A FactSheet On Share-Based Crowdfunding Platform
The Capital Markets Board issued the Share-Based Crowdfunding Communique in 2019 regarding share-based crowdfunding, which is one of the types of crowdfunding that was legitimatized in our country in 2017. In accordance with the Communique, the rules and criteria that have to be followed by the institutions that wish to become a crowdfunding platform are explained in this factsheet.
A. Conditions to Become a Crowdfunding Platform:
For crowdfunding platforms to start operating, they must be included in the list that is to be established by Capital Markets Board. To be included in this list, the platform shall comply with the following rules and conditions;
- Must be a joint stock company
- The minimum capital of 1.000.000 Turkish Liras shall be paid in cash, and the paid capital and equity shall not be less than this amount
- All of its shares must be registered
- The phrase “Crowdfunding Platform” must be in its trade name
- Platform’s corporate charter must be in compliance with the terms of the Communique and in the article of the corporate charter regarding platform’s practice areas, it must be stated that the platform is going to practice exclusively on crowdfunding
- Partners and the members of the Board of Directors must meet the conditions stated in article 6 of the Communique (These terms and conditions will be explained below.)
- The Board of Directors must consist of at least 3 people
- An investment committee whose qualifications are determined in this Communique must be formed (Investment Committee shall consist of three people, with one of them being a qualified investor. At least two members must have a minimum of five years of experience in the areas such as finance, entrepreneurship, business administration, legal consultancy, technology, industry and trade. The campaign will begin with the publication of the projects approved by the Investment Committee in the Crowdfunding Platform.)
- Internal control and risk system and an accounting and operation unit must be established.
- The Board must establish and operationalize the information system infrastructure stipulated in the information systems management regulations for the narrowly authorized intermediary institutions
- The Platform shall employ a sufficient number of personnel in the department responsible for documentation, recording and accounting procedures.
- To fulfill the operational procedures of the share-based crowdfunding activities, the Platform must sign a contract with the Central Registry Agency and the custodian; and the Platform has to harmonize its information processing systems and its technical infrastructure within the framework of the principles concluded by these institutions. (The Custodian is the Istanbul Clearing and Storage Bank, which blocks the collected fund as a custodian within the framework of the provisions of the Communique, and banks/intermediary institutions or other portfolio custodians, which are authorized by the Capital Markets Board to provide portfolio custody services until the fund raised through Crowdfunding platforms is transferred to the venture company or reinstated to the investors.)
- The Platform must establish an infrastructure within the platform itself through which the members can communicate with the venture company officials and/or with the entrepreneur electronically.
- The Platform must constitute a written conflict of interest policy that defines the conflict of interest that may arise between its personnel, between its personnel and the people it provides service, or between the people it provides service, and incorporates the measures that can be taken to prevent conflicts of interest and the procedures that shall be followed in cases of failure to prevent these conflicts of interest. The platform should bind this policy to the decision of the Board of Directors.
When deemed necessary, at the stage of being listed or during the activity period, the Board can make it mandatory in general or on a platform basis to take out a professional liability insurance.
The minimum equity requirement specified by the Board is applied at a half rate during the first two years following the platform being listed.
Even if the number of shareholders of joint stock company which collects money from the public through crowdfunding exceeds five hundred, its shares will not be deemed to have been offered to the public and it will not be subject to the provisions of publicly held corporations.
In worldwide practices, there are instances where Platforms charge a commission over the amount of funds collected. In the Communique, the Board deemed it appropriate to not make any arrangements regarding the commission, which is charged by the Platforms over the fund amount and the commission rate and/or amount for the commission.
B. Information and Documents Required in Applications for Inclusion of Platforms in the CMB’s List:
- Introductory information on the Platform
- An organizational chart that indicates the job descriptions and areas of responsibility of the units which is established to carry out the share-based crowdfunding activity
- A sample of corporate charter converted into single text which includes all the changes in effect
- A sample of public accountant office report regarding the determination of the payment of the capital of the Platform and a sample of Turkish Trade Registry Gazette regarding the registration of the capital.
- Documents affirming that the Platform’s partners and the members of the Board of Directors meet the conditions stipulated in article 6 of the Communique.
- Documents affirming that members of the Investment Committee meet the conditions stipulated in article 9 of the Communique. (*)
- Excluding the Platform’s partners, members of the Board of Directors and members of the Investment Committee, information about the administrative and supervisory personnel who actively take part and responsibility in the activities of the platform.
- Document template regarding the business process of the operations of the share-based crowdfunding platform and document template of its simulation. (*)
- A sample of the platform’s conflict of interest policy and the sample of the Board of Directors’ decision to adopt this policy.
- Detailed information on the establishment of the information processing infrastructure and technical equipment which are necessary to ensure the healthy execution of share-based crowdfunding activities, and samples of documents to be produced as its simulation. (*)
- An obtained letter of declaration from the CRA and the Custodian regarding the completed system integration with the CRA and the Custodian and the tests concerning this matter is completed.
- Information and documents indicating that the infrastructure, through which the members can electronically communicate with the officials of the venture company or/and entrepreneurs, has been established on the platform and samples of documents to be produced as its simulation. (*)
- Internal control, risk management units, documents, records and accounting transactions.
- In cases of outsourcing, a copy of the agreement(s) signed between the platform and the service provider(s)
- A sample of the contracts with CRA and the Custodian that are signed to ensure the execution of the operational transactions regarding the share-based crowdfunding activity.
- A draft of a membership agreement to be signed between the platform and the members. (*)
- A draft of a crowdfunding agreement to be signed between the platform and the venture company or entrepreneur. (*)
- Notarized signature circular of the platform,
- Other documents and information to be requested by the Board (*)
(*) In the applications for being listed of participation banks and broadly authorized intermediary institutions, only these documents are requested.
C. Outsourcing of Platforms
Services can be obtained from the specialized agencies by the platforms only for the actions that fall outside the actions which have to be carried out by the board of directors and investment committee, and only for the duties and responsibilities excluding the ones that are about the administration of the platform.
Nevertheless, outsourcing does not eliminate the responsibilities of the platform arising from the capital market legislation. CMB, when it finds it necessary, has the authority to determine the subjects that can be outsourced in general or in platform basis, to limit or forbid these subjects and, according to its nature, to bind the obtaining service to the condition of the permission.
D. Forbidden Activities for Platforms
- Crowdfunding platforms cannot intermediate in loan or lending transactions by means of taking interest or under any name whatsoever in return of pledge or equivalent, and they cannot undertake any crowdfunding activity in return of any capital market instruments other than the share-based crowdfunding itself.
- Platforms cannot undertake crowdfunding activities devoted to real estate property, buying and selling of the rights concerning a real estate property, development of a real estate property projects and joining to venture company.
- Platforms cannot carry out crowdfunding activities directed to raise funds through persons residing in Turkey for companies whose legal and business headquarters are located abroad.
- Platforms cannot make evaluations, analyses, comments that have characteristics of investment advice regarding venture companies or projects.
- Platforms cannot publish advertisements of the commercial products and/or services of the venture company or of the projects whose campaign is promoted, except the electronically shared or in print summary information regarding the promotion of venture company and of projects whose campaign process has not been completed and the promotions that redirect to the platform or campaign page.
- Platforms cannot mediate secondary market transactions regarding the shares.
- Platform, partners of the platform, members of the board of directors and the members of the investment committee cannot raise funds to the venture company or to the project whose campaign is promoted.