The Contribution of Limited Liability Principle and Crowdfunding Concept to Access Finance

Abstract

Especially in the early 19th century, states have been in search of finding finance for large projects such as dams, bridges and road construction that they could not finance on their own. As a result of evaluations, it was concluded that the necessary financing could be provided by limiting the liability of investors and then the limited liability principle, which is one of the prime building blocks of modern business life, has been legally accepted. Thanks to limited liability also small and medium-sized enterprises (SMEs) and start-ups have become more easily able to access the equity capital they need. However, although the limited liability principle makes it easier to reach equity capital, it makes it difficult to access debt capital (credit), especially in times of crisis. For this reason, alternative finance models such as crowdfunding emerged in the early 2000s to facilitate startups' access to debt capital. In this article, the contribution of the limited liability principle and crowdfunding to access capital are examined.