CLIENT ALERT

October 2019

   

 

For further information please contact:

Lara Sezerler
Partner, Istanbul
l.sezerler@cergun.av.tr



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Communiqué on Equity Based Crowdfunding

The Communiqué on Equity Based Crowdfunding numbered III – 35/A.1 (the “Communiqué”), prepared by the Capital Markets Board (the “CMB”) was published in the Official Gazette numbered 30907 on October 3, 2019. The Communiqué sets forth the secondary legislation applicable to the crowdfunding transactions, which was first introduced to the Turkish market with the amendments to the Capital Markets Law numbered 6362 (the “CML”), in November 2017.

The Communiqué addresses crowdfunding via purchase of shares and excludes crowdfunding through donation or rewards. Crowdfunding essentially aims collection of monies from public through an electronic platform, for the purposes of funding a project or a venture capital company, without being subject to the regulations on investor compensation scheme as regulated by the CMB.

Below we summarized the significant points, which will be applicable to all crowdfunding platforms and transactions from this day forward.

  • Registration with the CMB: Following the enforcement of the Communiqué, all crowdfunding platforms are required to apply to the CMB for registration to the list of the approved platforms allowed to conduct crowdfunding transactions (the “Crowdfunding List”). These platforms shall be incorporated as a joint stock company with registered shares, solely purpose of operating as a crowdfunding platform and its paid-in share capital shall be TL 1,000,000. The trade name shall include “Crowdfunding Platform” and the scope of activity in its articles of association shall be limited to crowdfunding. Crowdfunding platforms are further required to notify the CMB of any changes in their shareholding within five business days and the shareholding status shall be transparent, open, up-to-date and ready for inspection at all times. Please also note that, broadly authorized intermediary institutions and participation banks may also apply to be included in the Crowdfunding List, provided that they satisfy the conditions provided under the Communiqué.
  • Venture Capital Companies: The venture capital companies within the scope of the Communiqué shall: (i) be involved in technology and/or production, (ii) be incorporated within the last five years, (iii) have a registered website which is regularly updated and inspected. Also, the figures provided in its financials (such as the total assets, net sales revenue) shall not exceed the limits determined for removal of companies from within the scope of the CML. That being said, (i) publicly held companies, (ii) companies controlled by another legal entity, and (iii) companies in which publicly held companies or capital markets institutions hold shares with a significant influence (indirectly or directly holding more than 10% or more of shares or voting rights or having the privilege to nominate board members even if under the 10% threshold), cannot collect funds through equity crowdfunding.
  • Equity Based Investment: A venture capital company shall be legally established prior to transfer of funds and the funds shall only be transferred in exchange for the shares to be issued as a result of a capital increase in the venture capital company. The funds cannot be collected through sale of existing shares of venture capital companies. The funds for the increased share capital shall be paid in full and cash.
  • Crowdfunding Agreement: Crowdfunding platforms are required to execute an agreement with venture capital companies, setting forth the principles and procedures relating to the crowdfunding and addresses all items listed in Annex-3 of the Communiqué. Although the crowdfunding platforms are only allowed to engage in crowdfunding transactions, they may also provide consultancy to venture capital companies.
  • Platform Membership: Investors, satisfying the conditions provided under the Communiqué, are required to subscribe electronically to the crowdfunding platforms. Investors wishing to be subscribed as a qualified investor member, shall be identified as a qualified investor before the Central Registry Agency (Merkezi Kayıt Kuruluşu A.Ş.).
  • Investment Limit: Non-qualified investors are allowed to invest a maximum amount of TL 20,000 within a period of one calendar year, which may be increased up to 10% of an investor’s declared net income, however the increased amount cannot exceed TL 100,000. This limit is not applicable for qualified investors.
  • Campaigns: A crowdfunding campaign cannot run for more than 60 days. A venture capital or an individual entrepreneur are allowed to collect funds through a maximum of two crowdfunding campaigns within the course of a twelve month period and they cannot initiate a secondary campaign while there is an ongoing campaign.
  • Shares: The shares transferred to investors cannot have different privileges, except for shares transferred to qualified investors. All shares of a venture capital company shall be recorded electronically before the Central Registry Agency and shall be transferred to the accounts of the beneficiaries. In addition, the shareholders of a venture capital company cannot transfer their shares for a term of three years starting from the beginning of its crowdfunding campaign, except for transfers due to inheritance, marital property or foreclosure proceedings or transfers amongst entrepreneurs and shareholders of the venture capital company.
  • Funding Limit: The amount of collected funds cannot exceed the issuance limit set forth by the CMB for companies exempted from preparing a prospectus and announced each year in the CMB Weekly Bulletin. An additional fund may be requested for up to 20%, provided that the amount does not exceed the issuance limit. For fund requests exceeding TL 1,000,000, 10% of the target amount shall be subscribed by qualified investors, however this restriction shall not be applicable for additional funds.
  • Use of Funds: The individual entrepreneurs or the venture capital companies shall publish a report providing information on the purpose for the use of funds on the campaign website at the beginning of the campaign. The funds cannot be directly or indirectly used for the purchase or financing of real estate, rights based on real estate or real estate projects.
  • Prohibited Transactions: The crowdfunding platforms are not allowed:

(i)        to crowdfund for the purposes of purchasing or selling real estate or rights relating to real estate and contributing to development of real estate projects,
(ii)        to intermediate lending or borrowing transactions in exchange for an interest or any other payment, or by means of a pledge,
(iii)        to conduct crowdfunding through a capital markets instrument other than equity based crowdfunding, or
(iv)        to collect funds from investors residing in Turkey, to fund real or legal persons residing/domiciled abroad.
Further to this, Turkish residents’ crowdfunding transactions conducted through platforms incorporated abroad, shall not be within the scope of this Communiqué, provided that such investors acted on their own initiative and were not subjected to direct publicity, advertisement and marketing.

  • Services from Third Parties: The crowdfunding platforms are allowed to obtain services from third parties, except for (i) services which are specifically required to be executed by the board and the investment committee, and (ii) management duties relating to the platform. It should also be noted that performance by such third party contractors, does not release the crowdfunding platforms of their liabilities arising under the capital markets legislation.
  • Removal from the Crowdfunding List: In case the platform fails to satisfy any of the conditions required for registration to the Crowdfunding List, as provided under clause 5 of the Communiqué, then it shall notify the CMB within two business days and if it further fails to cure its noncompliance within the prescribed time granted by the CMB, then CMB shall remove the platform from the Crowdfunding List. The CMB is also entitled to automatically remove a crowdfunding platform from the Crowdfunding List, if (i) a crowdfunding platform fails to comply with the obligations set forth under the Communiqué, or (ii) the operations of participation banks and broadly authorized intermediary institutions are suspended temporarily or if their operation licenses are cancelled. The platforms which have been removed from the Crowdfunding List cannot re-apply to the CMB for a period of one year following the removal decision.
  • Termination of Campaigns and Shareholding: If a crowdfunding platform is removed from the Crowdfunding List, then all of its campaigning process shall be deemed terminated and all collected funds together with any interest, shall be returned to the investors in accordance with the procedures to be determined by the relevant custodian.

There are some additional requirements on public disclosure which aim to protect the investors and the Communiqué also indicates that any breach of the Communiqué shall be subject to measures provided under article 96 of the CML. Lastly, access to all websites engaging in equity crowdfunding transactions without obtaining a permission of the CMB, shall be restricted by the Information and Technology Authority of Turkey (Bilgi Teknolojileri ve İletişim Kurumu) upon the request of the CMB.

This Communiqué enters into force on the date of publication and it is expected that the applications to register for the Crowdfunding List will begin soon, for the platforms to continue with their crowdfunding campaigns.

This information is provided for your convenience and does not constitute legal advice. It is prepared for the general information of our clients and other interested persons. This should not be acted upon in any specific situation without appropriate legal advice. This information is protected by copyright and may not be reproduced or translated without the prior written permission of Ergün Avukatlık Bürosu.