How different is crowd funding from illegal collection of funds?

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Crowd funding has become a popular form of Internet financing. However, at this point, many are still unsure what the difference is between crowd funding and illegal fundraising. To secure its position as a trusted method of fundraising, those who seek to use crowd funding need to clarify the distinction between what is legal and what is not.

In this editorial, Liu Xingcheng, a partner of the Zhongyong law firm, explains the difference between the two. Crowd funding allows small entrepreneurs, artists, individuals, etc. to gain attention and financial support, to connect with many different people who are able to donate to the described cause. In contrast, he explains that China’s criminal law specifies several types of criminal behavior regarding fundraising, behavior such as fraud or fabrication of purpose of fundraising, violation of state regulations, engagement in criminal business activities, etc. Basically, as Liu explains, there is a very clear line between crowd funding and illegal collection of funds. In order to maintain the distinction, those engaged in crowd funding must be clear about intention of collected funds, be sure to maintain original purpose of funds, and protect its investors.

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