non-disclosure of material information, breach of duties, misuse or misappropriation of assets, and loss and damages resulting from technical failures or cybersecurity incidents. The principal issues concern the allocation of liability among the responsible actors and the availability of effective remedies, particularly when ex-post compensation constitutes the only effective remedy. The use of blockchain technology and cryptocurrency may introduce additional complexity concerning asset traceability and the identification of responsible actors.

 

  • Property and corporate law: Issues relating to these aspects may be considered by reference to two broad stages of the transaction: (i) pre-investment, and (ii) post-investment and exit. Particular questions may arise in relation to the structuring of investment instruments, as well as their subsequent holding, administration or custody, registration, and transfer, having regard to the issuer’s existing organisational arrangements, the platform’s arrangements, and the broader applicable domestic law framework.

 

  • Insolvency law: Two principal dimensions may be distinguished: the insolvency of (i) the platform or related third-party intermediaries; and (ii) the insolvency of the issuer. The former raises questions concerning asset segregation, tracing and protection, whereas the latter raises concerns about effective investor protection and the representation of their interests in insolvency proceedings.

 

In view of the potential issues to be examined, several UNIDROIT instruments may serve as a starting point to analyse specific legal problems that arise in a typical crowdfunding transaction. In particular, the UNIDROIT Principles on International Commercial Contracts, the Geneva Convention on Substantive Rules for Intermediated Securities and the Legislative Guide on Intermediated Securities may provide useful guidance in relation to legal issues concerning contracts, as well as the offering, holding and transfer of securities. The Principles on Digital Assets and Private Law would also provide additional guidance, especially in light of the use of blockchain technology and digital assets by certain crowdfunding platforms.

Prior to the establishment of the Working Group, the UNIDROIT Secretariat is undertaking preparatory work to further delineate the scope of the project.

In coordination with the WBG, an Exploratory Consultative Workshop will be held on 12 October 2026 to seek stakeholder input on private law aspects of investment-based crowdfunding, including contract, liability, property, corporate and insolvency law issues.

The Exploratory Consultative Workshop will be structured around five thematic sessions, addressing key private law dimensions of investment-based crowdfunding identified above. The first session will consider contract law issues, with a focus on the allocation of rights and obligations within the tripartite relationship between issuers, platform operators and crowdinvestors. The second session will address liability issues, including the grounds on which liability may arise, liability allocation amongst responsible actors and the availability of effective remedies. The third session will examine property and corporate law issues relating to the holding, administration, custody, registration and transfer of crowdinvestors’ interests, having regard to the arrangement of the issuers and the platforms, as well as the broader applicable domestic law framework. The fourth session will discuss insolvency law issues including the protection and representation of crowdinvestors’ interests in the event of the insolvency of the platform operators, related third-party intermediaries or the issuers. The fifth and final session will address questions concerning the potential scope and type of instrument to be developed (e.g., model law or legal guide). The Workshop will include short presentations on relevant issues followed by discussions amongst participating experts.

Consistent with UNIDROIT’s established working methods, upon conclusion of exploratory work stage, a Working Group will be established for the development of the instrument on investment-based crowdfunding. The Working Group will comprise experts from diverse legal traditions, geographic provenance, gender, and academic and professional background. In addition, international and regional organisations, alongside regulators and industry representatives will be invited to participate as observers.