Our firm assists clients in an alternative and innovative way of raising finance through the so-called crowdfunding. The process of crowdfunding is for the development of a product, business entity or the carrying out of an endeavour through a typically large group of individuals (“crowd”) and through a web platform (“crowdfunding platform”) which permits entrepreneurs to promote their projects to the public and collect relatively small amounts from that large number of contributors. The most common primer types of crowdfunding are:
Donation-Based Crowdfunding (“DBC”); and
Investment-Based Crowdfunding (“IBC”).
If you intend to raise and realise your projects in an alternative and innovative way through a crowdfunding platform, we offer the following services in an efficient and professional manner:
Structuring, legal and regulatory advice on crowdfunding platform;
Assisting with the entire licensing process for the applicable a Category 1A Licence for IBC;
Reviewing and/or drafting of necessary documentation, especially the prospectus in case of IBC;
Liaising with the competent Maltese authorities on an ongoing basis;
Assisting with the company incorporation;
Advising to ensure compliance with all the Anti-Money Laundering (AML) requirements and establishing effective KYC procedures for IBC; and
Helping passport your licence to other European Union member states, thereby using Malta as a hub for providing services throughout the EU.
In case of this type of crowdfunding, the investors invest directly or indirectly in new or established entities by acquiring shares, bonds and other debt instruments (but not convertible shares), units in collective investment undertakings, and instruments embedding a derivative. In order to provide Investment-Based Crowdfunding services, a platform shall apply for a Category 1A Licence from the Malta Financial Services Authority.
The following restrictions shall also apply to the operation of this Investment-Based Crowdfunding platform:
an investor cannot invest more than € 5,000 over a period of 12 months in any issuer listed on an Investment-Based Crowdfunding platform; and
an investor cannot invest more than 20% of their net annual income through an Investment-Based Crowdfunding platform over a period of 12 months; and
an offer of securities made on an Investment-Based Crowdfunding platform cannot exceed the value of € 1,000,000 over a period of 12 months; and
an issuer shall only be allowed to place a project on one crowdfunding platform.
The Category 1A Licence is subject to minimum initial share capital of EUR 50,000, and a one-time application fee of EUR 2,500, but once the Investment-Based Crowdfunding is licenced in Malta, the platform can benefit from passporting their activities to other EU Member States in terms of the Markets in Financial Instruments Directive (2004/39/EC).
The Donation-Based Crowdfunding platforms are usually operating as a rewards-based system, where the investors or donors may support (especially donate) a project or a product by contributing relatively small amounts of money to the owner of the campaign which is advertised on the online Donation-Based Crowdfunding platform. Moreover, this platform allows to the idea, charity, or start-up business as part of the campaign to solicit funds in the form of donations, or exchange for specified rewards. As the Donation-Based Crowdfunding is basically not regulated as a financial service, our law firm provides assistance on company incorporation for Donation-Based Crowdfunding platform operating and in other platform operation legal requirements and advises on potential regulatory exemptions that may apply.
