Ercüment Erdem Att. Nezihe Boran Demir

Crowdfunding in Turkey

January 2018

Introduction

The Law Amending Certain Tax Laws and Certain Other Laws under law no. 7061 (“Omnibus Law”) published in the Official Gazette dated 5 December 2017 and numbered 30261, has the purpose to amend the tax legislation alongside the other legislation, such as Capital Markets Law No. 6362[1] (“Capital Markets Law”). With the amendments to the Capital Markets Law, crowdfunding has been legally accepted. Respective provisions regarding crowdfunding are entered into force as of publication of the Omnibus Law. As previously mentioned within the article named the Draft Law on Crowdfunding[2], by the enactment of the provisions of crowdfunding, the legislator has aimed to achieve to keep the crowdfunding platforms in a free market, simultaneously bringing about protection mechanisms. This article will mainly focus on the innovations introduced under the Capital Markets Law with respect to crowdfunding.

What is Crowdfunding?

Crowdfunding is an alternative financing method for funding projects and entrepreneurs, and is defined under the Capital Markets Law as fund-raising from the public by means of crowdfunding platforms as the necessary funding for an entrepreneur or a project within the scope of the rules to be determined by the Capital Market Board. In practice, there are three main models that are commonly used, those being donation-based, reward-based, or investment-based crowdfunding models[3]. Crowdfunding platforms, which operate through donation-based or reward-based models, commenced to be established in Turkey as of 2010. The legislator is silent with respect to which models of crowdfunding are adopted under the Capital Markets Law. This issue will be addressed in detail under the secondary legislation, which is presently under discussion.

Innovations under the Omnibus Law

It is the main intention of the legislator to create a free market for crowdfunding, while avoiding the pressure on the companies that are yet to be established. As per the Capital Markets Law, a crowdfunding platform is defined as the intermediary to crowdfunding, and is an entity serving on an electronic platform. Upon enactment of the Omnibus Law, which amends the Capital Markets Law, the respective enterprises will be obliged to obtain official authorizations from the Capital Market Board in order to operate. In other words, it is mandatory for the crowdfunding platforms, the entities that intermediate or provide services in an electronic environment to obtain the permission of the Capital Markets Board to be established and to initiate activities. However, the legislation is silent as to the transition period for existing crowdfunding platforms in Turkey.

Pursuant to the Capital Markets Law, the fund-raising persons through crowdfunding platforms are excluded from the definitions of “publicly held companies” and “issuer.” As per the respective articles under the Capital Markets Law, even if the number of the shareholders of the fund-raising joint stock companies through crowdfunding from the public exceed five hundred shareholders, such companies will not be deemed to be publicly held. Such exclusion grants great support for the crowdfunding platforms, which, therefore, will not be required to comply with major amount of processes, such as the corporate governance principles or the requirements of the public disclosure platform.

As such, crowdfunding is free from the restrictions applicable to publicly held companies under the capital market legislation. In line with the above, it is further stated under the Capital Markets Law that the provisions under the law regarding the responsibilities to prepare a prospectus or export document would not be applicable to crowdfunding.

Within the context of the Capital Markets Law, crowdfunding platforms, the crowdfunding, and any other related transactions would not be considered as investment services and activities or ancillary services to be conducted by the investment companies and portfolio management companies regulated under the capital markets legislation. Likewise, crowdfunding would not be subject to the provisions of the stock exchanges, market operators, other organized markets, and the legislation applicable thereto.

The Capital Markets Law does not regulate the provisions applicable to the relationship between crowdfunding platforms and the persons collecting monies from the public through crowdfunding, and the supporters and investors who have contributed the funds. It is stated under the Capital Markets Law that the general provisions of Turkish law would apply to the referred relationship.

Incompliance with the Law

In the event of any incompliance in transactions or actions of a crowdfunding platform with the law, the Capital Market Board is granted with the power to take any kind of measures including, but not limited to, requesting the remedy of the contradiction within the specified period, limiting or canceling the activities.

If the Capital Markets Board is informed of a crowdfunding platform that is collecting funds from the public without obtaining any authorization as required by the recent amendments to the Capital Markets Law, the Capital Markets Board would notify the Information and Communication Technologies Authority. The Information and Communication Technologies Authority has the authority to ban access to the respective web site.

Although enactment of the crowdfunding is a major step forward for entrepreneurs, gaps remain under the legislation, such as which models will be legally used by the crowdfunding platforms, what the requirements are for a crowdfunding platform or to obtain a crowdfunding license, transitional provisions for the presently operating crowdfunding platforms, who will be authorized to fund, or any restrictions placed upon the funding, etc. Therefore, the secondary legislation, which is to be published imminently, would be comprehensive so as to cover all of these outstanding issues.

Conclusion

It is intended that the Omnibus Law, which includes flexible provisions, to incorporate crowdfunding into the scope of the capital market legislation. The recent amendments under the Capital Markets Law grants great support to the crowdfunding platforms by excluding those from the definitions of publicly held companies and issuers, and keeps crowdfunding beyond the scope of the responsibilities to prepare a prospectus and export documents. With the enactment of the Omnibus Law, the existing crowdfunding platforms are obliged to obtain official authorizations from the Capital Market Board. However, gaps remain under the legislation, which should immediately be addressed under the secondary legislation.

[1] Capital Market Law under law no. 6362 published in Official Gazette dated 30 December 2012 and numbered 28513.

[2] Boran Demir, Nezihe, “The Draft Law on Crowdfunding”, April 2017, http://www.erdem-erdem.av.tr/publications/newsletter/the-draft-law-on-crowdfunding/; (accessed on: 29 January 2018).

[3]Ibid.