Publication date: October 14, 2024
Crowdfunding is an increasingly popular form of obtaining financing for ventures in which people interested in their success are involved. As part of this method, individual investors have the opportunity to invest money in projects of their choice, which in the future have a chance to bring them profits. Depending on the specific conditions, they can purchase shares in a company or lend the company funds for a specific purpose. At this point, it is worth considering the characteristics of these forms of financing.
Investment crowdfunding enables raising capital for the development of a project, in which both private and institutional investors are involved. They can make a payment to the company or acquire shares as part of a public offering. Investment crowdfunding allows obtaining a much larger amount of money than in the case of other forms of financing, such as a bank loan. Moreover, thanks to this solution, investors have a direct impact on the development of the project, which allows for increasing their interest and involvement in its success.
Crowdlending, on the other hand, involves obtaining funds in the form of loans from investors. In this case, the company does not sell shares, but only takes on obligations to repay the loan within a specified period and with specified interest. Debt crowdlending allows for obtaining capital for a shorter period than in the case of investments, which is its important advantage.
Both forms of financing, investment crowdfunding and debt crowdlending, have their advantages and disadvantages. Investment crowdfunding allows for obtaining much larger amounts, and investors have a direct influence on the development of the project, which increases their interest in its success. The disadvantage, however, is that due to the multitude of investors and shares, it is difficult to manage the company. Debt crowdlending, on the other hand, allows for obtaining capital for a shorter period, but may turn out to be less financially beneficial than investments.
Crowdfunding investments in Poland are regulated by the Public Offering Act. According to the Act, crowdfunding investments are public offers, which means that the company conducting such a project must meet certain legal requirements, such as preparing an issue prospectus and publishing it on the website. In addition, the company must obtain permission from the Polish Financial Supervision Authority to conduct such activity.
In the case of equity crowdfunding, investors have the opportunity to acquire shares in a company through crowdfunding platforms. These platforms act as intermediaries, allowing investors to make transactions and manage their investment portfolio. Crowdfunding platforms in Poland are subject to legal regulations that aim to protect investors and ensure their safety. The most popular such platforms in Poland include Crowdy, Emiteo and Findfunds.
In crowdlending, the company receives funds from investors in the form of a loan. The loan is secured by specific assets of the company, such as real estate or machinery. Thanks to this, investors have the certainty that in the event of the company’s insolvency, their loan should be secured. In the case of this method of financing, crowdfunding platforms are intermediaries between the company and investors who conclude a loan agreement. The content of such an agreement should specify the amount of remuneration for the investor (in the form of interest) and include a loan repayment schedule and possible forms of its security.
The growing popularity of social financing of enterprises has somehow forced the legislator to create appropriate regulations focusing on the unification of the principles of running platforms and the protection of potential investors against possible significant losses of capital. From 10 November 2021, the provisions of Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European crowdfunding service providers for business and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937 apply (OJ EU. L. of 2020, No. 347, p. 1, as amended). The most important changes introduced by the above legal act, called the ECSP Regulation (European Crowdfunding Service Providers) are:
– requirement to obtain a permit to provide crowdfunding services,
– introduction of regulations protecting investors,
– increasing the monetary limit of crowdfunding campaigns,
– taking into account technical standards (Regulatory Technical Standards (RTS) and Implementing Technical Standards (ITS)), which are prepared on an ongoing basis by European supervisors (ESMA and EBA).
In addition, in Poland, the Act of July 7, 2022 on crowdfunding for business ventures and assistance to borrowers (unified text: Journal of Laws of 2023, item 414), introduces and supplements the assumptions of EU regulations under Polish law. The Act establishes, among other things, the Polish Financial Supervision Authority (Polish “KNF”) as the authority issuing permits for the provision of crowdfunding services and introduces sanctions for non-compliance with individual standards of the regulation. The KNF may conduct inspections, apply preventive measures such as suspending the financing offer, but also, for example, impose fines on management board members.
It is worth emphasizing, however, that crowdfunding platforms could still operate under the current rules due to the extension of the transitional period for their activities.
After November 10, 2023, further operations by crowdfunding platforms are only possible on the basis of a permit obtained in accordance with Article 12 of Regulation 2020/1503.
The regulations unify the process of obtaining permits and conducting business as providers of crowdfunding services. All entities that obtain a permit from the Polish Financial Supervision Authority will be entered into a public register maintained by the European Securities and Markets Authority (ESMA). As a result, an entity that obtains a license in Poland is entitled to provide its services cross-border throughout the EU.
The ECSP Regulation allows for the conduct of crowdfunding activities by legal persons providing social financing services in the EU. However, significant restrictions are provided for in the scope of taking up and acquiring shares and stocks in a limited liability company. The amendment to the provisions of Article 182 of the Commercial Companies Code and Article 257 of the Commercial Companies Code closes the possibility of directing offers to take up shares in limited liability companies to unspecified addressees.
The ECSP Regulation also requires a social finance service provider to have at all times prudential protection measures in an amount of not less than EUR 25,000. However, this amount can be ensured not only by equity, but also by having an appropriate insurance policy or comparable guarantee.
A very important change, which is supposed to lead to the sustainable development of crowdfunding, is the increase in the campaign limit from EUR 1 to EUR 5 million over a 12-month period. However, investment and debt crowdfunding should be distinguished significantly from crowdfunding based on a reward system or in the field of collections for private individuals. The above-mentioned regulations and the license introduced by them therefore apply to business ventures.
The ECSP Regulation makes it easier for investors to exit their investments. They often find themselves in a situation where they need to personally look for a potential buyer to sell their shares or stocks. This problem is to be solved by enabling crowdfunding service providers to use the so-called notice board. This is where investors will be able to sell or buy shares or stocks related to crowdfunding actions. However, the most significant changes in the context of investor protection can be found in Articles 21 and 22 of the ECSP Regulation. These are further regulations concerning the initial knowledge test and the simulation of the ability to bear losses and the reflection period.
Crowdfunding service providers will be required to conduct a knowledge test and simulate the ability to bear losses, which are intended to make potential investors aware of the risks associated with this type of capital investment. On this basis, a classification will be made into experienced and inexperienced consumers. This division is intended to protect the latter from unwise decisions and allow them to smoothly enter the world of investing. They are subject to risk information standards and a special right to withdraw from a submitted offer, without consequences, before concluding a transaction. The time during which an inexperienced consumer has the right to withdraw is the reflection period.
Additionally, the ECSP regulation requires service providers to provide clear and non-misleading marketing messages and separately regulates their content in Chapter 5. Polish regulations from the Act on Crowdfunding for Business Enterprises and Assistance to Borrowers sanction failure to comply with these regulations with an order to suspend or a total ban on the publication of marketing messages.
The crowdfunding market in Poland is developing very dynamically. The value of the equity crowdfunding market at the end of 2021 amounted to at least PLN 308 million. Regulations in this area are therefore necessary and the legislator’s opening up to the development of the market by increasing the campaign limit, while not forgetting about the mechanisms to protect investors, is optimistic. There may be some reservations about the idea of a “notice board”, which seems exceptionally simple and potentially ineffective. Additionally, the approach of the Polish Financial Supervision Authority to providers of crowdfunding services and individual projects is a certain unknown.
https://www.knf.gov.pl/dla_rynku/crowdfunding
https://www.portalspozywczy.pl/alkohole-uzywki/wiadomosci/knf-przyglada-sie-interesom-janusza-palikota-jest-odpowiedz-spolki,221742.html?utm_source=newsletter&utm_medium=email&utm_campaign=portalspozywczy.pl
https://www.profinfo.pl/blog/finansowanie-spolecznosciowe-crowdfunding-inwestycyjny-i-dluzny-zgonie-z-ustawa-o-finansowanie-spolecznosciowych-dla-przedsiewziec-gospodarczej/