The New Communiqué on Crowdfunding
Introduction
The Capital Markets Board’s (“Board”) long-awaited Communiqué on Crowdfunding No. III - 35/A.2 (“Communiqué”) entered into force through its publication in the Official Gazette numbered 31641 and dated 27 October 2021. Following its implementation, the Communiqué on Share-Based Crowdfunding, which was published in the Official Gazette numbered 30907 and dated 3 October 2019, was repealed. The Communiqué broadens the scope of its predecessor, as it regulates both debt-based crowdfunding and share-based crowdfunding with the aim of eliminating the issues that have arisen in the market. The following sections outline new provisions introduced by the Communiqué.
New Developments
Debt-based crowdfunding
Perhaps the most important development introduced by the Communiqué is the addition of provisions relating to debt-based crowdfunding. The scope of the crowdfunding method in question is defined as “…raising funds from the public through platforms in exchange for debt instruments.” As per the principles relating to fundraising under this method, debt-based crowdfunding activities other than the sale of debt instruments, through debt or loan agreements or any other contract giving rise to a debt relationship, or in exchange for any capital market instrument other than debt instruments, cannot be conducted. With regard to investment limits, real persons who are not qualified investors will be able to invest a maximum of 50,000 Turkish Liras through debt-based crowdfunding within a single calendar year, but this limit may be applied as 10% of the annual net income the investor declares to the platform, provided that it does not exceed 200,000 Turkish Liras. Real persons who are not qualified investors may invest a maximum of 20,000 Turkish Liras in a project through debt-based crowdfunding.
Under the Communiqué, funds cannot be raised at a rate that is lower than the interest or other rate of return indicated in the information memorandum prepared by the entrepreneur or the fund raiser and announced on the campaign page for the purpose of raising the fund required by the project. The standards for these memoranda are defined by the Board. The interest and other rate of return may not exceed 50% of the weighted average of the interest rates identified one day before the start date of the campaign. These are determined with reference to two Government Bonds closest to the maturity of the debt instrument in question, the maturity of one of which is shorter than that of the debt instrument and the other longer, the terms of which shall not exceed 5 years.
Article 22 of the Communiqué (Use of fund proceeds raised through debt-based crowdfunding) requires that the entrepreneur or the fund raiser prepare a report stating the purposes for which fund proceeds be used, which will be published on the campaign page at the beginning date of the campaign term. The fund proceeds of a project whose funding is requested during the term shall first be used to pay the investors who have invested through crowdfunding, and the funds raised through this method shall not be used in the repayment of debts arising from projects other than the project for which funding is requested. An exception to this rule exists for debts arising within the scope of the project as indicated in the information memorandum.
An investment committee, which is defined as the committee that evaluates the feasibility and/or credibility report prepared by the entrepreneur or the fund raiser, approves the information memorandum prepared in connection with the campaigns. This committee shall prepare a report for the purpose of reviewing whether the raised funds are being used in line with the purpose announced in the information memorandum. The platform is obligated to inform the Board on the matter in the event that such report finds that the raised funds were not being used as announced in the information memorandum, or in the event that activities preventing the performance of the necessary inspections are being carried out.
In line with the provision introduced under article 19 of the Communiqué (Principles governing the raising of funds through debt-based crowdfunding), provided that this is expressly indicated in the information memorandum, it is also possible that repayment obligations relating to the debt instruments are performed by granting shares of the funded company or in another manner indicated in the information memorandum, rather than with cash. However, doing so requires that the investors’ consents have been obtained through a means of communication indicated in the information memorandum, including through printed or electronic media.
According to article 24 of the Communiqué (Principles governing the evaluation of risk in funding through debt-based crowdfunding), in addition to various obligations relating to their own activities, platforms carrying out debt-based crowdfunding activities must form an effective and transparent credit rating system and policy in order to evaluate the risk status of the project. This policy must be announced to the public on the platform’s website.
Other changes
Under the change made in parallel to the debt-based crowdfunding provisions, the concept of “entrepreneur” in the Communiqué was updated to cover real person residents of Turkey seeking funding for their projects through equity-based or debt-based crowdfunding, or legal entities in the form of limited liability or joint stock companies. In addition, the definition of “fund raiser” now includes limited liability companies that are required to be converted into joint stock companies.
According to article 16 of the Communiqué (Principles governing fund-raising through equity-based crowdfunding), fund raisers or entrepreneurs may raise funds based on equity through platforms through a maximum of two campaigns within any twelve-month period. The amount of the funds to be raised during such period may not exceed the issue limit that is exempted by the Board from the obligation to prepare a letter of explanation, and that is announced annually in the Board Bulletin. The fund raiser or the entrepreneur shall be subject to the same obligation as under the principles governing the raising of funds through debt-based crowdfunding.
In another change, the concept of “funded company” was added to article 4 of the Communiqué (Definitions and abbreviations). This refers to joint stock companies incorporated by entrepreneurs or fund raisers, where the blocked fund amount is transferred to the account held by the fiduciary.
Article 5 of the Communiqué (Incorporation and listing) introduces provisions relating to the requirements sought for the incorporation of the platforms. These are defined as corporations that act as intermediaries to the equity-based or debt-based crowdfunding, and that provide services over electronic media. In this scope, the platforms must be incorporated as joint stock companies, must hold the minimum capital specified in the Communiqué, all of their shares must be registered shares, and their boards of directors must consist of a minimum of three persons. Article 9 of the Communiqué (Investment Committee) allows the formation of multiple investment committees provided that they meet the applicable requirements. In addition, a platform failing to start operations within six months following its listing shall be unlisted by the Board ex officio.
Conclusion
The Communiqué has served to gather provisions applying to both debt-based and share-based crowdfunding under a single arrangement. Various definitions were added to the Communiqué, provisions applying to the incorporation and operation of the platforms were added, principles governing debt-based crowdfunding were regulated, and the limits of investment were set. How effective the provisions of the Communiqué will prove in providing entrepreneurs with an alternative financial resource remains to be seen.
All rights of this article are reserved. This article may not be used, reproduced, copied, published, distributed, or otherwise disseminated without quotation or Erdem & Erdem Law Firm's written consent. Any content created without citing the resource or Erdem & Erdem Law Firm’s written consent is regularly tracked, and legal action will be taken in case of violation.
Other Contents
![ESMA Publishes Expected Sustainability Disclosures in Prospectuses](/uploads/image/3421857076c880e581c344c56d1a3407-1694692479251.jpg)
As this newsletter moves into a more sustainable future with eco-friendly Exlibris, so does the EU’s financial markets regulator and supervisor, the European Securities and Markets Authority (“ESMA”). In light of its 2023-2028 strategy , ESMA supports the Environmental, Social and Governance (ESG) transition by...
![Borsa Istanbul's New Venture Capital Market](/uploads/image/c743553ddb652cf83e5930fbb090860d-1694692479075.jpg)
The Communiqué on the Principles Regarding the Companies whose Shares will be Traded on the Venture Capital Market (II-16.3) ("Communiqué") has facilitated for private joint stock companies to sell their shares to qualified investors without a public offering. Thus, a new opportunity is created for joint stock...
![Sustainability and Capital Markets](/uploads/image/af90a6ac89a33e3c218f5ce5c1dc7eac-1692112491801.jpg)
In 1987, the United Nations World Commission on Environment and Development published a report entitled “Our Common Future”. The report drew attention to the causes of global environmental problems and defined sustainable development as “development that meets the needs of the present without compromising...
![Investor Protection and Transparency Principle in Light of Credit Suisse AT1 Bonds](/uploads/image/363443b619af618694c1d5228f6523a4-1689662432737.jpg)
Swiss Financial Markets Supervisory Authority (“FINMA”), through its decision dated 19 March 2023, approved the merger of Credit Suisse with UBS Group AG (“UBS”) and to write down the Additional Tier 1 capital bonds (referred to as AT1) issued by Credit Suisse, with a total value of approximately CHF 17 billion...
![Turkish Mortgage Covered Bonds](/assets/image/hukuk-postasi-default.jpg)
Mortgage covered bonds are one of today’s most common structured finance products. Although they have a prominent presence in the marketplace today, these bonds have historical roots in the Pfandbrief of 18th century Prussia. In the aftermath of the Seven Years War, King Frederick the Great implemented...
![The Practice of Green Bonds in the World and Turkey](/assets/image/hukuk-postasi-default.jpg)
![Basic Principles Regarding Public Offering](/assets/image/hukuk-postasi-default.jpg)
![Portfolio Management Companies 101](/assets/image/hukuk-postasi-default.jpg)
![The Communiqué on Board of Debt Instrument Holders](/assets/image/hukuk-postasi-default.jpg)
![Communiqué on Significant Transactions and Retirement Right](/assets/image/hukuk-postasi-default.jpg)
![Communiqué on the Principles of Abolishing Privileges](/assets/image/hukuk-postasi-default.jpg)
![Contracts of Guarantee Relating to Capital Market Instruments](/assets/image/hukuk-postasi-default.jpg)
![Draft Communiqué on Equity Based Crowdfunding](/assets/image/hukuk-postasi-default.jpg)
![Issuance of Shares in Registered Capital System](/assets/image/hukuk-postasi-default.jpg)
![Recent Developments on Corporate Governance Compliance Reporting](/assets/image/hukuk-postasi-default.jpg)
![Public Disclosure Obligation](/assets/image/hukuk-postasi-default.jpg)
![Market Manipulation Offense in terms of Turkish Capital Markets Law](/assets/image/hukuk-postasi-default.jpg)
![Mandatory Share Purchase Offer](/assets/image/hukuk-postasi-default.jpg)
![MiFID II and its Eventual Impacts on Turkey](/assets/image/hukuk-postasi-default.jpg)
![Management of Information Systems](/assets/image/hukuk-postasi-default.jpg)
![Regulatory Approaches to Crowdfunding in European Union](/assets/image/hukuk-postasi-default.jpg)
![Important Changes in Capital Markets Legislation](/assets/image/hukuk-postasi-default.jpg)
![Crowdfunding in Turkey](/assets/image/hukuk-postasi-default.jpg)
![Recent Amendments to the Debt Securities Communiqué](/assets/image/hukuk-postasi-default.jpg)
![Activities of Foreign Investment Institutions in Turkey](/assets/image/hukuk-postasi-default.jpg)
![The Draft Law on Crowdfunding](/assets/image/hukuk-postasi-default.jpg)
![Property Certificates](/assets/image/hukuk-postasi-default.jpg)
![Amendments to the Communiqué on Disclosure of Material Events](/assets/image/hukuk-postasi-default.jpg)
![Recent Developments Regarding Alternative Investment Funds in Europe](/assets/image/hukuk-postasi-default.jpg)
![Financial Reporting Principles of Mutual Funds](/assets/image/hukuk-postasi-default.jpg)
![Share Buy-Back by Listed Corporations](/assets/image/hukuk-postasi-default.jpg)
![Intermediation Of Investment Companies For Derivative Transactions Under New Capital Markets Law](/assets/image/hukuk-postasi-default.jpg)
![Communiqué On The Principles Regarding Security Investment Companies](/assets/image/hukuk-postasi-default.jpg)
![Legal Remedies For Corporate Bondholders in The Event Of Default](/assets/image/hukuk-postasi-default.jpg)
![Market Abuse Actions in Accordance With Capital Markets Law](/assets/image/hukuk-postasi-default.jpg)
![Prohibition On Hidden Income Shifting](/assets/image/hukuk-postasi-default.jpg)
![Asset-Backed And Mortgage-Backed Securities](/assets/image/hukuk-postasi-default.jpg)
![The New Era For Mutual Funds – I](/assets/image/hukuk-postasi-default.jpg)
![New Regulation in Turkish Capital Markets: Real Estate Investment Funds](/assets/image/hukuk-postasi-default.jpg)
![Squeeze-out and Sell-out Rights in Public Companies](/assets/image/hukuk-postasi-default.jpg)
![Regulation Regarding The Formation, Operation And Control Principles Of The Central Registry Agency](/assets/image/hukuk-postasi-default.jpg)
![Renewed Communiqué And Guide For Disclosure Of Material Events](/assets/image/hukuk-postasi-default.jpg)
![Prominence Of Sukuk in Turkey As An Islamic Finance Instrument](/assets/image/hukuk-postasi-default.jpg)
![Communiqué On Corporate Governance II](/assets/image/hukuk-postasi-default.jpg)
![Communiqué On Corporate Governance I](/assets/image/hukuk-postasi-default.jpg)
![Share Purchase Offer](/assets/image/hukuk-postasi-default.jpg)
![Communique Regarding Common Terms On Material Transactions And Shareholder’s Right To Dissociate (II-23.1)](/assets/image/hukuk-postasi-default.jpg)
![Independent Board Of Directors’ Members Under Corporate Governance Principles](/assets/image/hukuk-postasi-default.jpg)
![Communique Regarding Debt Securities](/assets/image/hukuk-postasi-default.jpg)
![The Regulation Regarding Angel Investment Capital](/assets/image/hukuk-postasi-default.jpg)
![Corporate Governance](/assets/image/hukuk-postasi-default.jpg)
![Share Repurchase (Buybacks) Or Pledge Of Shares](/assets/image/hukuk-postasi-default.jpg)
![Serial: I, No: 40 “The Communiqué On Principals Regarding Registration And Sales Of Shares With The Capital Markets Board” Has Been Amended](/assets/image/hukuk-postasi-default.jpg)
![The Communiqué On Principals Regarding Registration Of Debt Securities With The Capital Markets Board And Sales Of Debt Securities](/assets/image/hukuk-postasi-default.jpg)
![Sales Of Foreign Capital Market Instruments And Depository Receipts In Turkish Capital Markets](/assets/image/hukuk-postasi-default.jpg)
![Amendments In The Communıqué Regardıng The Prıncıples On Venture Capıtal Investment Companıes By The Communıqué Serıal: Vı, No: 16](/assets/image/hukuk-postasi-default.jpg)
![Pledging Dematerialized Shares Of Publicly Held Joint-Stock Companies](/assets/image/hukuk-postasi-default.jpg)
![Preparation By The Capital Market Board Of A New Draft Regarding Takeover Bids](/assets/image/hukuk-postasi-default.jpg)
![Distribution of Dividends in Public Companies](/assets/image/hukuk-postasi-default.jpg)