A couple years ago, when individuals wished to fund an organisation, a project, or something which needs capital to initiate; there were only a handful of methods to turn to. Either take up debt in the form of loan, generate money from family, friends or angel investors. With the digital era in full effect, another practice of funding that has been gaining popularity is crowdfunding.

An Interesting Read: Understanding Fund Management

Let’s try to understand its process, types and related myths and facts:-

Process of Crowdfunding

The practice of ethically gaining small donations from several individuals for businesses, organisations, or people is known as crowdfunding. By attaining the required boost to cash flow, these ventures can establish a strong foundation or even launch fresh projects. Generally, these campaigns occur online where they have specified timeframe and monetary targets.

Kinds of Crowdfunding

Even though there are four kinds of crowdfunding, each has the same proposition of attaining money from interested donors.

1. Donation

Donation-based crowdfunding is when individuals offer a campaign, organisation or personal money for no returns. For example, one created a crowdfunding campaign to purchase new equipment for a dialysis centre, people who offer money is merely to render assistance and do not expect anything in return.

2. Debt

Debt-based donations are peer-to-peer (P2P) lending, this is a type of crowdfunding. In debt-based donations, the money pledged by backers is a loan and should be repaid with interest within an agreed timeframe / deadline.

3. Rewards

This is when donors attain something in return for their donations. The rewards differ by the size of the donation, which incentivises bigger contributions. Depending on how much money participants offer to a campaign, they can attain a token such as a free gift, product or service – frequently at a discounted rate.

4. Equity

While some crowdfunding campaigns do not permit backers to own a section of the company they are supporting, equity-based crowdfunding enables small businesses and start-ups to offer a part of their business in trade for funding. These donations are a kind of investment where participants attain shares in the business depending on how much money they contribute.

Read more : Setting Up a Private Fund in Labuan

Difference Between Crowdfunding & Equity Crowdfunding

Equity crowdfunding is when an organisation raises funds from a huge number of investors (the crowd) in trade for equity in that organisation. For the individual investor, this signifies that when they invest they become shareholders in the organisation.

What makes this unique from the other kinds of crowdfunding? With rewards, donation and debt based crowdfunding, when you pledge funds you do not own any part of that project or company. With equity crowdfunding, when you pledge or invest, you become a beneficial shareholder of that organisation and can enjoy the perks and be aware of the risks related to that.

Related Myths and Facts

Myth: It’s Just About the Money

Reality: A successful campaign is not about merely attaining your funding target. Crowdfunding not only enhances your finances but also in a way authenticates your idea and creates buzz. Crowdfunding is transforming how entrepreneurs and innovators are getting products to market. It is permitting millions of innovators to create brand awareness and support a larger conversation with backers and potential consumers, during the product development process.

Myth: Crowdfunding is Just for Start-Ups

Reality: The fact is that crowdfunding is a platform which aids to eliminate financial obstacles related with the conventional processes of increasing capital via banks, angel investors, and other financial institutions. Any business or organisation with a brilliant idea, irrespective of the development stage, can use crowdfunding to generate capital more impactfully and successfully.

Fact: Crowdfunding Will Get You Other Kinds of Funding

Reality: An adeptly handled, successful campaign, will generate awareness and supports your project, motivating feedback from your backers and fulfilling perks, will give you and your project a stamp of trust and authenticity. This will aid you to attain funding from different sources, like individual investors and organisations, additionally, a fan base which you can utilise to exhibit potential box office success.

Labuan Public Fund

Labuan public fund can be provided to any member of general public. It requires prior approval from Labuan FSA and it must be registered with Labuan FSA prior to beginning the business. It is essential to appoint a fund manager, trustee, administrator and custodian which are approved by Labuan FSA. They must also appoint an approved auditor in Labuan.

Advantages of Labuan Public Fund

• Flexible structure – in the structure of Labuan Company, partnership, protected cell company, foundation or unit trust.
• Facilitates diverse varieties of fund – multi currency or asset class.
• Hassle free private fund set-up – no approval needed, only notification with offering / information memorandum required to be submitted to Labuan FSA.
• Fund manager is not required to be licensed.
• Easy tax framework.
• No withholding tax on payments for non-residents.
• No foreign exchange controls.
• No capital gain tax or inheritance tax.
• Ideally located in the Asia Pacific region and sharing a common time zone with many big Asian cities.
• Double Tax Agreements between Malaysia and over 70 countries.
• 100% exemption for director’s fees attained by non-citizen directors of Labuan companies.

If you are interested in knowing about the regulatory and operational requirements of a Labuan Public Fund, connect with our QX Trust team of consultants at CONTACT US  or consultant@qx-trust.com to discuss all your related concerns.