In recent years, crowdfunding has become an increasingly popular source of financing for companies, especially start-ups. Crowdfunding is also a great marketing tool, as it allows companies to reach a wide spectrum of potential investors.
Raising capital through crowdfunding has also raised numerous issues. Different regulations in each EU Member State have resulted in restricted access to the internal market for these services and led to regulatory arbitration. To prevent further discrepancies in that respect, Regulation 2020/1503 of the European Parliament and of the Council on European crowdfunding service providers for business and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937 (the "ECSP Regulation") was adopted and came into force on 10 November 2021.
In Poland, issues concerning crowdfunding activities and crowdfunding service providers ("Entities") so far have remained unregulated.
Overview of amendments:
The ECSP Regulation would apply to three categories of Entities:
- project owners who present the project for financing (e.g. a company seeking to finance a project);
- investors who decided to finance the presented project (they may be both individuals and other Entities);
- crowdfunding platforms (organisations that connect project owners and investors).
The ECSP Regulation divides crowdfunding into:
- equity crowdfunding, which consists in raising capital from many investors in exchange for share rights in the company's share capital;
- loan crowdfunding, which consists in raising capital from many investors under a returnable title (e.g. in the form of a loan agreement).
The ECSP Regulation implements new legal instruments, such as:
- The Register of Crowdfunding Service Providers that will be maintained by the European Securities and Markets Authority (ESMA). It will be publicly accessible and will contain information on Entities that have been authorised to perform crowdfunding activities in Member States ("Authorisation"). The Authorisation would be granted by the relevant state body.
- Entities will be required to take precautionary measures to minimise the risk of a potential investment. These new obligations include, e.g.:
- providing potential investors with a key investment information sheet;
- procedures regarding the content of marketing materials (transparency, fairness);
- disposing by the Entity of min. EUR 25,000 and one quarter of the fixed overheads of the preceding year, reviewed annually as prudential safeguards;
- establishing a system to prevent conflicts of interest;
- informing potential unsophisticated investors about risks and conducting additional knowledge tests.
The ECSP Regulation pertains to crowdfunding offers with a consideration not exceeding EUR 5m over a 12-month period. It introduces fines for non-compliance of up to EUR 500,000. In countries where the euro is not a national currency, the fine will amount to a corresponding sum or up to 5 % of the total annual turnover of that legal person according to the last available financial statements.
In addition, the ECSP Regulation established the "passporting system" that facilitates crowdfunding activities in another EU country. The ECSP Regulation also enables outsourcing operational functions to another Entity.
Entities may continue to provide crowdfunding services in accordance with the applicable national law until 10 November 2022 or until they are granted an Authorisation. After this date, crowdfunding activities may be performed only based on an Authorisation.
The legislative process of the Polish statute on crowdfunding for business ventures is still pending. All information presented therein is based on its draft (the "Draft").
Although the ECSP Regulation established the threshold of EUR 5m, it sets forth temporary derogation with respect to the threshold in the sum of EUR 2.5m that will apply to Poland. This solution would be effective until 9 November 2023. After that date the threshold in each Member State will be the same as proposed in the ECSP Regulation. The decision to use the temporary derogation in respect to Poland might be determined by the slow development of crowdfunding activities in Poland.
It is worth mentioning that exceeding the threshold means that the Entity should draw up the prospectus.
The Polish Financial Supervision Authority (Komisja Nadzoru Finansowego) would be the state authority that supervises the Entities.
The most controversial proposal in the Draft is the ban on offering shares in private limited companies (spółki z ograniczoną odpowiedzialnością) as a form of crowdfunding. In the justification of the Draft it is stated that shares in private limited companies are not intended for public trading. As for the possibility of raising capital, a private limited liability company will have the option to issue bonds or take out a loan as a project owner using crowdfunding.
We will monitor the legislation process of the statute on crowdfunding in Poland and inform you about any significant legal instruments it may contain.
By Pawel Jastrzebski, Associate, Schoenherr