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THE LEGAL RELATIONSHIP BETWEEN THE INITIATOR AND THE
CROWDFUNDING PLATFORM OPERATOR
Aminjon Qalandarov
Tashkent State University of Law
Business Law Department
aminjonqalandarov9@gmail.com
https://doi.org/10.5281/zenodo.14202169
The services provided by crowdfunding platforms are not significantly
different from those offered by other platforms in the field of e-commerce. From
the perspective of legal classification in platform relations, parallels can be
drawn, particularly with auction platforms. Both serve as platforms that bring
market participants together to conclude agreements according to a specific
market mechanism established by the platform. Another similarity between the
two is that any commission in favor of the platform is only charged if an
agreement is successfully concluded within the market relations. Additionally,
agreements within the market environment for a specific purpose can only be
concluded within a pre-defined timeframe.
The relationship between the crowdfunding platform operator and its
users is established through a service agreement. It is appropriate to distinguish
between general and specific terms of use regarding crowdfunding platforms.
Scholars such as Mollick (2014) and Belleflamme et al. (2013) emphasize the
need to differentiate between general and specific agreements, as this approach
facilitates the legal regulation of platform operations.
While the general agreement is a necessary condition for using the
crowdfunding platform, the specific agreement pertains to conducting a
particular crowdfunding round.
A) General Terms of Use Agreement
The general terms of use agreement between the initiator and the crowdfunding
platform operator is a prerequisite for using the platform to conduct
crowdfunding rounds. This contractual relationship typically regulates ongoing
business interactions based solely on the platform's general terms of use. By
registering on the platform, the initiator offers to enter into such an agreement
("click-to-accept"). Acceptance of this offer usually occurs after the participant
completes the registration process, often via an automatically sent confirmation
link delivered by email, which activates their account on the platform.
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This agreement remains in effect for an indefinite period, lasting from the time
the user registers on the platform until they are deregistered. Generally, the
general terms of use agreement is established free of charge.
During the term of the agreement, there is a continuous exchange of recurring
services, making it a matter of obligations that persist in the form of a
framework agreement.
In cases where there is no obligation to conduct business, service relations
should not exist as contractual relationships, even if they are provided free of
charge. Instead, a sui generis (unique, non-standard) agreement, as specified in
the platform's terms of use, should be adopted.
B) Specific Terms of Use Agreement
When an initiator activates a crowdfunding round, they submit a proposal to
enter into a specific terms of use agreement with the crowdfunding platform,
which differs from the general agreement. This proposal can be explicitly
accepted by the crowdfunding platform, for example, through activation
confirmation or upon the completion of technical processes, without requiring
further input from the initiator.
The specific terms of use agreement is aimed at conducting a crowdfunding
round. The typology of the agreement is determined by the nature of the service
being provided, particularly whether it is a paid or unpaid agreement. Agrawal
et al. (2014) highlight significant differences among platforms in this regard, as
some operate on a commission basis, while others function on a donation-based
model.
As a rule, crowdfunding platforms charge a commission only if the target
amount is successfully raised. In such cases, a specific terms of use agreement is
concluded in exchange for the fee. However, not all platforms charge a
commission. Some platforms are financed exclusively through voluntary
donations, and in such cases, the specific terms of use agreement is established
free of charge.
The material content of the service is defined by the service elements provided
by the crowdfunding platform, which are necessary to conduct a crowdfunding
round. The primary factor is the availability of the platform's infrastructure to
technically facilitate the crowdfunding round.
As part of the specific terms of use agreement, crowdfunding platforms
undertake the obligation to provide their infrastructure. The purpose of the
agreement is to ensure a system that enables market participants to establish
contracts within the market environment. This includes creating a user profile,
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transmitting information and explanations through the platform, and, most
importantly, posting and presenting the relevant funding project to enable its
accessibility to market participants.
By providing the platform infrastructure, crowdfunding platforms take on the
responsibility of technically implementing the crowdfunding round. Scholars
such as Agrawal et al. (2014) emphasize the legal complexities and risks
associated with such processes for platforms, particularly in cases where a
crowdfunding round fails.
If the specific terms of use agreement is established free of charge, the
relationship represents a form of free business operation. The technical
implementation of the crowdfunding round constitutes an operation carried out
for the benefit of a third party.
If the specific terms of use agreement is fee-based, its legal classification is not
immediately apparent and cannot be straightforwardly described as a
commission-based agreement. The provision of platform infrastructure serves
to conduct the crowdfunding round and, consequently, to facilitate the
capitalization of the respective funding project. However, it is inappropriate to
apply the regulations for intermediary contracts under the Civil Code to specific
terms of use agreements.
Crowdfunding platforms, being integrated into crowdfunding rounds, should not
typically engage in intermediary activities. They only offer the opportunity to
establish business relationships through the provided platform infrastructure.
This leads to significant parallels with auction platforms, where the application
of intermediary contract regulations is also rejected.
The first argument against classifying the agreement as an intermediary
contract is that the initiator does not have the right to enter into a contract with
a specific sponsor (investor). According to the definition of an intermediary
contract, under such an agreement, one party (the intermediary) undertakes, on
behalf of the other party (the principal), to conclude one or more transactions
with third parties in exchange for compensation, acting in their own name but at
the principal's expense. Once the crowdfunding round is activated and a specific
terms of use agreement is concluded, the initiator submits a legally significant
declaration related to market relations. Upon the successful completion of the
crowdfunding round, and ultimately through the fulfillment of technical
procedures, contracts are established within the market relations framework. As
a result, providing instructions, which is essential for the essence of an
intermediary contract, becomes unnecessary for the initiator.
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According to Chapter 48 of the Civil Code, a document confirming the possibility
of entering into a contract is issued only if the crowdfunding platform allows the
initiator to conduct "specific negotiations to conclude the primary contract they
are seeking." In the crowdfunding market, no negotiations take place between
project creators and investors regarding the details of the service. When the
crowdfunding round begins, the characteristics of the service are already
precisely defined by the project creator. The role of the crowdfunding platform
is limited to creating an informational and technological infrastructure to
facilitate the collection of funds. Here, the platform operator acts not as a direct
intermediary between the initiator and the investors but as a service provider
ensuring the conditions for fund collection.
In summary, crowdfunding platforms provide the infrastructure necessary to
facilitate the financing process. Unlike intermediary activities, there are no
direct agreements negotiated between investors and project creators. Applying
the Civil Code’s provisions on intermediary contracts to crowdfunding platforms
is inappropriate since these platforms serve only as a technical tool linking
projects with potential investors. Consequently, the crowdfunding process does
not fit the definition of an intermediary contract, as platforms operate based on
pre-established terms for project implementation, with no negotiations
involved.
As mentioned, the crowdfunding process follows predefined technical
procedures initiated with information provided by the project creator. In this
sense, the process is managed entirely by the crowdfunding platform, leaving no
room for independent actions. However, independent actions are essential for
conducting business and are only possible if the initiator, as the business owner,
retains a personal degree of responsibility, including decision-making authority.
Furthermore, the crowdfunding platform does not purchase assets or influence
the initiator’s financial position. In the business context, the crowdfunding
platform must act in the best interests of the project creator to safeguard against
financial difficulties. Therefore, classifying the specific terms of use agreement
as an agency agreement is inappropriate.
If independent activity is not present on the crowdfunding platform, the
provisions of a service agreement may be applied. This implies that the
platform's role is not that of an intermediary with independent obligations and
responsibilities but rather that of a service provider.
A key characteristic of a service agreement is that the client is obligated to pay
for the services provided within the terms and conditions specified in the
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agreement. However, in the case of crowdfunding, the initiator is usually
required to make the payment only if the crowdfunding round is successfully
completed.
Unlike a service agreement, in a contract for work, the obligation to pay is based
not on the completion of the work but on the successful outcome of that work.
Therefore, the specific terms of use agreement in crowdfunding may fall under
the provisions of a contract for work. The crowdfunding platform is responsible
not for the success of the crowdfunding campaign but for its technical execution.
The platform receives an agreed-upon commission only if the campaign is
successful. If the campaign concludes unsuccessfully, the platform fully performs
all technical aspects of the process but does not collect a commission. This does
not exclude the application of contract-for-work provisions, as the agreed
payment is contingent on achieving a specific result. In this case, the platform
operates "at its own risk," and payment is made only upon the fulfillment of the
specified condition—the success of the crowdfunding round. A contract to
produce a work involves obligations tied to achieving a specific result, i.e., the
successful completion of a particular task or work. However, since crowdfunding
platforms primarily provide technical services, these relationships are typically
governed by service agreements rather than contracts to produce a work.
References:
1.
Mollick, E. (2014). The dynamics of crowdfunding: An exploratory study.
Journal of Business Venturing, 29(1), 1-16.
2.
Belleflamme, P., Lambert, T., & Schwienbacher, A. (2013). Individual
crowdfunding practices. Venture Capital, 15(4), 313-333.
3.
Mollick, E. (2014). The dynamics of crowdfunding: An exploratory study.
Journal of Business Venturing, 29(1), 1-16.
4.
Agrawal, A., Catalini, C., & Goldfarb, A. (2014). Some Simple Economics of
Crowdfunding. Innovation Policy and the Economy, 14(1), 63-97.
5.
O‘zbekiston
Respublikasining
Fuqarolik
Kodeksi,
832-modda.
https://lex.uz/docs/-180552#-195356
6.
Bamberger, Heinz Georg / Roth, Herbert (eds.): Commentary on the Civil
Code, 3rd edition, Munich, 2012.
7.
Braun, M. J. (2018). Rechtsfragen des Crowdfunding: Eine zivil- und
aufsichtsrechtliche Untersuchung der Schwarmfinanzierung über das Internet.
Peter Lang.
8.
O‘zbekiston
Respublikasining
Fuqarolik
Kodeksi,
631-modda.
https://lex.uz/docs/-180552#-195356
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9.
Whittaker, Fundamental Principles of Contract Law, in: Chitty, Chitty on
Contracts, Vol. 1, General Principles, 31. Aufl., London 2012, Rn. 1-036;
MüKoBGB/Emmerich, 6. Aufl., München 2012, § 311 Rn. 1..
