European Crowdfunding license. Securities and Token offerings in Europe
Crowdfunding platforms are intermediaries helping investors and lenders finding businesses that need financing and helping businesspeople to raise capital. Crowd financing is the modern alternative to traditional bank financing and the best solution to SME or start-up financing.
EU Regulation on European Crowdfunding Service Providers (ECSP) adopted in October 2020 predicts crowdfunding boom in continental Europe considered as the World’s biggest common market having 450 million consumers and more than 20 million businesses. Regulation creates common crowdfunding rules and the single licensing procedure in all European Union and European Economic Area (EU/EEA) helping crowd financing function more smoothly all across Europe.
The aim of the new regulation is to support cross-border funding and improve access to this innovative form of finance for small-medium enterprises (SMEs) and start-ups. European banks and other traditional lenders are not able to finance all the businesses because of the risk regulations and other risk mitigation and regulatory restrictions. Crowdfunding platforms provide a marketplace for other lenders to fill the gaps in business financing. Crowdfunding is an ideal financing tool for start-up financing letting lenders get the share in start-ups, lend them through loan agreements, securities, and token issues.
Rise of capital through loan agreements, bonds, stocks, securities, and Token offerings
Licensed Crowdfunding platform operators are permitted to finance their client companies through crowdfunding platforms using different instruments:
issue of debt securities (i.e. bonds);
issue of equity securities (i.e. shares);
assignment of claim rights deriving from existing credit agreements.
Modern instruments like Token Offering and Security Token Offering STO can be used in order to raise the capital for investment project through licensed Crowdfunding Platform. Securities offered through licensed Crowdfunding Platforms are allowed for public distribution in all European market of EU/EEA .
Pan-European Crowdfunding license for all EU/EEA area
Lithuania currently is one of few EU Member States having national crowdfunding regulation. Modern Lithuanian Crowdfunding Law creates clear and transparent regulation. The current Lithuanian national crowdfunding regulation regime meets all the requirements of the new European Regulation allowing the automatic transformation of Lithuanian national crowdfunding license into the pan-European licenses after the new Regulation will come into power.
Lithuania is expected to be one of the first EU/EEA jurisdictions to adopt the coming new European Crowdfunding Regulation into the national legislation creating a fully passportabe pan-European Crowdfunding license. All the applicants currently applying for the license in Lithuania may consider the further pan-European reach of the Lithuanian license. The capital requirement for the Crowdfunding platform operator amounts to EUR 40,000.
Requirements depending on the value of Crowdfunding transaction
Simplified project owner information disclosure requirements are applicable for the crowdfunding transactions amounting to less than EUR 100 000 in 12 months.
The crowdfunding project owner willing to enter into financing transactions for the total amount up to EUR 1 million in 12 months can issue the securities without publishing the security issue prospectus.
The project owner willing to enter into financing transactions for the total amount from EUR 1 million to EUR 8 million must draft a memorandum disclosing only the basic information about the project owner and crowdfunding project.
Projects over EUR 8 million need to issue and registering securities and prepare securities issue prospectus.
Licensed crowdfunding platform operators are considered licensed financial advisory firms and do not require additional licensing. Crowdfunding Platform Operators may provide the following investment advisory services for investors (i) reception and transmission of orders and (ii) investment recommendations.