Reasons for Proposal
With expanding social networking services, crowdfunding, which publicly raises funding from the general public, emerges and grows. As such, there is growing interest in rewards-based crowdfunding, a type of crowdfunding.
Meanwhile, small and medium enterprises suffer financially due to inventories in the manufacturing and sales markets because of COVID-19. They use crowdfunding as a means of challenging for product innovation before officially starting to sell products, demonstrate a possibility of product success, and prepare for a leap forward with sponsors, who will become their customers in the future.
In Korea, however, discussions on rewards-based crowdfunding are still limited to whether the Act on the Consumer Protection in Electronic Commerce, etc., is applicable, and the Act is not suitable for rewards-based crowdfunding as it has a legal framework optimized for (large) enterprises which can afford to produce products in massive numbers and endure inventories by allowing product returns based on customers changing their minds about a purchase.
Hence, it is time to diversify funding channels for small and medium enterprises, which find it difficult to secure funding, and design an innovative distribution structure system where sponsors and enterprises make innovative products with predictability.
In this regard, this Act aims to define rewards-based crowdfunding so that small and medium enterprises, micro enterprises, and startups use it as a means of challenge and opportunity to resolve funding difficulties among them and prepare a place of new product development and distribution systems.
Details
A. Define rewards-based crowdfunding and crowdfunding raisers (Article 2 subparagraphs 13 and 14).
B. Consider an agreement between crowdfunding sponsors and crowdfunding raisers to be concluded when conditions are met as crowdfunding sponsors provide contributions within the period set by crowdfunding raisers and the sum of contributions collected reaches crowdfunding raisers’ target amount (Article 62-28).
C. Require crowdfunding raisers to display, advertise, or notify funding conditions to those who want to provide money though crowdfunding before signing an agreement so that all terms and conditions are fully understood (Article 62-29).
D. Require crowdfunding raisers to display or notify their target funding amount, their plans for the use of the funding, and the application period before receiving funding (Article 62-30).
E. Allow the Minister of SMEs and Startups to implement measures necessary to establish a deduction scheme to support funding for the refund or maintenance of defective products produced from crowdfunding (Article 62-31).
