Equity Crowdfunding: The Cooperative Movement of the New Millennium?

Milan Pedersen Eggert & Rasmus Røgenes Østergaard

Student thesis: Master thesis


The purpose of this thesis is to clarify the applicable legislation on equity crowdfunding in Denmark, and to identify the economic benefits and drawbacks related to the concept as seen from the perspective of the involved parties. Equity crowdfunding is an alternative form of financing, by which particularly SMEs obtains a better access to risk capital. Equity crowdfunding thereby allow SMEs to compile contributions from many individuals through an open request via an internet-based platform. It is therefore considered, that equity crowdfunding has the potential to fill in a funding gap for SMEs when they move from a start-up into the expansion phase. However, equity crowdfunding is still not prevalent in Denmark. This thesis investigates why this may be the case, and which legal initiatives can be implemented to ensure that the potential of crowdfunding as an alternative financing is optimally exploited. The thesis concludes that, as a rule, it is possible for a platform provider to establish in Denmark and for SMEs to use the platform to offer their shares, within the current legislative framework. Furthermore, it is found to be in the economic interest of the parties to engage in equity crowdfunding, where particularly the improved access to risk capital of SMEs is decisive. However, the parties must be aware of the substantial amount of asymmetric information that exists among the parties, and which can lead to market failure. The thesis finds that it will be necessary to implement a series of legal initiatives, which will contribute to making equity crowdfunding more desirable, and at the same time reduce the degree of asymmetric information and the risks of market failure.
The thesis suggests a modification to the Danish company law, so that limited liability companies is allowed to offer a limited amount of its shares to the public, which will contribute to making equity crowdfunding more desirable to SMEs, which are often organized as a limited liability company. However, at the same time a harmonization at EU-level will be necessary to create an internal market for equity crowdfunding within the European Union, where no domestic legislation will constitute an obstacle for the development in more sparsely populated countries. The proposed Regulation on crowdfunding service providers from the European Commission, which is still under review, is considered to be a step in the right direction. This thesis suggests a range of amendments to the proposal, which will contribute to reducing the degree of asymmetric information among the parties and minimizing the risks of market failure. The thesis concludes that these amendments will be suited to contribute to the development of an equity crowdfunding market in Denmark.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
Publication date2020
Number of pages129