Crowdfunding in The Netherlands not without risks
We read a lot about all the great innovative ideas and products realised thanks to crowdfunding: from the 3D printer to an archaeological dig, and from a CD to be released to a donated breast augmentation. The phenomenon of crowdfunding is becoming more popular by the day. Various online platforms offer the opportunity to pitch ideas to a wider audience. The world-famous Kickstarter is also active in the Netherlands.
What if the target capital is not reached?
The news regularly reports on the successes of crowdfunding in the Netherlands. Now what happens if the target capital is not reached? What about the costs, for instance? In most cases, there is an ‘all or nothing’ situation. With half the target capital, a “half product” will not be realised. An occasional exception is seen in the case of donations in favour of a specific charity. What is the legal situation if the target capital is not realised and what about the costs? In crowdfunding, a distinction should be made between the main agreement and the user agreements.
The main agreement
Through the crowdfunder, a conditional agreement is concluded between lender and borrower. Only when the condition (reaching the target capital within the set period) is met, the main agreement comes into effect.
This is the so-called suspensive condition. Sometimes a slightly different construction is used; the resolutive condition; if the capital is not reached, the main agreement is dissolved.
Broadly speaking, there are four different types of principal agreements, related to the chosen form of crowdfunding:
- The donation/donation agreement;
- The sponsorship agreement;
- The money loan agreement;
- The participation/investment agreement.
Therefore, if the target capital is not reached, no main agreement arises.
The user agreement
The user agreements deal with the use of the platform and the facilitation of money flows. The user agreements are concluded between the borrower (the person who wishes to raise capital for their project) and the crowdfunder and between the crowdfunder and the lender.
The lender often pays a percentage of the incoming funds as a “user fee” to the crowdfunder. Various constructions are possible in this respect. For instance, the borrower often pays an additional percentage or sum if the target capital is reached.
Also the lender often pays a percentage in addition to the donation, loan granted, etc., in user fees to the corwdfunder. Generally, this percentage is considerably lower than the percentage the borrower has to pay to the crowdfunder.
Note that if the target capital is not reached and therefore the main agreement does not materialise, the user agreements do remain in place. Thus, the fees paid to the crowdfunder under the user agreements remain payable. These are not refunded to the borrower or to the lender. These costs are sometimes substantial.
So, as nice as the concept is, it is good to realise that crowdfunding in the Netherlands is not without risk. Want to know more? Then get in touch with us.