This document discusses the legal implications of reward-based crowdfunding. It argues that while platforms portray financial contributions as "backing" or "supporting," they legally meet the definition of a sale based on the exchange of money for goods or services. As such, project creators have obligations, responsibilities, and tax implications similar to a traditional seller, including delivering rewards, taking on civil and potential criminal liability if rewards are not fulfilled, and paying applicable sales taxes. Understanding the transaction as a sale helps creators assess costs like taxes and set appropriate funding goals before launching their crowdfunding campaign.

1. michael.hirsch@hotmail.fr
Legal and Transactional
Implications of Reward-Based
Crowdfunding
Arnaud Burgot
Ulule.com, CEO

2. michael.hirsch@hotmail.fr

3. michael.hirsch@hotmail.fr

4. Ulule in a nutshell
Reward based crowdfunding, all or nothing model
Creative, innovative or charity projects
6 languages : FR, GB, IT, ES, ALL, PORT
Biggest european reward based crowdfunding platform:
• Projects financed 5 k
• Collected funds 16.6 m€
• Members 425 k
• Success rate 67%

5. Nature of
transactions on
reward-based
crowdfunding
plateforms?

6. Wording used on platforms
English (Kickstarter): to back / backer

7. Wording used on platforms
French (Ulule): contribuer / soutiens

8. Wording used on platforms
German (Startnext): jetzt unterstützen / supporter

9. Wording used on platforms
Spanish (Verkami): apoyar / mecenas

10. Crowdfunding babel tower
What are we really doing on those platforms:
Giving? Contributing? Backing? Donating?
Does any of this wording make sense on a legal point
of view?

11. Back to basics
Legal definition of a donation (=gift)
“Donation is the act by which the owner of a thing
voluntarily transfers the title and possession of the
same from himself to another person, without any
consideration; a gift.”

12. Back to basics
Legal definition of a « support » or of the act of
« backing »
> It does not exist

13. It’s not what it is called
On a strict legal point of view, transactions in reward
based crowdfunding are neither a support, a backing,
a gift, or a donation
> So what is it?

15. Simplify
« I want to do a game that will be astonishing. Be part
of it, participate to this exciting adventure. To thank
you I will give you a copy of the game, as soon as I will
have finished it. »

16. Simplify…again
«Give me 20 € please to help me build a new game. In
exchange I will give a copy of it to you. »

17. Simplify…much more
« Give me 20 €, in exchange I give you a game »
(… as soon as it is available)

18. Back to basics
Legal definition of a sale
“A sales contract is an agreement between a buyer
and seller covering the sale and delivery of goods,
securities, and other personal property.

19. Back to basics
Legal elements necessary to trigger a sale:
1. capacity to contract
2. consent
3. something being sold
4. reason (must be licit)
5. price

20. Back to basics
> No need of a written agreement qualifying the
transaction as a sale – the existence of those legal
elements automatically qualify the transaction as a
sale

21. Most transactions
on reward-based
crowdfunding
platformes are
simply…sales

22. Two very different point of
views
Psychological vision:
I help, I back, I support. I am happy to have the
reward, but it is only one of my motivations to
contribute

23. Two very different point of
views
Legal vision:
Money vs Goods/Services = sale
…it is as old as the world…
No matter your motivations

24. Ok, but I have read something…

25. Ok, but I have read something…
Kickstarter or Ulule are not stores. They do not sell
anything. Project creators do.
A crowdfunding platform just facilitates. Technically, it
is comparable to a marketplace.

26. A simple thruth
with important
consequences

27. Obligations of the project
creator
Obligation of mean or result?

28. Obligation of result
> The seller (i.e. project creator) must deliver the
rewards
Obligations of the project
creator

29. Civil responsibility
> If you do not deliver rewards, you have not fulfilled
your contractual obligations. You can be condemned
by a court to pay compensation for damages.
Responsibility of the project
creator

30. Criminal responsibility
If you do not deliver, maybe some people will consider
they have been swindled
> Fraud / misuse of funds / breach of trust… potential
criminal responsibility
Responsibility of the project
creator

31. Taxes
Sale = income

32. Taxes
Sale = income
• Company: Profit within your P&l statement >
company income tax
• Individual: Revenue to declare in your personal
income > personnal income tax (and possible social
charges)

33. Taxes
Sale > sales taxe / VAT
In most western countries, a company must display
prices VAT included

35. Taxes
Sale > sales taxe / VAT
• Project creator subject to VAT (company) = 16 € for me
and 4 € in VAT to repay to State
• Project creator not subject to VAT (individual) = 20 € for
me (but I will certainly pay lots of personnal income tax)

36. Consequences: taxes
Sale > sales taxe / VAT
Can be much more complicated if the backer (=buyer)
is located abroad… applicability of VAT depending on
territoriality rules
> For big projects might be useful to consult an
accountant

37. Consequence: funding goal
Before launching your campaign assess applicability of
VAT / other taxes depending on your status & project
>If you are subject to VAT, your funding goal must include:
funds to make the project + cost of rewards production + cost of
rewards shipping + platform commission + ~20% of VAT to
repay to State!

38. Better to
understand before
start of your
crowdfunding
campaign 