Crowdfunding in Denmark Report 2015 PDF

CROWDFUNDING
IN DENMARK
MAY 2015
TABLE OF CONTENTS
1. Summary.................................................................................................................. 4
2. Introduction ............................................................................................................. 9
3. Clarification of underlying concepts ................................................................... 10
4. The extent of crowdfunding ................................................................................. 13
5. Regulatory framework for crowdfunding in Denmark ....................................... 15

5.1 Donation-based crowdfunding .............................................................................. 15
5.2 Reward-based crowdfunding ................................................................................ 18
5.3 Lending-based crowdfunding ................................................................................ 21
5.4 Equity-based crowdfunding ................................................................................... 25
5.5 Transverse considerations .................................................................................... 31
5.5.1. Intellectual property rights ................................................................................. 31
5.5.2. Marketing legislation ......................................................................................... 33
5.6 Overall conclusion on the regulatory framework for crowdfunding in
Denmark ................................................................................................................ 35
6. International crowdfunding regulations .............................................................. 37

6.1 Crowdfunding in an EU perspective ...................................................................... 37
6.2 Crowdfunding regulations in Europe in general .................................................... 38
6.3 Regulation of crowdfunding in the U.S. ................................................................. 40
7. Promoting crowdfunding in Denmark ................................................................. 43

1. SUMMARY
Crowdfunding is essentially about raising funding through contributions or investments
from a large group of people. Crowdfunding is rapidly gaining ground internationally;
however, in Denmark growth has been limited owing among other things to uncertainties
regarding the regulation of the various forms of crowdfunding together with a lack of
awareness of this comparatively new funding concept.
With the Growth Package from June 2014, the government along with the Liberal Party
of Denmark (Venstre), the Danish People’s Party (Dansk Folkeparti), the Red-Green
Alliance (Enhedslisten) and the Danish Conservative People’s Party (Det Konservative
Folkeparti) agreed to initiate investigations regarding possibilities of promoting
crowdfunding in Denmark, including clarifying any regulatory challenges existing within
this area.
The report is a systematic review of the regulatory framework for crowdfunding in

Denmark.
The report is based on the four main types of crowdfunding:
1. Donation-based crowdfunding, where it is purely a matter of donations. Projects

financed in this way are most often for a charitable cause.
2. Reward-based crowdfunding, where the investor receives some kind of reward for
his/her contribution. These rewards may consist of immaterial rewards, for instance
the contributor’s name is included in the credits of a film, or material rewards, such
as "pre-buys", where the contributors purchase products or services that have not
yet been put into production.
3. Lending-based crowdfunding, where private and professional investors loan money

to companies directly bypassing traditional banks. This means that many investors
can jointly finance one single company’s loan.
4. Equity-based crowdfunding, where private and professional investors invest directly

in companies in return for a stake in the companies.
Donation-based crowdfunding
Donation-based crowdfunding is basically regulated on the same terms as other types of
public fundraising campaigns. Hence companies that employ campaigns for donation-
based crowdfunding in Denmark shall notify the Danish Fundraising Board of their
campaign and comply with the conditions set up by this board. Donations received
through public fundraising campaigns are subject to tax and SKAT (Danish Customs and
Tax Administration) must be notified thereof.
Reward-based crowdfunding
With reward-based crowdfunding, the investor receives a service or a product in return
for his/her contribution which can then be considered as the purchase of an article.
Companies employing reward-based crowdfunding must therefore post the earnings
from these sales in their annual accounts together with the production costs etc. for the
purpose of corporate taxation and VAT declaration.
If the investment/donation is considerably larger than the value of the product or service,
the surplus value is regarded as a donation, and thus tax will be payable in accordance
with the tax rules applying to donations/gifts.
4
Lending-based crowdfunding
Regulation and approval of a lending-based crowdfunding platform depends on which
business model the platform employs. Platforms wishing to run lending-based
crowdfunding and perform activities, which fall within the Danish Payment Services Act
and/or the Danish Act on Financial Business, must start with obtaining a permit from the
Danish Financial Supervisory Authority as either a money transfer business or a financial
institution. Furthermore, platforms must comply with the prevailing rules relating to
money laundering. Hence, it is possible to run a lending-based crowdfunding platform in
Denmark within the prevailing rules, and the Danish FSA (Financial Supervisory
Authority) has already approved several lending-based crowdfunding platforms.
Equity-based crowdfunding
From a regulatory point of view, equity-based crowdfunding is the most complex type of
crowdfunding. However, within the prevailing financial legislation, it is possible to run an
equity-based crowdfunding platform in Denmark. A company, wishing to establish itself
as an equity-based crowdfunding platform, must start with obtaining a permit to run a
stockbroker business and can subsequently offer transactions in securities, including
equity-based crowdfunding. Provided that the platform does not render any actual
consultant services, an appropriateness test of the investor must be carried out prior to
completing the transaction. The purpose of the appropriateness test is to investigate
whether a retail investor (private investor) has adequate knowledge and experience to
understand the risks involved in equity-based crowdfunding. The appropriateness test
can be performed digitally as known from several foreign equity-based crowdfunding
platforms.
A company wishing to raise capital through equity-based crowdfunding must either be a

public limited company (A/S) or a limited liability partnership (P/S), whereas a private
limited company, including entrepreneurial businesses, may in general not employ this
kind of crowdfunding, as these company types are not entitled to offer shares to the
public. Businesses that are not registered as public limited companies may however offer
subscriptions for shares on a crowdfunding platform with the aim of employing
crowdfunding to raise the required minimum capital of DKK 500,000 for limited
1
companies.
Transverse considerations
Companies wishing to employ crowdfunding should also consider whether it is necessary
and possible to protect their intellectual property rights, including patents and designs.
Powerful protection of intellectual rights will in many cases be an efficient tool for the
companies, as it will ensure control over the idea/invention and at the same time be an
advantage in connection with both the crowdfunding campaign where the rights over the
product must be proved, but also in the event of subsequent financing from business
angels and other investors is sought. Companies and platforms engaged in
crowdfunding shall, in line with all other businesses, comply with all Danish rules and
regulations in force on marketing.
International crowdfunding regulations

A review of international regulations in relation to crowdfunding, especially with regard to
the EU, the UK and the U.S., reveals that overall there are different approaches to
whether regulations should be tightened, relaxed or remain unchanged.
1
Please refer to the section regarding equity-based crowdfunding for further information on this
aspect.
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At EU level, the Commission finds that there is a risk that the member states may
2
introduce hasty regulatory constraints and thus inhibit the development of crowdfunding.
The Commission also points out its concern that introduction of overly-lenient legislation
may lead to weakened investor protection and thus damage the crowdfunding
environment owing to declining consumer confidence. Several European countries have
introduced or plan to introduce special legislation for crowdfunding. However there is no
broad consensus as to what changes are necessary. Common European rules could
contribute to the promotion of crowdfunding across borders.
The British market for crowdfunding is considered the most developed in Europe. In
March of 2014, new rules for lending-based and equity-based crowdfunding were
introduced. In the UK, equity-based crowdfunding platforms, which provide companies
with the possibility of raising capital ”by arranging investments and transactions in not
immediately tangible securities”, are considered to be ruled by the MiFID directive, which
implies that such platforms must be approved by the British FCA (British Financial
Conduct Authority) in accordance with the rules of the directive for security brokers, and
that the investor protection rules must be observed.
The U.S. has the largest crowdfunding market in terms of number of projects and
investors. In April of 2012, the so-called Jumpstart Our Business Startups Act (JOBS
Act) was passed. The purpose of the act is to promote growth and employment in the
U.S. In particular, two of the sections concern crowdfunding, viz. Title II and Title III. Title
II has already been implemented, whereas Title III is still not fully implemented as of yet.
The lengthy implementation phase of the sections concerning crowdfunding has caused
several states to start introducing special legislation enabling equity-based crowdfunding.
It is still not quite clear when and how the final implementation will be in place. However,
the JOBS Act defines an overall framework, which is described in detail in section 6.3 of
this report.
Conclusion
The largest obstacle for the development of crowdfunding in Denmark is considered to
be the uncertainty as to how the players should approach the regulations. The report
helps to clarify this by giving an overall account of how investors, companies and
platforms engaged in crowdfunding should approach the existing regulations. The report
thus contributes to creating a framework for which financing through crowdfunding can
grow and develop in Denmark in the future.
It has not been found necessary to create large public programmes for promoting
crowdfunding in Denmark. Instead, the market will be able to develop within the existing
framework. However, the public sector, especially, may play a role with regard to
increasing businesses’ awareness and understanding of crowdfunding. If Danish
companies are to make serious use of the growth possibilities that crowdfunding
presents, it requires that they are aware of and understand how to exploit it to their best
advantage.
Based on the work with the report and the desire to strengthen Danish companies’
awareness and use of crowdfunding, several steps have already been taken to
strengthen the area. These include:
1. Pilot project with match financing in the Market Development Fund: Based on
the work with the report, a pilot project in the Market Development Fund has been
established, in which companies with consumer-oriented products can employ
reward-based crowdfunding to market validate their projects and achieve match
financing from the fund. Companies can apply for support through the fund via a
2
The European Commission (2014): ”Unleashing the potential of Crowdfunding in the European
Union”.
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specially customized application module. If a company receives conditional
approval, it will have to ’prove’ its market potential on a reward-based crowdfunding
platform. Subsequently, a successful crowdfunding campaign will trigger co-
financing from the Market Development Fund. The crowdfunding module will initially
run as a one year pilot project, where the first application round was in March 2015.
http://The Market Development Fund.dk/crowdfunding
2. Development of user-friendly guidelines for platforms, companies and

investors: At the same time as the publication of this report, guidelines will be
launched for companies, investors and platforms, who wish to engage in
crowdfunding. The guidelines will be available at startvækst.dk and describe the
basic rules, of which the players must be aware as regards crowdfunding, and they
will also contribute to adding clarity and knowledge about the market. In relation to
the specific crowdfunding tax rules, in April SKAT published a set of guidelines on
their website.
To promote Danish companies’ awareness and use of crowdfunding further, proposals

have been made concerning the introduction of initiatives that can help strengthen
SMEs’ and entrepreneurs’ access to financing through crowdfunding. These include:
1. Growth guarantees for lending-based platforms: To support the establishment

of lending-based crowdfunding, it is recommended that the growth guarantee
scheme within the context of the Danish Growth Fund be expanded to also include
approved lending-based crowdfunding platforms in an appropriate way. Growth
guarantees are used to cover a part of the risk of financing loans for SMEs. The
scheme, which at present is being employed by several financial institutions, will
thus be expanded to also be employed by lending-based platforms after these have
been approved by the Danish Growth Fund. The structure for offering growth
guarantees to lending-based platforms cannot be transferred directly from financial
institutions, as lending-based crowdfunding platforms cannot initially absorb any
losses. Therefore, the scheme will have to de designed in a way that takes this
difference into account.
2. Training of the regional innovation office consultants: Each year, the

innovation offices meet thousands of Danish companies. It is recommended that
the innovation office consultants receive training and preparation to also guide and
liaise with the companies regarding crowdfunding.
3. Monitoring the market: Crowdfunding is an expanding market and thus, at

present, it is difficult to foresee how the market will develop in years to come. It is
therefore recommended that the development of the crowdfunding market in
Denmark is monitored closely on an ongoing basis and that yet another analysis of
the regulatory framework in force for crowdfunding be carried out in Denmark at the
end of 2016.
4. International collaboration: The EU Commission has issued a communication on

crowdfunding and is expected to perform a comprehensive survey of approaches
and development within this area. To ensure a more stable and transparent market
for crowdfunding, it is recommended that efforts be put into removing undesirable
obstacles for crowdfunding and in the long term that clear and simple crowdfunding
regulations in the context of EU be introduced. This will ease the upstart of
crowdfunding activities and thus increase the amount of available venture capital
for SMEs and entrepreneurs in all of Europe.
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This report has been prepared by the Danish Ministry of Business and Growth, including
the Danish Business Authority, the Danish FSA, the Danish Patent and Trademark Office
and the Danish Competition and Consumer Authority, in collaboration with the Danish
Ministry of Taxation.
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2. INTRODUCTION
The lending survey for the first six months of 2014 indicates that the total lending sum to
business companies is slowly increasing. However, many small companies are still
experiencing difficulties in obtaining financing.3 This is amongst other things due to the
fact that SMEs are relatively expensive to credit rate in relation to the size of the
financing, and especially as entrepreneurs often have a limited track-record to prove
their credit worthiness. This can mean that sound investments cannot be carried out, and
in the long run that the competitive power of Danish companies will deteriorate. When
employing crowdfunding for financing other criteria apply for obtaining financing, which to
a greater extent accommodates SMEs and entrepreneurs. Thus crowdfunding can
contribute to strengthening access to financing for SMEs and entrepreneurs.
With an agreement for a growth package from June 2014, the government along with the
Liberal Party of Denmark (Venstre), the Danish People’s Party (Dansk Folkeparti), the
Red-Green Alliance (Enhedslisten) and the Danish Conservative People’s Party (Det
Konservative Folkeparti) agreed to initiate investigations regarding possibilities for
promoting crowdfunding in Denmark, including clarifying any regulatory challenges
existing within this area.
A crowdfunding campaign not only provides the companies with the possibility of raising
capital, but the companies can also test the market potential of their product or business
model. This is in opposition to more traditional investments from, typically, only a few
investors.
As crowdfunding is a relatively new phenomenon, sound knowledge and data concerning

the extent of crowdfunding is limited. The global market for crowdfunding increased by
167% from 2013 to 2014 reaching DKK 111bn. The preliminary 2015 forecasts indicate
4
that the global market this year will double and reach DKK 236bn by year-end.
The Danish crowdfunding market is still considered to be in its early days. Indications
suggest that Danish companies are increasing their focus on this type of financing,
including support through the efforts of Danish interest groups for the promotion of
crowdfunding. Additionally, international platforms, such as Kickstarter, have set up
operations in Denmark and increased the interest for the companies’ business potential
with crowdfunding.
3 Cf. Lending statement for first six months of 2014 (http://www.evm.dk/~/media/oem/pdf/2014/2014-

publikationer/18-12-14-udlaansredegorelse/udlnsredegrelse-1-halvr-2014.ashx).
4
Massolution (2015): ”2015CF The Crowdfunding Industry Report”.
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3. CLARIFICATION OF UNDERLYING
CONCEPTS
Crowdfunding is a financing concept, where projects, companies and private persons
collect contributions or investments from a large number of people, often through digital
platforms.
Many small companies experience difficulties in obtaining financing, as their possibilities

for providing security are limited and they lack the turnover and earnings proving their
creditworthiness to banks and mortgage banks. This may mean their business side and
growth potential cannot be realised.
Basically, there are four types of crowdfunding: Donation-based crowdfunding, reward-

based crowdfunding, lending-based crowdfunding and equity-based crowdfunding.
The various types of crowdfunding are relevant in the various stages of a company’s
need for capital.
A company in need of the initial capital for putting a product into production can choose
to raise capital on a reward-based crowdfunding platform, such as Kickstarter, Indiegogo
or the Danish platform Booomerang. Here, the company can sell its product or service to
the first customers and thus raise the capital for putting the product into production. This
type of crowdfunding is also called "pre-buy". Reward-based crowdfunding is possibly
the most well-known form of crowdfunding, in particular owing to the large international
platforms, such as Kickstarter and Indiegogo. Companies behind well-known products,
such as the Pebble smartwatch, the Pono music player, the Solar Roadway solar cell
project etc. have raised large amounts on reward-based platforms.
Lending-based crowdfunding implies that the company obtains its loan from many
different sources via a lending-based platform. Alternatively, the company can choose
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equity-based crowdfunding, where the company offers ownership shares in return for a
capital investment from a number of small investors.
One attribute that applies to all four types of crowdfunding is that crowdfunding provides
more than merely access to capital, it also contributes to underlining the market potential
for the company. Companies that employ crowdfunding to raise capital also have the
opportunity to make use of a type of collective investment intelligence – or ’wisdom of
the crowd’. When a company chooses to place their business idea or product on a
crowdfunding platform, they expose themselves to thousands (in some cases millions) of
potential investors, who have the opportunity of seeing the project and investing in it. If
the company achieves full financing, it will also be a test of the company’s business
model or product at a very early stage. Thus crowdfunding is also a tool with which
companies relatively quickly can test the market potential for their business.
Crowdfunding also contains an element of co-creation or ’crowdsourcing’.

Crowdsourcing implies that the company gathers knowledge, ideas or resources for a
project or product from a large group of people. Put simply, you could say that while
crowdfunding is about gathering money from a group of people, crowdsourcing is about
making use of the competencies and knowledge in a large group.
People investing in a crowdfunding campaign have a self-interest in the success of the

campaign and the company. Some campaigns run according to a model called ’fixed
funding’. This means that the company only receives the money from the investors, if the
company obtains at least 100% of the asking amount. For the investors, this means that
they only get something out of their contribution or investment, if the campaign reaches
at least 100% of the financing. Secondly, the investors have a self-interest in the
company’s business or product being as successful as possible. This tendency is
especially common in reward-based crowdfunding, where the investors often will make
suggestions with regard to how a product can be improved, additional functions, which
components could be changed with advantage etc. The company behind the
crowdfunding campaign can thus use their investors to improve their products and thus
improve their chances for success.
Crowdfunding platforms are often global, which means that there is a large potential for
the internationalization of a company that employs crowdfunding. The company is
exposed to at large group of potential investors from all around the globe, just as the
company also potentially can sell their product all over the world. This means that the
companies will have an entirely different strategy for entering new markets than
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normally, where companies traditionally establish themselves on the home market, for
example Denmark, and then start exporting to their neighbouring markets as their initial
export markets. With crowdfunding on international platforms, the companies are
potentially global from the very beginning.
Crowdfunding is also another way of marketing a company or a product. The marketing

of crowdfunding campaigns takes place to a great degree via social media, such as
Facebook and Twitter and focus is, amongst other things, on user involvement,
transparency, creating the right incentive for the investors and letting the investors feel
that they are part of the company’s history. As crowdfunding is Internet-based and the
marketing to a great extent takes place on the social media, there is also the possibility
that campaigns goes ’viral’, i.e. an explosive spread of the campaign via social media.
This phenomenon is what happened when the musician Neil Young launched a
campaign on the reward-based platform Kickstarter with the Pono music player. 10 hours
after the campaign launched on the platform, DKK 4.8m had been raised, and Pono
ended with raising almost DKK 38m from 18,220 investors.
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4. THE EXTENT OF
CROWDFUNDING
As crowdfunding is a relatively new phenomenon, sound knowledge and data concerning
the extent of crowdfunding are limited.
The EU Commission estimates that in 2013 approx. DKK 7.5bn was raised through
crowdfunding in Europe, and that crowdfunding was an important source for the
financing of approx. 500,000 European projects. Furthermore, the Commission believes
that crowdfunding has great potential as a supplementary source of financing for
5
entrepreneurs and growth businesses.
At global level, crowdfunding is also experiencing rapid growth. In 2012, there were more
than 450 crowdfunding platforms, of which the American based platform Kickstarter was
the biggest. Today, the number of platforms is estimated to have doubled. Kickstarter
launched in the U.S. in 2009 and in April 2015 the platform had reached a total of DKK
11bn in investments. In 2014, USD 1.000 (approx. DKK 6,500) on average per minute
was raised on the platform to realize more than 22,000 projects.
6
An international survey performed in 2014 of the potential for reward-, lending- and
equity-based crowdfunding to support growth includes the following:
- Companies that have employed crowdfunding, increase their annual turnover

with approx. 24 % (excluding income from the crowdfunding campaign).
- 39 % of the companies hired on average two new employees after a successful

crowdfunding campaign.
- Within three months after a successful crowdfunding campaign, 28 % of the

companies had an investment agreement with a business angel or venture
capital firm.
Crowdfunding is a global financing concept, where platforms operate across national

borders. It is therefore difficult to establish exact figures for the number of Danish
companies that have employed crowdfunding. The Crowdfunding Centre attempts to
gather information about campaigns on international crowdfunding platforms, and here
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246 Danish campaigns were registered of which by far the majority are reward-based.
In addition, there are a number of projects which are financed on Danish crowdfunding
platforms.
Figures from the UK also indicate an increase in crowdfunding, and the British market for
alternative financing is estimated to have reached approx. DKK 16bn in 2014. This
corresponds to approx. 2.4 % of British bank lending to SMEs. The accumulated
crowdfunding market in the UK has risen 150 % from 2012-2013, 161% from 2013-2014
8
and is estimated to increase a further 160 % in 2015.
Some lines of business are more suitable for crowdfunding than others. In general,
products of personal relevance find it easier to attract investors. For instance this is
5
European Commission (2014): ” Unleashing the potential of Crowdfunding in the European
Union”.
6
OECD (2014): “Case study on crowdfunding”
7
The Crowdfunding Centre (Dec. 2014): http://thecrowdfundingcentre.com/?page=account#home|page/home/?
8
Nesta (2014): ”Understanding Alternative Finance”.
13
reflected in campaigns for computer games, technology (gadgets), films, design and
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music, which have the most investors. From a Danish point of view, the industrial
distribution within crowdfunding is interesting, as several of the industries suitable for
crowdfunding represent Danish core strengths, for example within games and the design
industry. On the international platforms, 42 % of the projects lie within films, games,
music and technology. Based on figures available from the Crowdfunding Centre,
estimates indicate that Danish projects do not differ greatly from the global distribution.
9
The Crowd Data Center (2014): ”The State of The Crowdfunding Nation – Quarter two 2014”.
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5. REGULATORY FRAMEWORK FOR
CROWDFUNDING IN DENMARK
The debate in the Danish media indicates that among companies, platforms and interest
groups clarity does not prevail concerning which regulatory rules and conditions, the
various types of crowdfunding are governed by in Denmark. This should be seen in the
light of the fact that crowdfunding is a relatively new financing concept, which has
experienced vast growth with the spread of the Internet. At the same time, it is a
financing concept, which goes across exiting rules and regulations and where new
business models make it difficult to establish exactly which rules and regulations apply.
An account of the regulatory framework for each of the four types of crowdfunding is
given below with special focus on the individual rules that apply for companies, platforms
and investors, respectively. Additionally, circumstances applying to all four types of
crowdfunding are discussed, such as legislation on marketing practices and
considerations concerning IP rights. The report touches upon the most important
regulatory circumstances, relevant for companies, platforms and investors.
5.1 DONATION-BASED CROWDFUNDING
Donation-based crowdfunding is based on

sheer donations, i.e. the investor/donor does not
receive any consideration or product in return
for his/her contribution. Globally, projects
financed in this way are primarily of a charitable
nature. Overall, there are two types of projects:
1) Projects that traditionally belong under
development aid and NGOs, such as support to
refugees, aid to survivors of natural disasters
etc. and 2) Personal projects, such as support
towards a form of medical treatment, financial
assistance for participation in sports events etc.
Donation-based crowdfunding is regulated by the Danish Fundraising Act which basically

applies to all public fundraising campaigns, including donation-based crowdfunding, and
for certain forms of reward-based crowdfunding, where the reward is not an article or
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service but a symbolic gesture. The Danish Fundraising Act was revised as of 26 May
2014 with an aim of creating more transparency and openness concerning fundraising
for charitable purposes and a more up-to-date regulation.
In general, two weeks prior to implementation, notification of all fundraising campaigns

must be made to the Danish Fundraising Board indicating the purpose of the campaign.
A public fundraising campaign must be managed by a legal entity (i.e. a company, an
organisation, an association, a public or private institution etc.) or a committee consisting
of a minimum of three individuals. Hence, one private person alone cannot be in charge
of a public fundraising campaign. For all fundraising campaigns, it is necessary that at
least one of the persons responsible is of age.
In connection with public fundraising campaigns that fall within the Danish Fundraising
Act, DKK 1,000 (2014 rate) must be paid when giving notice of the campaign. When the
campaign is concluded, the person responsible for the campaign will submit detailed
accounts to The Danish Fundraising Board. The accounts will be available on the Danish
Fundraising Board’s website. In the event that the campaign has its own site, the
accounts will also be published there. If the raised funds exceed DKK 50,000, the
accounts must be audited by a state authorized or registered public accountant. If the
raised funds amount to DKK 50,000 or less, there are no requirements for performing an
audit.
In that connection, the Danish Fundraising Board oversees that accounts have been duly
kept, and that the money has been spent on the stated purpose.
A company, organisation or committee running a donation-based crowdfunding

campaign is in general liable to pay tax on incomes from donations, including
contributions and gifts etc. However, there are special circumstances that justify
exempting the receiver from paying tax, including money given to people who are
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sick/persons injured in accidents etc.
An association, fund, institution or the like can also receive donations. An association
with a commercial income is normally liable to pay tax of the donation and must inform
the tax authorities of the amount, in compliance with the general tax rules for companies,
unless the commercial income is closely connected to a non-profit purpose. The
donation is not liable to tax if it is given to a tax-exempt association that is characterized
by solely being non-profit or charitable, or if it does not have a commercial income. For
an association to be considered non-profit or charitable, it is a condition that the
association uses its funds to support a large circle of people or organisations.
A platform engaged in donation-based crowdfunding must comply with the general

provisions of the law, including the Danish Marketing Practices Act. Platforms wishing to
engage in donation-based crowdfunding must also be aware of the fact that at the
moment Nets does not allow their payment solution to be used in connection with
donation-based crowdfunding platforms, as donations in general are not permitted
10
SKAT (March, 2015): http://www.skat.dk/SKAT.aspx?oId=2172087
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according to payment card agreements. If you wish to receive donations through a
payment card agreement, the purpose must be of a non-profit nature. However, there is
nothing to prevent a Danish based platform from choosing another payment card
solution than Nets.
With regard to notifying The Danish Fundraising Board of campaigns, in general it should
be the individual company, organisation or committee behind the fundraising campaign
who notifies The Danish Fundraising Board of the campaign. Thus the platform cannot
merely submit one notification and subsequently carry out several campaigns on the
platform under the same notification.
Crowdfunding platforms engaged in donation-based crowdfunding are from a taxation

point of view to be considered as an ordinary company in general. This means that the
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platform is subject to the general corporate tax rules.
A donor/investor, who gives gifts or donations through a donation-based crowdfunding

campaign, is of equal standing as donors, who give gifts or donations through more
traditional campaigns or fundraising campaigns.
Donors/investors must – regardless of making a donation via crowdfunding or through a

more traditional campaign, be aware of the fact that there are tax-related differences
depending on whether the donation is to an approved or to a non-approved charitable
institution. Donors/investors giving gifts or donations to an approved charitable institution
etc. could in 2014 achieve a maximum tax deduction of DKK 14,800. Donors/investors
are only eligible for the allowance, if the association seeking financing has been
approved by SKAT as a charitable association and the association declares the amount
to SKAT. Donations to organisations, companies or committees, who are not approved
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as charitable institutions, will in general not be deductible.
If a company has made a donation with the purpose of advertising for the company, a
deductible amount can be achieved for the donation. However, this presupposes that the
business operator can prove that the donation has been made with an advertising
purpose and that the advertising value is adequately customized for the target group of
the business operator.
Conclusion
In general, donation-based crowdfunding is regulated by the same terms as other types
of public fundraising campaigns. I.e. campaigns employing donation-based crowdfunding
in Denmark must notify the Danish Fundraising Board of the campaign and comply with
the framework that the Danish Fundraising Board has set up. Donations received
through public fundraising campaigns are liable to tax and must be declared to SKAT.
11
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5.2 REWARD-BASED CROWDFUNDING
Reward-based crowdfunding is the most

widespread form of crowdfunding in terms of
number of projects and investors, in Denmark
as well as globally. In the reward-based
crowdfunding model, the investor receives
some kind of reward for his/her investment.
For example, a film may offer tickets to the
opening night, the investor’s name in the
credits or download of a copy of the film
whereas, in the case of a physical product,
access to an early version of the product may
be offered or a version of the product may be
forwarded as soon as it is manufactured (this
last-mentioned model is also called ”pre-buy”).
Reward-based platforms typically earn money by taking a share of the amount raised by
the campaigns, even if the business models may vary from platform to platform.
Reward-based crowdfunding not only represents an alternative source of finance, but

also a way in which companies quickly can test the market potential of their product and
receive direct feedback from those who have invested in the product during their
crowdfunding campaign. Technological products are among those that raise the greatest
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amount of money through reward-based crowdfunding. Examples of this are Danish
Airtame, who raised DKK 7,6m and the German/Danish company The Dash, who raised
DKK 19m.
In general, reward-based crowdfunding is regulated by the same rules as Internet shops

for instance with regard to right-to-return, provided that the reward is a service or a
product. In the event of a symbolic gesture, it will typically be regarded as a donation.
13
Among the 20 most highly financed campaigns on Kickstarter, eight of them are within the
category ’Technology’.
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Companies engaged in reward-based crowdfunding must comply with the same rules as
other Danish companies with regard to VAT registration and declaration, corporation tax
and marketing.
With reward-based crowdfunding, the investor receives a product or service in return for
his/her investment. From a taxation point of view, this crowdfunding model may
correspond to an ordinary sale of a product or service. If this is the case, the company is
liable to tax from the investment in the same way as from the proceeds of a sale.
With regard to taxation, the company or the person behind the crowdfunding campaign
may experience a deficit, for example if the accumulated investments are smaller than
the financial costs for the product or service the investors receive in return for their
investment. With a crowdfunding campaign, this could happen, becaeuse the company
prices and sells the product or service before the production of it has been initiated.
During production, unforeseen expenses may occur, making the product or service more
expensive than estimated. If this is the case, the company may be granted a tax
allowance.
There could be cases where the size of the investment is much greater than the value of
the product or service. For example a poster will rarely have a value of DKK 1,000. In
such cases the surplus value could be regarded as a pure donation, and therefore
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taxable in accordance with the tax rules for donations.
VAT liability of reward-based crowdfunding

VAT liability presupposes that a person liable to VAT delivers an article or a service in
return for remuneration. When assessing reward-based crowdfunding, the assessment
will be based on a number of factors with regard to when VAT is due and must be paid. It
is of utmost importance for the VAT assessment what the parties have agreed on in
relation to:
a) the remuneration amount to be paid,

b) who charges the amount,
c) who has the right to dispose of the amount,
d) what the remuneration is for,
e) when the amount is invoiced/charged
In general, a concrete assessment must be made in each case.
In general, VAT is due with the first instance of one of the following occurrences: time of
delivery, time of invoice or time of payment. In relation to reward-based crowdfunding,
the time of payment will most often occur first, as the company will receive the money
from the platform when the campaign has completed successfully.
With regard to taxation, the same tax rules apply for companies using reward-based
crowdfunding as for other companies in Denmark. Income from the reward-based
crowdfunding campaign will be included in the company’s annual accounts together with
the manufacturing costs for the product, and at fiscal year-end, tax will be paid on the
15
company’s surplus, if any.
14
Cf. The section on donation-based crowdfunding.
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19
A platform wishing to engage in reward-based crowdfunding is not subject to special
terms and conditions but must comply with the general provisions of the law, including
the Danish Marketing Practices Act etc. The platforms will most often be considered as
ordinary companies and thus be subject to the corporate tax rules in force. Platforms
wishing to engage in reward-based crowdfunding must also be aware of the fact that
Nets does not allow their payment solution to be used in connection with reward-based
crowdfunding platforms. In this connection, Nets considers reward-based crowdfunding
in line with donations. However, there is nothing to prevent a Danish based platform from
choosing another payment card solution than Nets.
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his/her contribution. From a fiscal point of view, this crowdfunding model could
liable to tax for the monetary donation in the same way as for ordinary proceeds from a
sale.
If the investor is a company and if the product or service in which investments are made
form part of the company, the product or service will then be considered as part of the
operating equipment pursuant to the Danish Act on Depreciation and Amortization. This
means that the investor is able to write off the product or service.
Conclusion
As such, there are no legislative obstacles hindering Danish companies in employing
reward-based crowdfunding on Danish or foreign platforms. Regardless of whether
Danish companies employ foreign or Danish platforms, they must comply with the
Danish laws on taxation and VAT in force, and it is recommended that they take into
account the extent to which it is reward-based or donation-based crowdfunding, as this is
of paramount importance with regard to taxation.
5.3 LENDING-BASED CROWDFUNDING
With lending-based crowdfunding, private and

professional investors lend money directly to
companies, thus bypassing traditional banks.
The platforms often function as ’guarantors’ –
guaranteeing that the borrowers are
creditworthy, before putting them on the
platform. Lending-based crowdfunding implies
that many investors can finance one single
company’s loan. This provides investors with
the possibility of lending money to several
companies thus spreading their risk. Lending-
based crowdfunding is legislatively possible in
Denmark, but requires that the platform is
approved by the Danish FSA either as a financial institution or a payment service
provider. The first platforms have already been approved by the Danish FSA.
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Lending-based crowdfunding is a way of raising capital, where the contributors provide
capital in the form of a loan. Projects and persons, who raise money through lending-
based crowdfunding, undertake to repay the funds pursuant to certain terms and
conditions.
From a fiscal point of view, lending-based crowdfunding is considered as an ordinary

loan relationship, where the lender provides the borrower with a sum of money in return
for payment of interest. The interest of the loan is liable to tax for the lender and
deductible for the borrower.
For the borrower, the loan sum is not a taxable income, and likewise the repayments do
not trigger a tax deduction. However, the interest on the loan triggers a tax allowance, if
it is regarded as interest from the fiscal point of view.
In the event, if the borrower wishes to claim a tax allowance for the interest costs, the
borrower shall, in addition to stating the interest costs in the annual statement, also
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report the identity of the lender to SKAT.
Furthermore, the companies must be aware of the fact that lending-based platforms may
make various requirements of the companies. These requirements may differ from
platform to platform.
Lending-based crowdfunding platforms must start with obtaining a permit from the
Danish FSA to carry out their business. The required permit will depend on the platform’s
business model and how it facilitates the loans between the company in need of a loan
(borrower) and the persons willing to lend money to the company (lenders).
Overall, there are two types of permits. The first type of permit is as a financial institution.
The platform must have this type of permit if it is the platform which actually grants the
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company the loan. The other type of permit is as a payment service provider, including
money transfer companies. The platform must have this type of permit, if the platform
merely transfers the loans to the company. Additionally, if the platform only transfers
limited amounts, the platform can make do with a limited permit.
Finally, the platform must comply with a number of requirements regarding money
laundering, the purpose of which is to prevent monetary transactions, including monetary
transactions in connection with crowdfunding, being used to launder money.
As a rule, the platforms will often – depending on their business model – be considered
as an ordinary company and thus subject to the general corporate tax rules in force.
Permission as a financial institution

Companies that receive deposits or other funds from the public which are to be repaid,
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and provide loans at their own expense, must have a permit as a financial institution. It
is the Danish FSA that assesses the kind of permit a company will be granted based on
four factors. Only if the company fulfils all four, will it be granted the permit.
The four factors are as follows:
1) Does the company receive deposits or other funds which are to be repaid.
2) The deposits or other funds to be repaid – are they received from the public.
3) Does the company provide loans at its own expense.
4) If there are other funds from the public which are to be repaid, do these funds or the
lending business constitute a substantial part of the company’s operations.
In the event that a lending-based crowdfunding platform does not require a permit as a
financial institution, the platform will, in general, require approval as a money transfer
company.
Permission as a money transfer company

If a crowdfunding platform offers to transfer funds from the depositors to specific,
appointed persons or companies seeking capital through crowdfunding, these activities
may fall within the Danish Payment Services and Electronic Money Act which require a
permit from the Danish FSA.
It would be a matter of a money transfer company if a specific amount is received and

this is offered to be transferred to one specific receiver appointed by the payer/depositor.
Permission as a money transfer company implies that the company alone shall receive
funds, of which the purpose is to transfer a corresponding amount to a recipient.
If the platform wishes to run a money transfer company, it must start with obtaining a
permit as a payment institution. It is also possible to obtain a limited permit on easier
terms if the average of all payment transactions for the previous 12 months do not
exceed 3m euro (almost DKK 23m). The easier terms imply that there are no capital
requirements. However, a number of organisational requirements and requirements
pursuant to the money laundering legislation must be complied with.
Money laundering
The Danish Money Laundering Act sets requirements with regard to companies, which
fall within the Money Laundering Act, that they shall have internal rules for amongst other
things, risk management, including risk assessment, management control and
17
Danish Financial Business Act section 7(1).
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communication, proof of identity of customer, duty to be alert, investigate, record and
report and to store registrations.
The requirement that a company must know its customer and that these must prove their
identity towards the company is a fundamental element in the measures to prevent
money laundering and financing of terrorism.
From a fiscal point of view, lending-based crowdfunding is considered to be an ordinary

loan where the lender provides the borrower with an amount of money in return for
payment of interest. For the lender, the interest of the loan is liable to tax and deductible
for the borrower.
For the lender, it applies that the actual loan amount does not trigger a tax allowance. On
the other hand, the repayments from the borrower are not liable to tax either. The lender
is only liable to tax for the received interest. In the event the borrower cannot repay the
loan, the borrower may be granted a tax allowance for the loss. However in certain cases
no tax allowance for the loss will be granted, if the loaner and borrower are closely
connected, for example they are related, or have ownership/influence in/on the
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business.
Conclusion
From the above and from the practice of the Danish FSA it can be concluded that if a
lending-based crowdfunding platform does not promise the investors that they may claim
repayment of their investment from the platform, and if, in the capacity of an investor,
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you virtually grant a loan to the project(s) seeking financing through crowdfunding, it is
not a matter of financial-institution business.
If the platform itself is in charge of transferring funds from the lender to the borrower, it
will need a permit as a money transfer company. But if the company’s scope is limited, it
can make do with a limited permit pursuant to the Danish Payment Services Act.
In the event that a lending-based crowdfunding platform has been approved as a money
transfer company, it is important that the platform explains to the lender that the platform
solely facilitates the loan and that in the capacity of lender he/she cannot be certain to be
repaid his/her deposit. It is also important that it is the lender him/herself who selects the
project(s) to which he/she wishes to grant a loan, and that the lender has remedies
towards the borrower, should he/she not observe his duty to repay the loan.
With regard to the fiscal matters, lending-based crowdfunding is considered to be an

ordinary loan relationship between lender and borrower in return for payment of interest.
This means that the general rules for allowances and taxation within the area also apply
to lending-based crowdfunding.
5.4 EQUITY-BASED CROWDFUNDING
With equity-based crowdfunding, private and

professional investors can invest directly in
companies in return for a share of the coming
profits (profit sharing) or a security. Contrary to
an initial public offering, these securities are
typically not traded on a secondary market and
no underwriting of capital is given. In other
words, it is a matter of investment in unlisted
shares.
Equity-based crowdfunding platforms will most

often review and approve all campaigns,
before putting them on the platform. Some
platforms run a pre-round, where the companies have the possibility of customizing their
presentations and testing their concept on the investors before the opening of the actual
investment round (open round). Investors, who have invested in the pre-round, will
automatically participate in the open round. Other platforms enter the investment round
as soon as the campaign has been approved. With equity-based crowdfunding, the
companies have the possibility of raising a large amount of money from many investors
at the same time. This financing concept will therefore be less resource-intensive for the
company which at the same time is exposed to a larger investor panel than would be the
19
case with traditional capital raising methods.
19
Crowdcube, who brands itself as the world’s leading equity-based crowdfunding platform, has,
at present, approx. 64,000 registered investors.
25
From a regulatory point of view, equity-based crowdfunding is the most complex type for
companies, platforms and investors alike. Companies wishing to employ equity-based
crowdfunding fall within company law, amongst others, and there are restrictions as to
the type of companies that may employ this type of crowdfunding. Platforms are mainly
regulated within financial law, as are investors, who are protected and regulated within
the part of financial law that concerns investor protection.
A company considering employing equity-based crowdfunding for raising capital should

be aware of several factors. In general, equity-based crowdfunding is considered as an
offer of shares to the public and it must be ensured that the company’s structure permits
this. For instance limited companies and limited partnerships are permitted to offer
shares to the public.
Additionally, companies that wish to employ equity-based crowdfunding must comply

with the tax rules in force. In this case, the rules do not deviate from the general rules on
20
capital investments in companies.
Finally, in the event that the securities on offer amount to more than 1m euro (approx.
DKK 7.5m) a prospectus must be prepared.
Company form
In general, companies wishing to employ equity-based crowdfunding must be registered
as a public limited company (A/S) or a limited liability partnership (P/S). When founding a
public limited company, it is required that the founders subscribe for the shares. It is
therefore determined that there is nothing to prevent the founders of a limited company
from offering subscription to shares via a crowdfunding platform with a view to crowdfund
for the minimum capital requirement of DKK 500,000 for public limited companies. This
applies as long as the existing rules are observed, including the 2 week period of
notification.
Companies that are registered as private limited companies (ApS), including

entrepreneurial companies (IVS), cannot employ equity-based crowdfunding to raise
capital. This is due to the fact that private limited companies may not, pursuant to
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21
corporate law, offer shares to the public. This restriction does not apply to other
company forms. The fact that the subscription of shares cannot be offered to ’the public’
is to be understood in such a way that the offer must be made to a more specific defined
group, which would not be the case, if the shares were offered through a website. A
private limited company is characterised as a company which is owned by a known and
closed circle of shareholders, which has the effect that private limited companies do not
fall within the scope of a number of the company directives, including the capital
requirements directive. If it were to be made possible for private limited companies to
offer shares to the public, it would be necessary, in order to continue compliance with the
obligations according to EU law, to implement the capital requirements directive for
private limited companies, amongst others. This would lead to a much tougher regulation
of private limited companies than at present, with significantly increased administrative
burdens for all private limited companies in Denmark.
Fiscal matters
For companies it applies that with equity-based crowdfunding it is run in company form,
and the company is therefore liable to tax for revenue at a corporation tax rate of 24.5 %
(22 % from 2016). If capital investments take place through subscription for shares in the
form of the received investments, this is not considered as revenue, however, but as a
tax deductible capital investment. The received investments are therefore not liable to
22
tax regardless of whether they have been sold at a price above par or not.
The person or persons who own(s) the company and receive(s) the investments, will still
own the company and be shareholders in it. As individual and shareholder, the owner is
treated in the same way as the other shareholders with regard to tax.
Prospectus rules
It the crowdfunding model is structured in such a way that the capital investors receive
securities in return for their investment, this could be a matter of a public securities
offering.
If such a securities offering exceeds 1m euro, a prospectus must in general be prepared

and then approved by the Danish FSA. However, there is no duty to prepare a
prospectus if the public securities’ offering falls short of 1m euro in Denmark. Securities
traded on a regular market must always have a prospectus that fulfils the requirements
for offers of more than 5m euro.
A company wishing to raise less than 1m euro and wishing solely to do so via a
crowdfunding platform will therefore not have to prepare and register a prospectus. The
prospectus rules in Denmark are stated in two executive orders – one for small and one
for large prospectuses, relatively. Small prospectuses cover public security offerings
between 1 and 5m euro, whereas large prospectuses are for public offerings of more
than 5m euro. The most obvious difference between the two executive orders is that the
contents requirement for a prospectus according to the ”large prospectus order” is far
more extensive that those that fall within the ”small prospectus order”, which is national
law.
There are a number of exceptions to the prospectus duty which are more or less the
same for both prospectus directives. There is no prospectus duty if the:
1) Securities offering is solely directed towards ”qualified investors”.
21
Section 1(3) of the Danish Companies Act.
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2) Securities offering is directed to less than 150 individuals or juristic persons
per country within the EU or per country, with which EU has entered into an
agreement for the financial area, and who are not ”qualified investors”.
3) Securities offering directed towards investors who, in total, purchase

securities for at least 100,000 euro per investor for each individual offering.
4) Securities offering of which the nominal value of each security amounts to

at least 100,000 euro.
In relation to exception 2), it must be noted that the condition is not fulfilled by advertising
on a crowdfunding platform or the issuer’s web site and subsequently limiting the offer to,
for example, the first 149 persons who contact them. The same applies if advertisements
are made via social media or daily newspapers. In other words, it is the general
advertising of the project – and not the number of investors – that determines whether
the offer is considered to reach 150 or more persons.
Companies running an equity-based crowdfunding platform must start with obtaining a

permit to act as a securities dealer, if the company’s website/platform makes it possible
for investors to get in touch with capital-seeking limited companies or companies that
can be placed on the same footing as limited companies and thus making a transaction
concerning shares, or the like, possible.
This means that an equity-based crowdfunding platform that facilitates capital shares to
investors, typically, must have a permit to act as securities dealer if the platform, for
instance, receives, facilitates and executes orders concerning financial instruments on
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behalf of investors. However, this only applies if the transactions concern securities,
24
i.e. financial instruments , for example, shares in limited liability companies and
securities that can be placed on the same footing as shares, including shares in limited
25
partnerships with more than 10 participants.
There is no trifle limit in relation to the above rules concerning the requirement for a
permit to act as a securities dealer. Therefore, companies that run a crowdfunding
platform will be covered regardless of the size of the individual transactions.
The platforms will most often – depending on their business model – be considered as a
regular company and thus also subject to the corporation tax legislation in force.
Permission as securities dealer

A crowdfunding platform that sticks to receiving, mediating and executing orders but
does not trade for its own account, must obtain a ”small” stockbroker permit from the
Danish FSA.
Permission as stockbroker implies amongst other things, a capital requirement of
300,000 euro (approx. DKK 2.2m.), that the management of the company fulfils the fit &
proper requirements and that it can live up to a series of organisational requirements and
requirements that ensure investor protection. When applying for a permit from the
23
Section 9(1) of the Financial Business Act.
24
Covered by annex 5 of the Financial Business Act.
25
Permission will also be required if capital seeking companies on the platform offer corporate
bonds or other debt instruments covered by annex 5 of the Financial Business Act.
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Danish FSA, it will be taken into account that the knowledge and experience relevant in
relation to running an Internet platform for equity-based crowdfunding is not necessarily
the same as for running a traditional investment company.
In connection with applying for a stockbroker permit, you must be able to present a plan
of operations for the projected company, so the FSA can assess the justifiability and
durability of the company. In addition, the company will also have to prepare business
procedures to ensure that the company adheres to a series of organizational
requirements, including requirements concerning documentation and record keeping.
The rules are to ensure satisfactory investor protection.
Money laundering
The money laundering act requires that a stockbroker, in line with other companies who
fall within this act, shall have internal rules for, among others, risk management
(including risk assessment, management control and communication), proof of identity of
customer, duty to be alert, investigate, record and report and to store registrations.
The requirement that a company must know its customers and that these must prove
their identity towards the company is a fundamental element in the measures towards
preventing money laundering and financing terrorism.
The rules concerning investor protection can be found in ”The Danish Executive Order
on investor protection in connection with securities trading”. According to these rules, a
securities dealer shall carry out a so-called suitability test of a retail investor before the
person in question completes a transaction. The test consists of an assessment as to
whether the customer has sufficient knowledge and experience to understand the risks
involved with the transaction, and an assessment of whether the transaction is
”appropriate” for the customer in light of the customer’s investment profile
(venturousness, investment purpose and investment horizon) and sufficient financial
resources to bear a possible loss arising from the investment. This test will be performed
based on information provided by the customer.
The duty to prepare a suitability test does not apply in the following cases:
 If it concerns a transaction that solely consists of executing an order (execution-

only). Execution-only implies that the customer on his/her own initiative places a
specific order, and the securities dealer only stands for carrying out the
customer’s transaction. Furthermore, the transaction must consist of the trading
of a ”simple instrument”, such as shares that are traded on a regulated market.
 If it concerns carrying out an order for a complex financial instrument without

providing investment advice and where the securities dealer has assessed that
the customer has knowledge of and experience in this type of investment to
understand the risks involved in the transaction (a so-called ”appropriateness
test”).
As equity-based crowdfunding typically consists of offering unlisted shares which are

regarded as ”complex instruments”, the transactions cannot be carried out as ”execution-
only”. On the other hand, there will be no obligation to provide any investment advice
based on a suitability test.
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If the platform is designed in a way, that it is the investor him/herself, without receiving
advice from the platform, who decides whom he/she wishes to invest in and how much,
then the platform is only obliged to perform an ” appropriateness test” of the investor.
Such a test can be performed electronically, by the investor answering a number of
questions, and on the background of this information, a matrix will assess the investor’s
knowledge and experience.
Fiscal matters
The investor receives the shares in return for his/her contribution, and the value of the
shares thus corresponds to the contribution. The actual contribution is not deductible for
the investor. However, in general, the receipt of the shares is not taxable either. It is a
prerequisite that the investor is an individual.
For the investor, the contribution forms the basis of the acquisition price, if the investor at
a later date surrenders his/her shares, or if the company ceases to exist. Here any gains
or losses arising from sale of the received shares will be taxable according to the rules in
the Danish Capital Gains Tax Act. Correspondingly, any distributed dividends will be
subject to tax according to the rules of the Tax Assessment Act. Thus the contributor will
be subject to tax of any gains from a sale, and likewise a loss will be deductible from
“Other income” with the taxable value of the loss. Any gain will, as is the case with
distributed dividends, be regarded as a taxable equity income for which the tax rate is 27
% up to the progression limit of DKK 49,200 (2014 figures) and with 42 % above this
26
limit.
Conclusion
In Denmark it is possible to establish and run an equity-based crowdfunding platform in
accordance with the fiscal legislation in force. The platform would then require a ”small”
stockbroker permit. The platform can then offer to perform security transactions without
providing any actual advisory services, but it must perform an appropriateness test. This
means that the platform must assess, prior to carrying out the transaction, whether a
retail investor has sufficient knowledge and experience to understand the risks involved
in the transaction.
The projects offered via the platform will typically have prepared a prospectus in
compliance with the rules in the ”small” executive order on prospectus, unless they stay
under 1m euro. If that is the case, they are not obliged to prepare a prospectus.
In general, companies wishing to employ equity-based crowdfunding must be registered
as a limited company or a limited partnership. When founding a limited company, it is
required that the founders subscribe for the shares. It is therefore determined that there
is nothing to prevent the founders of a limited company from offering subscription to
shares via a crowdfunding platform with a view to crowdfund for the minimum capital
amount of DKK 500,000 for limited companies. This applies as long as the existing rules
are observed, including the 2 week period of notification.
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5.5 TRANSVERSE CONSIDERATIONS
Companies, investors and platforms employed with crowdfunding must be aware of the
specific rules that apply to the different types of crowdfunding, which are described in the
sections above. Apart from the specific rules, certain considerations applying to all types
of crowdfunding require attention, such as intellectual property rights and marketing
legislation.
5.5.1. INTELLECTUAL PROPERTY RIGHTS
Companies wishing to employ crowdfunding for

raising capital will often have to determine whether it
is necessary to protect their intellectual property
rights. Basically, there are three things companies are
recommended to be aware of before launching a
crowdfunding campaign: IP protection of own
invention/idea, identification of potential IP rights and
infringements of the rights of others.
 Protection of own IPR:

Prior to embarking on a crowdfunding campaign, it is recommended to consider
what is necessary to prevent others from copying the idea. There is a risk that a
third party may copy the published idea. The risk of it being copied is increased
in connection with crowdfunding, because the basic principle behind
crowdfunding is that the idea will be spread at an early stage.
 Identification of IPR:
When identifying its potential IP rights accruing to the company, it is important
to be aware of the different types of rights, what they do and do not protect and
how to achieve protection. Copyright is the only right that applies automatically,
i.e. it does not need to be registered first contrary to a trademark, a design and
a patent which must be registered/approved before the protection is in force. It
would also be advisable to register the rights before the invention/idea is made
public.
In relation to patent protection, a novelty requirement applies, viz. if the

invention has been published, it is regarded as ’known technology’ and can
therefore not subsequently be protected. Here, it is important to note that the
applicant receives provisional protection which is in force from the time of
application. In other words, it is possible to launch a product for which a patent
application has been made and it will still be protected even though the patent
has not yet been issued (provided that the patent finally is accepted/issued). It
also has the advantage that if the crowdfunding campaign is not successful, the
company can withdraw its patent application.
 Infringement of the IP rights of others:

It is recommended that companies pay special attention to the IP rights of
others prior to initiating a crowdfunding campaign. Due to the fact that the
exposure in crowdfunding is so large, the risk of a rights holder becoming aware
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of a potential infringement is correspondingly large. There are several examples
27
of companies that subsequently have been targeted with legal action .
Even though crowdfunding takes place via an external crowdfunding platform,

the provider will typically exclude all liability for the content put up on the site by
others. I.e. it is the responsibility of the company to ensure that the idea or
invention does not infringe the rights of others.
Companies employing crowdfunding will often be faced with a kind of ”publication

dilemma”: The more details they use to describe the elements of their invention or idea,
the more attractive it will typically be to support or invest in the project. At the same time,
exposing the details of the idea or invention will increase the risk of others stealing the
idea.
If the company has not protected its idea, another company will in many cases be able to
copy large parts of the idea within the limits of the law (only copyright provides automatic
protection to the originator). As the copying company has had no costs for developing
and preparing the idea, this company will typically be able to market the product at a
much lower price than the originator. There exist several foreign examples of exactly
28
this.
IP protection may intuitively be considered in conflict with the principles of crowdfunding

about sharing the idea, but the business model behind crowdfunding lies in many ways
in continuation of the principles behind the IP system. A premise of IP protection is that
when the right has been registered, it is published so that everybody can see the
invention in detail. For example an application for a patent is made publicly available 18
months after the patent application has been submitted.
A company that has protected its idea through IPR can put out its idea for crowdfunding
without others legally being able to copy it.
IPR and financing

The principle purpose of companies who take out IP rights is to protect the company’s
idea, regardless of whether it is a technology, design or a brand.
For small and newly established companies, the IP rights serve an additional purpose.
When business angels and other investors decide on which companies to invest in, this
is often done under much uncertainty, because the newly established companies have
no track-record as such, on which they can be assessed, and likewise the company is
typically several years from making a profit from their invention/idea. Here, IP rights
constitute in general, and patents especially, a strong signal that the company has
invented something new which is legally protected, an idea/invention a competitor cannot
27
http://www.ipwatchdog.com/2013/06/29/getting-your-invention-off-of-the-ground-with-
crowdfunding/id=42567/.
28
See for example: http://venturebeat.com/2013/10/08/crowdfunding-101-dont-forget-to-protect-your-idea/.
32
just run off with. Strong IP protection is thus a sign of a sustainable business model and
29
thus an important criterion for investors.
Companies with an IP protected idea or invention will thus have a relatively strong point
of departure with regard to crowdfunding campaigns. Partly because the IP rights enable
the company to publish the idea/invention in detail without other companies being able to
copy it legally and partly because the IP rights increase the credibility of the campaign
towards the contributors, because the chances of the idea resulting in an actual product
is definitely larger when the company has exclusive rights to the idea. It will especially
have an impact on investors in connection with lending-based and equity-based
crowdfunding.
Conclusion
Companies considering putting their idea out for crowdfunding are recommended to start
with considering how they subsequently will secure the rights to the invention or idea for
which they seek financing. The alternatives to choose between will typically be IP
protection and concealment. A concealment strategy will, however, often be difficult to
combine with a crowdfunding campaign, which by nature is public.
Strong IP protection will, in many cases, be an efficient supplement to crowdfunding as a

tool for the companies as it ensures the control over the idea/invention, and at the same
time be a general advantage with regard to achieving financing.
5.5.2. MARKETING LEGISLATION
In general, the same rules with regard to marketing apply

to companies employing crowdfunding as for other Danish
companies. When crowdfunding companies and platforms
market themselves on the Internet and social media, the
marketing must comply with the general rules in force, i.e.
the provisions of the Marketing Practices Act and the e-
Commerce Act.
In that connection, companies should pay special attention to the following:
1) Wording and design of marketing

The marketing may in no way be inadequate or misleading, and all
specifications must be correct and no important information may be omitted.
The consumer must be able to assess the marketed product or service and
30
offers, if any etc.
2) Marketing must be identifiable as marketing

There must never be any doubt that it is marketing. In their marketing, the
companies must pay special attention to the fact that it at all times must be
apparent when users of, for example, social media are being exposed to
marketing. This also implies that if a person in a company running a
crowdfunding campaign, for instance, uses his/her private Facebook profile to
29
For example, studies from the U.S. show that among 5,000 upstart companies in 2004, the
share of companies that received venture capital was 14 times higher among companies with a
patent. Correspondingly, studies made in Germany and the UK in 2009 show that among the
companies seeking venture capital, companies with patent protection met their financing need
75% faster than companies without patent protection.
30
Cf. Section 1 of the Marketing Practices Act.
33
market the crowdfunding campaign, the person shall state that it is marketing
(advertisement).
3) Submission of electronic marketing

The company may not make unsolicited approaches to certain consumers using
31 32
electronic mail with the purpose of direct marketing. Companies running a
crowdfunding campaign and crowdfunding platforms may not approach, for
example, a profile on social media for the purpose of marketing by using
electronic mail, unless the company in advance has received the recipient’s
express consent to receive marketing via electronic mail.
The consumer’s consent must be made actively, voluntarily, expressly

concretely and be informed.
- Consent can, for example, not be achieved via the standard terms of
social media.
- To enter into an agreement, a condition may not be that the consumer

must accept to receive marketing.
- The consent must be made in advance – i.e. the company cannot obtain
consent for marketing by contacting the recipient via electronic mail.
Companies that send electronic marketing to, for example, a user of a social
media platform after having obtained consent from the user, shall in all
communication make it possible for the user to retract his/her consent and stop
all future communication.
Possibility for an advance approval

It is the consumer ombudsman who supervises compliance with the Danish marketing
law. In the capacity of a company, platform, association or advisor/solicitor for a
businessman etc., it may be necessary to get the lawfulness of a concrete marketing
assessed. Advance approval is a statement from the consumer ombudsman as to
whether an intended marketing measure in his/her opinion is legal. It could be any form
of marketing, as long as it concerns something concrete, that the businessman wishes to
initiate. It is only possible to obtain an advance approval for marketing that has not yet
been initiated at the time of application for the advance approval.
31
By electronic mail is meant ”any message in the form of text, voice, audio or image, which is
sent via a public communications network, and which is stored on the network/Internet or on
the recipient’s terminal equipment, until the messages is retrieved by the recipient”. A message,
which is only displayed to users, who are online, and disappears when the users no longer are
online, will not be stored on the network/Internet nor in the recipient’s terminal equipment and
is therefore not electronic mail.
32
Cf. Section 6 of the Danish Marketing Practices Act.
34
5.6 OVERALL CONCLUSION ON THE REGULATORY
FRAMEWORK FOR CROWDFUNDING IN DENMARK
There are different conclusions in play for all four types of crowdfunding. This report
does however reveal that investors, companies and platforms employed in crowdfunding
are, to a great extent, covered by existing regulations, but because crowdfunding is a
relatively new financial instrument, there have been uncertainties as to which rules apply.
In relation to the more specific conclusions concerning the four types of crowdfunding,
this report has not identified any actual obstacles for crowdfunding in Denmark. The
greatest obstacle has been the uncertainty concerning which rules that are applicable for
the platforms, investors and companies, respectively, who wish to employ one or several
types of crowdfunding.
Donation-based crowdfunding is regulated according to the same terms as other types of

public fundraising campaigns. I.e. campaigns employing donation-based crowdfunding in
Denmark must notify the Danish Fundraising Board of their campaign and comply with
the rules set up by the Danish Fundraising Board. Donations received through public
fundraising campaigns are taxable and must be reported to the Danish Tax Authorities
(SKAT).
Companies employing reward-based crowdfunding must pay special attention to the

rules in force for corporate taxation and VAT declaration and post the earnings from
these sales made through a reward-based campaign in their annual accounts together
with the production costs etc. It is recommended that companies take into account the
extent to which it is reward-based or donation-based crowdfunding, as this is of
paramount importance with regard to taxation.
his/her investment. From a taxation point of view, this crowdfunding model may
liable to tax from the investment in the same way as from the proceeds of a sale. If the
investment/donation is considerably larger than the value of the product or service, the
surplus value could be regarded as a donation, and thus tax will be payable in
accordance with the tax rules applying to donations.
With regard to donation- and reward-based platforms, the report has not identified any
specific obstacles for the existence of donation- or reward-based platforms.
In relation to lending-based crowdfunding, special focus has been directed towards any
obstacles for platforms. Uncertainty concerning this area has previously consisted of
whether a lending-based platform should be approved as a financial institution or not.
Here the report concludes that the Danish FSA’s approval of a platform depends on the
business model the platform has chosen. However, the report also concludes that it is
possible to run a lending-based crowdfunding platform in Denmark within the prevailing
rules. Furthermore, it should be noted that there already exist lending-based platforms in
Denmark that have been approved by the Danish FSA.
From a regulatory point of view, equity-based crowdfunding is the most complex type of
crowdfunding. The report concludes that it is possible to establish and run an equity-
based crowdfunding platform in Denmark within the present legislation. A company
wishing to establish itself as an equity-based crowdfunding platform must obtain the
”small” stockbroker permit and then it will be able to offer transactions in securities
without providing any actual advice. The platform will have to carry out an
appropriateness test prior to making the transaction. The purpose of the appropriateness
35
test is to investigate whether a retail investor has sufficient knowledge and experience to
understand the risks involved in equity-based crowdfunding.
In addition the report concludes that companies wishing to employ equity-based

crowdfunding must initially be registered as a limited company or a limited partnership. In
this connection it should be noted that within present legislation it is not possible for
private limited companies, including entrepreneurial businesses, to employ equity-based
crowdfunding.
The report also identifies considerations applying to all four types of crowdfunding,
including matters concerning intellectual rights and marketing legislation.
Companies employing crowdfunding are always recommended to consider the

”publication dilemma”, i.e. the balance between exposing their idea or product in as
much detail as possible to attract investors and at the same time protecting the idea or
product from being copied by others. Companies, wishing to employ crowdfunding are
therefore recommended to always consider whether they should protect their idea,
product or company.
All companies and platforms are, in line with other Danish companies, subject to the
Danish Marketing Practices Act and the general rules that apply for marketing on the
Internet. Due to the fact that the marketing of crowdfunding campaigns to a great extent
takes place through social media, companies and platforms are recommended to pay
special attention to the rules that concern wording, design and identification of marketing
as well as submission of electronic marketing.
All in all, the report has not identified any actual obstacles for the crowdfunding
ecosystem in Denmark. Instead, the report has clarified which overall rules investors,
companies and platforms wishing to employ crowdfunding, are recommended to
consider before embarking on crowdfunding.
36
6. INTERNATIONAL
CROWDFUNDING REGULATIONS
In continuation of the debate concerning regulation of crowdfunding in other countries,
including the UK and the U.S., the following sections attempt to give an account of the
precise regulations prevailing in various other countries. The sections below focus
primarily on equity-based and lending-based crowdfunding, as it is within these areas
some countries have chosen to implement or propose special legislation.
6.1 CROWDFUNDING IN AN EU PERSPECTIVE
Several European member states have already taken

steps to address the regulatory framework for
crowdfunding in their own country, and some countries
have introduced law reforms, including Italy, the UK,
33
France and Spain. The European Commission finds
that there is a risk that Member States may introduce
overly-strict and premature regulatory constraints and
thus inhibit the development of crowdfunding as an alternative financial tool. The
Commission also points out its concern that the introduction of overly-lenient legislation
may lead to loss of investor protection and thus damage the crowdfunding environment
owing to declining consumer confidence.
Member states that are already looking at the crowdfunding area have varying
approaches to the area. Some countries have tightened their legislation, whereas others
have taken different routes. Based on the member states’ varying approaches the
Commission has taken the following two initiatives:
1. Setting up the European Crowdfunding Stakeholder Forum, the purpose of which is

to:
- Assist the Commission with raising awareness to crowdfunding, procuring
information and designing training modules for companies.
- Assist the Commission with promoting transparency and exchanging ’best

practices’.
- Advise the Commission on the possibility of establishing a ”quality label” for

building trust with users.
- Identify other areas that the Commission should give consideration.
The European Crowdfunding Stakeholder Forum consists of 40 members, of which

15 are member states, including Denmark, and 25 private organizations.
2. Promote knowledge and awareness of crowdfunding.

The Commission wishes to raise increased awareness and knowledge of
crowdfunding as an alternative source of funding among European investors and
companies. Additionally, the Commission wishes to build trust with users regarding
crowdfunding. The Commission has still not articulated in detail how this goal will be
promoted.
Communication from the Commission to the European Parliament, the Council, the Economic
33
and Social Committee and the Committee of Regions (COM(2014)172.
37
Initiatives from European, financial supervisory authorities
The European supervisory authorities within the area of securities trading and banking,
the European Securities and Markets Authority (ESMA) and the European Banking
Authority (EBA) have both initiated investigations as to how crowdfunding works, the
risks, if any, that can be involved in crowdfunding and how the various forms of
crowdfunding are regulated within existing EU regulations, especially the directive on
securities trading (MiFID), the prospectus directive and the directives concerning credit
institutions, payment services, consumer credit and money laundering.
This work consists of investigating and identifying the most important issues and risks
that can be involved in crowdfunding. Amongst these, especially:
 Deficient assessment of the projects seeking capital via crowdfunding with the
subsequent risk that the investor loses his/her deposit.
 Deficient information to the persons who provide capital either by purchasing

capital shares or by providing lending capital, so they cannot assess the
financial risk they are running.
 The risk that the funds do not reach the company that is seeking crowdfunding.
 The operational risks of the actual platform, in the form of the risk of money
laundering and fraud and
 The risks relating to IT breakdown and other operational problems.
It is the aim that this work shall result in statements or recommendations as to how
lending-based and equity-based crowdfunding should be handled in relation to the
existing acquis communautaire and proposals regarding incorporation of crowdfunding
into the financial regulations in future with an aim to handling the possible risks that can
be involved in this, without obstructing the development of crowdfunding as a method for
raising capital.
6.2 CROWDFUNDING REGULATIONS IN EUROPE IN

GENERAL
Most European countries find – as Denmark does – that lending-based platforms do not
necessarily require a financial permit nor be subjected to financial supervision. To the
extent that a platform performs activities under the directive on payment services and/or
the credit institutions directive, the platforms will have to obtain a permit to perform these
activities. In line with Denmark, a number of countries have introduced rules for limited
execution of payment services.
Most countries consider equity-based crowdfunding to be under the scope of the MiFID
directive and require that platforms executing orders and mediating the sale of capital
shares have a permit as stockbroker. The MiFID directive contains one exception making
it possible to lay down national rules for companies that solely provide investment advice
and/or receive and facilitate orders, but perform no other form of investment services.
38
France have introduced national rules and they require that the platforms only may
provide investment advice, that they must be registered and carry out a suitability test of
investors and provide these with a range of information. In addition there is a limit of 1m
euro for crowdfunding campaigns.
In Italy they have also drawn up national rules for equity-based platforms, which are not
considered to be executing activities pertaining to the trading of securities within the
MiFID directive. The platforms must be registered and live up to certain professional
standards, and likewise retail investors must be given information material and fill in a
questionnaire about their knowledge of the most important risks involved and whether
they understand that they may suffer a loss. In addition, 5 % of the capital must originate
from professional investors.
In conformity with Italy, Spain have also drawn up national rules for platforms which also
here are not regarded as performing activities pertaining to the trading of securities.
These platforms must live up to certain requirements regarding design and they must be
registered. Furthermore, they must have third party liability insurance or meet a capital
requirement of 50,000 euro (approx. DKK 370,000). Furthermore, the platforms must
provide information about the risks involved with participating in crowdfunding. The
individual investor may invest no more than 3,000 euro (approx. DKK 22,000) in one
project and may invest a total of 6,000 euro (approx. DKK 45,000) per year. Per project,
the maximum amount is of 1m euro (approx. DKK 7.5m).
The British market for crowdfunding is the best developed in Europe. In March 2014, the
British Financial Conduct Authority (FCA) issued new rules for internet platforms
regarding the employment of crowdfunding. These rules cover lending-based and equity-
based crowdfunding. The rules were drawn up on the basis of a public hearing on a
consultation memo from 2013, in which the FCA had stated their considerations. In the
UK, equity-based crowdfunding platforms which provide companies with the possibility of
raising capital ”by arranging investments and transactions in not immediately tangible
securities”, are considered to be regulated by the MiFID directive, which implies that
such platforms must be approved by the British authority according to the rules of the
directive for securities dealers, and that the investor protection rules must also be
complied with. The same is the case in Denmark.
Prior to the introduction of the new rules, the FCA had already approved platforms
offering transactions in unlisted shares and debt instruments. In that connection the FCA
had added individual terms to the approvals. The new rules have replaced these
individual terms. An approval requires that the company’s management receive fit &
proper approval, i.e. that they meet requirements concerning suitability (knowledge and
experience) and professional integrity. Furthermore, the company must meet a series of
39
organisational requirements, including a requirement regarding money laundering. In
addition, the company must either have starting capital of 50,000 euro (approx. DKK
375,000) or third party liability insurance.
Furthermore, the U.K have also introduced certain restrictions as to whom an equity-
based crowdfunding platform and others offering equity-based crowdfunding may market
”not immediately tangible securities”. These restrictions will ensure that only
sophisticated and/or wealthy retail customers, retail customers who receive investment
advice from an approved securities dealer or customers who do not invest more than 10
% of their free assets, are offered such types of investments.
These restrictions are based on surveys of who typically employ this type of investment
and on experience regarding the areas in which ordinary retail investors lack knowledge
and understanding of the risks involved in investments in unlisted shares and various
forms of illiquid securities.
As lending-based crowdfunding, in the opinion of the FCA, is characterized by a number

of persons making capital available to a number of borrowers, the regulation must take
the lenders as well as the borrowers into consideration.
The regulation depends on the model used by the platform, including whether the
platform merely mediates the contact and transfers the funds between the parties, or
whether customer funds are held. In the latter case, the platform is subject to rules
concerning the protection of customer funds, but there are no specific requirements that
the platform needs to be a member of the investor protection scheme.
In general, the rules state a minimum capital amount for the platform of 20,000 pounds
(approx. DKK 200,000), certain requirements to the design of the company and a
number of requirements regarding information not only for those making capital available
but also for those are raising loans.
6.3 REGULATION OF CROWDFUNDING IN THE U.S.
The U.S. is among the leading nations with regard to crowdfunding

and the world’s two largest reward-based crowdfunding platforms are
both located in the U.S. In 2012, President Barak Obama signed the
so-called Jumpstart Our Business Startups Act (JOBS Act). The
purpose of the act is to promote job creation and growth among U.S. startups.
Subsequently, it has been the task of the U.S. Securities and Exchange Commission
(SEC) to transform the JOBS Act to actual legislation and implement it at federal level.
The JOBS Act is divided into six parts: Title I-VI, of which Title II and III are the most
relevant in relation to regulation of lending-based and equity-based crowdfunding. Of
Title ll and lll, only Title ll has been implemented, whereas Title III is still being
completed, which has caused several states to start introducing special legislation
enabling equity-based crowdfunding.
34
Title II (Access to Capital for Job Creators)
Title II maintains that the prohibition against public offering or public marketing does not
apply to offering and selling securities, if all purchasers/investors are professional
investors. In general, public offerings of securities must be registered with the SEC,
unless they qualify for an exemption to the registration requirements. Registration with
the SEC implies a description of the company’s product or service, the management of
34
http://www.sec.gov/divisions/marketreg/exemption-broker-dealer-registration-jobs-act-faq.htm
40
the company, the type of securities to be put on offer and financial details about the
company.
Exceptions from the registration requirements already exist, but the purpose of Title II is
to make it easier for entrepreneurs to turn the exception concerning offering and selling
securities to professional investors, to their advantage. Traditionally, securities, which
have not been on public offer and where the investors were wealthy individuals or
qualified institutions, have been exempt from the registration requirement.
Title II provides companies with the possibility of publicly marketing their offer of
securities, as long as they can prove that the buyers of the securities meet the
requirements for professional investors. It is the duty of the issuer of the securities (the
company) to verify that the buyers of securities are professional investors. The
boundaries regarding reasonable measures are set by the SEC. These amendments
have been implemented and became effective in 2013.
35
Title III (Crowdfunding)
Title III is still awaiting full implementation which means that the U.S. equity-based
crowdfunding platforms, companies and investors are still waiting for the final rules. This
means that the review of Title III given below may not necessarily end with being
implemented as described here. However in March 2015, the SEC did pass parts of Title
III, including the upper-limit with regard to the maximum amount companies may raise on
Internet platforms.
Companies
From Title III it appears that companies seeking investments through crowdfunding will
be obliged to submit annual reports to the SEC and in addition forward certain details
about the company to their investors. The companies will amongst other things be
obliged to provide information on the company’s financial situation, management,
application of proceeds and prices of the securities on offer.
Companies may raise up to 50m dollars (approx. DKK 343m) through public offering of
securities over a 12 month period, provided that the individual investments do not
infringe the rules for investors, and that the company uses an intermediary, who is either
an approved broker or is registered as a crowdfunding platform with the SEC.
Platforms
Title III assigns SEC to exempt, with or without reservations, platforms from registration
and approval with the SEC as a stockbroker. The platform (or company behind the
platform) must however be registered with the SEC as a financing platform and it will be
subject to the scrutiny of the SEC. Platforms shall furthermore be members of a
registered national securities dealer organization.
A financing portal is defined as a crowdfunding intermediary, who does not 1) offer

advisory services or recommendations, 2) encourage to buy or sell or offer to buy
securities on offer or displayed on the portal, 3) compensate employees, agents or other
persons for encouraging purchases or sales, or compensate them based on the sales of
securities on the portal, 4) possess, administer or handle the investor’s funds or
securities, 5) participate in other activities, which the SEC do not find appropriate.
SEC’s proposed implementation will also impose an obligation on platforms and other
mediators to educate investors engaged in crowdfunding, together with registration
duties and due diligence requirements in connection with complying with the regulation in
force.
35
http://www.sec.gov/divisions/marketreg/tmjobsact-crowdfundingintermediariesfaq.htm
41
Investors
The SEC proposes that an annual limit be set for the amount a citizen may invest. The
proposed limit permits investments of 10 % of either the citizen’s income or means (the
largest of the two will apply), provided that the amount of the annual income/means is
above 100,000 dollars (approx. DKK 650,000). For persons whose annual income is less
than 100,000 dollars, the SEC proposes an investment limit of 2,000 dollars (approx.
DKK 13,000) or 5 % of the annual income (the larger of the two will apply). These rules
do not apply to professional investors.
42
7. PROMOTING CROWDFUNDING IN
DENMARK
The largest obstacle for the development of crowdfunding in Denmark is considered to

be the uncertainty as to how the players should approach the regulations. The report
contributes to this by giving an overall account of how investors, companies and
platforms engaged in crowdfunding should approach the existing regulations. The report
thus contributes to creating a framework on which financing through crowdfunding can
grow and develop in Denmark in the future.
It has not been found necessary to create government programmes for promoting
crowdfunding in Denmark. Instead, the market should be allowed to develop within the
existing framework. However, the government may play a role with regard to increasing
businesses’ awareness and understanding of crowdfunding. If Danish companies are to
make serious use of the growth possibilities that crowdfunding presents, it requires that
they both are aware of and understand how to exploit it to the best possible extent.
Several initiatives have already been made to promote crowdfunding in Denmark.

These include:
Pilot project with crowdfunding in the Market Development Fund

The deadline for applying for the first round of the match financing initiative by the Market
Development Fund was in March 2015. Here, companies that have or wish to employ
crowdfunding to assess their growth potential can obtain co-funding from the fund.
Crowdfunding is an obvious tool for the Market Development Fund to use for co-
financing consumer-oriented projects which normally have difficulty in obtaining approval
or fall outside the boundaries of the fund entirely.
Today, B2C projects are especially difficult to finance in the Market Development Fund,
amongst other things because the market development process for B2C projects is of a
different nature than B2B. This applies to the scope and the number of tests and an
ongoing adaptation based on customer feedback. The goal of the fund is to encourage
that consumer-oriented companies should also include the testing and adaptation phase
in their development, and therefore they should exploit the possibilities inherent in
crowdfunding.
Crowdfunding offers real market validation of innovative products performed by private

consumers. Consumer-oriented products, such as 3D printers, wearable technology,
mobile batteries and intelligent bicycle lamps are examples of products that are being
financed on reward-based crowdfunding platforms. By matching the funds that a
company raises on a crowdfunding platform, the fund will co-finance such innovative
consumer-oriented projects. It is obvious, because the development step which the
companies that normally obtain financing from the Market Development Fund, is the
same as the one companies that start a reward-based crowdfunding campaign are on.
The companies will have to apply for financial support from the Market Development
Fund via a specially customized application module for crowdfunding. The company will
then, in line with other applicants, be assessed by the fund and its board. If a company
receives conditional approval, it will have to ’prove’ its market potential on a reward-
based crowdfunding platform. And a successful crowdfunding campaign will trigger co-
financing from the Market Development Fund according to the model below:
43
Project budget total Co-financing from Co-financing from the
crowdfunding Market Development Fund
DKK 500,000 – 1,000,000 Min. DKK 250,000 DKK 250,000 – 750,000
36
> DKK 1,000,000 Min. DKK 500,000 DKK 500,000 – 1,500,000
The Market Development Fund with its match financing initiative contributes to
developing and lifting the Danish market for crowdfunding and at the same time creates
growth, employment and exportation among small and medium-sized companies.
As crowdfunding is a relatively new financing tool, financial support is provided, so the

companies can receive assistance from private advisors for the planning of their
campaign.
The crowdfunding module will initially run as a one year pilot project (2-3 round), of which
the first application round for crowdfunding was in March 2015. At the end of 2015, the
37
project will be assessed, and it will be determined whether the project will continue.
Preparation of guidelines for all types of crowdfunding

The report provides an overview of the rules that companies, investors and platforms
must take into consideration. However, it has assessed that further guidelines are
necessary with regard to how the players should approach these rules. Concurrently with
this report, guidelines in relation to crowdfunding have been prepared, the purpose of
which is to assist companies, investors and platforms in relation to the regulatory
framework in force. There are guidelines for all four types of crowdfunding and these are
available at startvaekst.virk.dk.
The guideline modules have been prepared together with SKAT, the Danish FSA, the
Danish Patent and Trademark Office and the Danish Competition and Consumer
Authority.
Based on the conclusions of the report and the desire to the strengthen Danish
companies’ awareness and use of crowdfunding further, it is recommended that further
initiatives be introduced to help strengthen SMEs’ and entrepreneurs’ access to financing
through crowdfunding
Growth guarantees for lending-based crowdfunding platforms

Growth guarantees, which are offered by the Growth Fund, support the financing of
SMBs who cannot provide sufficient security in order to obtain an ordinary loan in the
bank. Growth guarantees cover up to 75 % of the bank’s loss on loans of up to DKK 2m
which increases the bank’s incentive to provide the companies with the financing.
Growth guarantees can, at present, only be employed by financial institutions. It is

recommended that the scheme be expanded to include lending-based crowdfunding
platforms in an appropriate way. An expansion of the scheme will remedy an existing
anti-competitive situation, where loans from financial institutions are supported without
similar support of loans from competing financial institutions.
The scheme has existed since 2013 and will be in force until the funds from the
associated loss pool are exhausted. The funds are expected to last until the end of June
2016. If the expansion of the growth guarantees for the lending platform is constructed in
36
Financial support is provided in accordance with the de minimis rules with a maximum amount
of 200,000 euro.
37
Market Development Fund: http://markedsmodningsfonden.dk/crowdfunding
44
such a way that is does not change the risk exposure of the scheme, the expansion is
not expected to affect the expiry of the funds significantly.
Growth guarantees reduce the risk on loans in return for payment of a premium, thus
making high-risk loans more profitable. Increased profitability on lending-based
crowdfunding supports this financing concept.
The structure for offering growth guarantees to lending-based platforms cannot be

transferred directly from financial institutions, as lending-based crowdfunding platforms
cannot in general absorb any losses. Therefore, the scheme will have to be designed in
a way that takes this difference into account.
Training of regional innovation office consultants

The regional innovation offices assist Danish companies with increasing their growth and
export by guiding and liaising with them. Each year, the regional innovation offices meet
thousands of Danish companies and that is why it is necessary that their consultants are
properly prepared when it comes to crowdfunding. Therefore, it is recommended that the
consultants complete a training course so they are fully trained to guide the Danish
companies in, about and how they can use crowdfunding as a source of finance and
which public and private options exist within this area.
Monitoring the market

Crowdfunding is an expanding and developing market and thus it is difficult at present to
foresee how the market will develop in years to come. Abroad, platforms can be seen
employed in crowdfunding property investments, equity-based platforms where the
platform itself and/or business angels co-invest with other investors, and many other
business models.
If crowdfunding in the long run is to become a reliable and interesting alternative for
Danish companies, it is necessary that the government continues to monitor whether the
regulatory framework in Denmark can keep pace with the crowdfunding market. In step
with the development of the market, obstacles may arise, which have no effect on the
present market, but which will be necessary to consider if crowdfunding is to continue
developing. Likewise, business models may arise within the crowdfunding market, which
do not fall within the existing regulation, and which are not desirable, for instance in the
event of significant surrender of investor protection.
It is, therefore, recommended that the development of the crowdfunding market in

Denmark is monitored closely on an ongoing basis and that yet another in-depth report
of the regulatory framework in force for crowdfunding be carried out in Denmark at the
end of 2016.
International collaboration
At international as well as at EU level, much focus is directed towards crowdfunding.
Internally in the EU, the member states have varying approaches to the regulation of
crowdfunding. There is a risk that the member states may introduce overly-strict and
unnecessary regulatory constraints and thus inhibit the development of crowdfunding at
EU level. However, introduction of overly-lenient legislation may lead to loss of investor
protection and thus damage consumer confidence. Therefore, it is recommended to
continue following developments within the EU closely and to work towards finding a
balance with a healthy regulatory framework for crowdfunding in the EU with all due
consideration to protection of the investor.
If the EU is to develop into a more harmonic and cohesive crowdfunding market, it is

necessary to work towards increased harmonization of the regulation of crowdfunding
45
across the borders of the European countries with the aim of ensuring a stable and
sustainable market for all types of crowdfunding. It is recommended to work towards
achieving clearer and simpler regulation of crowdfunding that can ease the upstart of
crowdfunding activities and thus strengthen the market. In the course of this work,
consideration towards ensuring the companies better opportunities for raising venture
capital through crowdfunding must be counterbalanced with maintaining sufficient
investor protection.
46
Crowdfunding iN DEnmark
The publication can be downloaded from the Danish Ministry of

Business and Growth’s website: www.evm.dk
ISBN electronic edition: 978-87-78623-48-5
Danish Ministry of Business and Growth

Slotsholmsgade 10-12
DK-1216 Copenhagen K
Denmark
Tel. #45 33 92 33 50
evm@evm.dk
47
www.evm.dk
Danish Ministry of Business and Growth
Slotsholmsgade 10-12
DK - 1216 Copenhagen K
Denmark
Tel. #45 33 92 33 50
evm@evm.dk

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CROWDFUNDING

3. Clarification of underlying concepts ................................................................... 10

4. The extent of crowdfunding ................................................................................. 13

5. Regulatory framework for crowdfunding in Denmark ....................................... 15

6. International crowdfunding regulations .............................................................. 37

7. Promoting crowdfunding in Denmark ................................................................. 43

The report is a systematic review of the regulatory framework for crowdfunding in

The report is based on the four main types of crowdfunding:

1. Donation-based crowdfunding, where it is purely a matter of donations. Projects

3. Lending-based crowdfunding, where private and professional investors loan money

4. Equity-based crowdfunding, where private and professional investors invest directly

A company wishing to raise capital through equity-based crowdfunding must either be a

International crowdfunding regulations

2. Development of user-friendly guidelines for platforms, companies and

To promote Danish companies’ awareness and use of crowdfunding further, proposals

1. Growth guarantees for lending-based platforms: To support the establishment

2. Training of the regional innovation office consultants: Each year, the

3. Monitoring the market: Crowdfunding is an expanding market and thus, at

4. International collaboration: The EU Commission has issued a communication on

As crowdfunding is a relatively new phenomenon, sound knowledge and data concerning

3 Cf. Lending statement for first six months of 2014 (http://www.evm.dk/~/media/oem/pdf/2014/2014-

Many small companies experience difficulties in obtaining financing, as their possibilities

Basically, there are four types of crowdfunding: Donation-based crowdfunding, reward-

Crowdfunding also contains an element of co-creation or ’crowdsourcing’.

People investing in a crowdfunding campaign have a self-interest in the success of the

Crowdfunding is also another way of marketing a company or a product. The marketing

- Companies that have employed crowdfunding, increase their annual turnover

- 39 % of the companies hired on average two new employees after a successful

- Within three months after a successful crowdfunding campaign, 28 % of the

Crowdfunding is a global financing concept, where platforms operate across national

5.1 DONATION-BASED CROWDFUNDING

Donation-based crowdfunding is based on

Donation-based crowdfunding is regulated by the Danish Fundraising Act which basically

In general, two weeks prior to implementation, notification of all fundraising campaigns

A company, organisation or committee running a donation-based crowdfunding

A platform engaged in donation-based crowdfunding must comply with the general

Crowdfunding platforms engaged in donation-based crowdfunding are from a taxation

A donor/investor, who gives gifts or donations through a donation-based crowdfunding

Donors/investors must – regardless of making a donation via crowdfunding or through a

Reward-based crowdfunding is the most

Reward-based crowdfunding not only represents an alternative source of finance, but

In general, reward-based crowdfunding is regulated by the same rules as Internet shops

VAT liability of reward-based crowdfunding

a) the remuneration amount to be paid,

In general, a concrete assessment must be made in each case.

5.3 LENDING-BASED CROWDFUNDING

With lending-based crowdfunding, private and

From a fiscal point of view, lending-based crowdfunding is considered as an ordinary

Permission as a financial institution

The four factors are as follows:

3) Does the company provide loans at its own expense.

Permission as a money transfer company

It would be a matter of a money transfer company if a specific amount is received and

From a fiscal point of view, lending-based crowdfunding is considered to be an ordinary

With regard to the fiscal matters, lending-based crowdfunding is considered to be an

5.4 EQUITY-BASED CROWDFUNDING

With equity-based crowdfunding, private and

Equity-based crowdfunding platforms will most

A company considering employing equity-based crowdfunding for raising capital should

Additionally, companies that wish to employ equity-based crowdfunding must comply

Companies that are registered as private limited companies (ApS), including

If such a securities offering exceeds 1m euro, a prospectus must in general be prepared

1) Securities offering is solely directed towards ”qualified investors”.