Crowdfunding: Some Things to Consider
Published April 16, 2020
In recent years, GoFundMe and other forms of informal fundraising platforms have risen in popularity. These platforms offer a simple and user-friendly way to raise funds for yourself or to assist others in need. With the impact of COVID-19 forcing many businesses to close, you may be considering turning to platforms like GoFundMe for financial assistance.
While these platforms can offer invaluable support, they also pose some legal risks. Donation pages are often set up in the wake of tragedy or in times of desperate need meaning potential legal issues may not always be considered. If you are thinking about setting up a GoFundMe for either yourself or another person, here are a few things to keep in mind.
When you set up a GoFundMe, you are asked to provide a description of the event or circumstance for which you are requesting funds. You should remember that this is a publically accessible document. The majority of the Canadian cases about GoFundMe in particular involve circumstances where the description becomes evidence in court. There are some cases involving defamation, which is when a person posts something harmful and untrue which would cause a reasonable person to form a lower opinion of the person spoken about. This risk could arise if you are raising money due to a lost job or an eviction. It can be very tempting to say negative things about your former employer or landlord, but it is best to stick with the facts of the situation. Please see other Patterson Law articles for advice on your rights in these situations under the pandemic.
You should also be cautious if you are posting in relation to an ongoing family law matter. There are multiple cases in which GoFundMe descriptions include negative thoughts on the opposing party and then are used in court. Further and potentially more costly issues can arise if you choose to raise money on another’s behalf. The issues arise when it comes time to withdraw the money collected. Even when a fund is organized by a third party, it is a good idea to have the person who will ultimately get the money be the person to withdraw it from the website. This is also recommended by GoFundMe itself. A potential donor can see on the GoFundMe page that the money will be withdrawn directly by the person for whom it was organized, which may make your fundraising seem more trustworthy.
If you do choose to withdraw the money yourself on behalf of someone else, you may become subject to the legal rules surrounding trusts. A trust occurs when one person holds property, including money, on another’s behalf. When someone collects money for another person, they hold that money “in trust” for the person who will ultimately be receiving it (called the beneficiary). The person holding the money (called the trustee) has a duty to ensure that the funds collected are used only for the purpose for which they were collected. While the money is being held by the crowdfunding website, it can be somewhat difficult to determine who plays what part in the trust, but if you withdraw the money from the GoFundMe on behalf of the beneficiary, you become the trustee of the money collected. As a trustee, you owe various duties to both the person who donated the money and to the person for whom it was collected. Your specific duties and responsibilities for the money depend on what you wrote in the website description, but in general you must take particular care when managing the money. You must use it for the best interests of the person you collected it for. You should be very clear what the money will be used for (buying a particular object, paying tuition etc) and have a contingency plan for what to do with any money that exceeds your goal.
Nova Scotia does not have any specific legislation to dictate how money should be distributed in the event that there are multiple beneficiaries. Specific caution should be used if you intend to collect money for two or more people. You could face legal liability for the way in which you divide the funds.
Patterson Law is here to help if you would like advice on how to set up a fund to support those in need, including yourself. We can also help you decide how to best manage money that has already been collected. For more information, please contact our Corporate/Commercial or Litigation Groups.
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with a lawyer or other professional. For specific technical or legal advice on the information provided and related topics, please contact the author. This article was written by Grace MacCormick.