EXAMINATION OF THE LEGAL REGIME FOR THE OPERATION OF CROWDFUNDING IN NIGERIA

Abstract

Crowdfunding is a financing mechanism that permits an investor to gather resources from the public to finance a new business undertaking or project. Thus, crowdfunding facilitates raising of funds from the public thereby preventing frustration of business due to lack of fund. The legal regime that governs crowdfunding principally include the Companies and Allied Matters Act, Investment and Securities Act and SEC Rules on Crowdfunding. However, the problem identified by this paper was that, modern trend of internet fraud activities, unstable economy and prevalence of insecurity has diminished the interest of the public to investing their money into business start-ups. This is because of the danger of the sustainability of such start-ups in an environment susceptible to fraud, inflation and insecurity which consequently leads to a higher risk of business failure. Accordingly, the objective of this paper was to examine the legal framework governing the relationship between the fundraiser (issuer), operator (Crowdfunding intermediary) and the public who invest their money into crowdfunding in Nigeria; with a view to making reforms. The sources of information relied upon in this paper include relevant books, articles in journal publication, statutes, regulation and internet materials. Thus, this paper found (among others) that the Rules on Crowdfunding is in conflict with the Companies and Allied Matters Act, as well as the Investment and Securities Act which disallow private companies from sourcing finance from the public while the SEC Rules on Crowdfunding makes private companies eligible fundraisers. Accordingly, it was recommended (among others) that, the Companies and Allied Matters Act as well as Investment and Securities Act should be amended to incorporate crowdfunding in Nigeria so as to resolve the conflict originating from the SEC Rules on the subject matter.