Crowdfunding is a way for early stage startups to raise funds to open and operate the company. Crowdfunding attracts potential investors to a company, with a promise of returns on investment, or products from the company's offerings.
Crowdfunding platforms are common among young investors as putting capital in these startups is often affordable, and thus, accessible,to the average investor. Investors get a return in the form of a share of the company, a cut of the company's proceeds, or a finalised product from the company released ahead of the market.
According to the Securities and Futures Act, and the Financial Advisers Act in Singapore - which stands as the Crowdfunding Act in the country, a crowdfunding platform must abide by a set of rules and regulations as detailed by the Monetary Authority of Singapore (MAS).
How to Open a Crowdfunding Company
Crowdfunding is a relatively new way for companies in Singapore to raise funds for their startup capital. Crowdfunding is popular among artists, who rely on potential buyers to fund their latest projects in exchange for a pre-order item. Crowdfunding is increasingly popular among startups, which open crowdfunding campaign options for investors to support the project.
The increasing demands on this type of funding open up new opportunities for crowdfunding platforms to grow and get more profits. Startups may choose to raise funds through an online crowdfunding platform, or look to funding societies for potential investors. The minimum investment requirement is often achievable for the average investor, and crowdfunding relies heavily on volume over price.
4 Forms of Crowdfunding (Singapore)
Before setting your own crowdfunding platform, it is necessary to understand the options available because the requirements for setting up will vary based on your business model. Basically, there are 4 forms of crowdfunding companies:
- Donation-based Crowdfunding Companies: In this model, those individuals who give out money won’t expect anything in return for their donation. Thus, it is often used for artistic endeavours and charities.
- Reward-based Crowdfunding Companies: This is the most popular model in the crowdfunding industry where people invest in non-monetary rewards in return. It could be a simple T-shirt or even a mug, but is most often a unit of the product the company plans to bring into the market.
The main reason is that investors may want to support an innovative product, ideal, or cause through rewards-based crowdfunding. This model can be used to support an artistic project, an innovative product, or gadgets meant to make life more convenient. - Lending-based Crowdfunding Companies: This model facilitates financial transactions between the borrowers and investors. Basically, the borrowers will agree to pay back both the principal and interest at a specific date, which is similar to bonds investments.
A popular option for this type of crowdfunding campaign is Funding Societies, which facilitates person-to-person business loans on behalf of startups and SMEs. Individuals lend money in exchange for positive gains through interest. - Equity-based Crowdfunding Companies: This model is similar to investing in stocks except that the companies are all private instead of listed. Investors will provide capital in exchange for the stake in the businesses. Thus, they will get dividends and capital as the share values increase.
Setting Up a Crowdfunding Company in Singapore
In Singapore, all crowdfunding platforms which offer an alternative financing model for SME enterprises and start-ups must be licensed and regulated by MAS. Therefore, if you are planning to set up your crowdfunding business, you first need to make sure that the company meets all the requirements by MAS.
As said earlier, the specific setup requirements will depend on your business model:
For reward and donation crowdfunding model:
In general, Singapore's regulations don’t apply for these crowdfunding models. Because these models do not classify as an exchange of capital, loans, or equity, it is not regulated by MAS. Thus, you can set up your platform just as a usual company in Singapore.
However, keep in mind that the Singapore’s Commissioner of Charities will provide a voluntary practice code to ensure peace of mind for the givers. This means your platform has to verify the legitimacy of any fundraising appeal and make public all of the received donations, commission, and fees.
For equity and lending-based model:
If you want to set up an equity or lending-based crowdfunding model, you first need to get a CMSL or Capital Market Services License granted by the MAS under the Securities and Futures Act. It mandates that every licensed crowdfunding platform must ensure the right segregation of investor’ monies and keep suitable transactions’ records.
When it comes to the base capital requirement, the MAS has made it simpler for companies to start their businesses and raise funds. Now, you just need a share capital of 50000 SGD rather than 250000 SGD as before to set up a new platform. Also, the authority removes the cause of 100000 SGD security deposit, which used to be a significant barrier for new crowdfunding companies.
But keep in mind that these requirements are only applied to those platforms which cater to accredited investors. More importantly, keep in mind that if your fundraising companies are listed on the SCF platforms, then you would give small offers without generating a prospectus.
Support Your Crowdfunding Platform
While crowdfunding is still a relatively new concept, more and more people and start-ups are seeking opportunities with these platforms. By following our useful tips and reading the regulations of the MAS, you will set up your crowdfunding and achieve success in the future. Just make sure to consider every option carefully before you decide to make any move.
WealthBridge can provide essential support in navigating these legal and financial challenges. Our Singapore corporate services can assist with the incorporation of your crowdfunding business, ensuring that all necessary documentation and filings are managed efficiently. Additionally, we also offer tax consulting and accounting services tailored for startups and crowdfunding platforms. Our team can assist you in understanding the financial implications of your business model, ensuring accurate financial reporting, and optimizing your tax strategies to take full advantage of Singapore's favorable tax environment. This support can help you focus on your crowdfunding campaign while we handle the financial intricacies.