The New Communiqué on Crowdfunding

January 2022 İdil Yıldırım
% 0

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on Share-Based Crowdfunding, which was published in the Official Gazette numbered 30907 and dated 3 October 2019, was repealed.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

Newsletter Articles
Share Subscription Agreements
Capital Markets Law December 2021
Newsletter Articles
Turkish Mortgage Covered Bonds
Capital Markets Law October 2021
Newsletter Articles
The Practice of Green Bonds in the World and Turkey
Capital Markets Law October 2021
Newsletter Articles
Basic Principles Regarding Public Offering
Capital Markets Law April 2021
Newsletter Articles
Portfolio Management Companies 101
Capital Markets Law February 2021
Newsletter Articles
The Communiqué on Board of Debt Instrument Holders
Capital Markets Law September 2020
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Draft Communiqué on Equity Based Crowdfunding
Capital Markets Law May 2019
Newsletter Articles
Issuance of Shares in Registered Capital System
Capital Markets Law February 2019
Newsletter Articles
Newsletter Articles
Public Disclosure Obligation
Capital Markets Law August 2018
Newsletter Articles
Newsletter Articles
Mandatory Share Purchase Offer
Capital Markets Law June 2018
Newsletter Articles
MiFID II and its Eventual Impacts on Turkey
Capital Markets Law March 2018
Newsletter Articles
Management of Information Systems
Capital Markets Law March 2018
Newsletter Articles
Newsletter Articles
Important Changes in Capital Markets Legislation
Capital Markets Law January 2018
Newsletter Articles
Crowdfunding in Turkey
Capital Markets Law January 2018
Newsletter Articles
Recent Amendments to the Debt Securities Communiqué
Capital Markets Law December 2017
Newsletter Articles
Activities of Foreign Investment Institutions in Turkey
Capital Markets Law September 2017
Newsletter Articles
The Draft Law on Crowdfunding
Capital Markets Law April 2017
Newsletter Articles
Property Certificates
Capital Markets Law March 2017
Newsletter Articles
Newsletter Articles
Newsletter Articles
Financial Reporting Principles of Mutual Funds
Capital Markets Law December 2016
Newsletter Articles
Share Buy-Back by Listed Corporations
Capital Markets Law December 2016
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Prohibition On Hidden Income Shifting
Capital Markets Law January 2015
Newsletter Articles
Asset-Backed And Mortgage-Backed Securities
Capital Markets Law November 2014
Newsletter Articles
The New Era For Mutual Funds – I
Capital Markets Law November 2014
Newsletter Articles
Newsletter Articles
Squeeze-out and Sell-out Rights in Public Companies
Capital Markets Law October 2014
Newsletter Articles
Newsletter Articles
Newsletter Articles
Communiqué On Corporate Governance II
Capital Markets Law May 2014
Newsletter Articles
Communiqué On Corporate Governance I
Capital Markets Law February 2014
Newsletter Articles
Share Purchase Offer
Capital Markets Law February 2014
Newsletter Articles
Newsletter Articles
Communique Regarding Debt Securities
Capital Markets Law July 2013
Newsletter Articles
The Regulation Regarding Angel Investment Capital
Capital Markets Law February 2013
Newsletter Articles
Corporate Governance
Capital Markets Law March 2012
Newsletter Articles
Share Repurchase (Buybacks) Or Pledge Of Shares
Capital Markets Law August 2011
Newsletter Articles
Newsletter Articles
Newsletter Articles
Distribution of Dividends in Public Companies
Capital Markets Law December 2019

For creative legal solutions, please contact us.