Share Based Crowdfunding In Turkey

I. Introductiın

Crowdfunding is a funding system which collects the needed financing from public for entrepreneurs and venture capital firms promising projects through platforms operating electronically. Share based Crowdfunding Communique was published on the Official Gazette dated 03.10.2019 and numbered 30907 by Capital Markets Board and entered into force on the same date.

II. The Establishment Process of Share Based Crowdfunding

Share Based Crowdfunding regulated under Capital Market Law Article 35/A. Participation banks and authorized stock brokers (with a minimum equity capital of 25,000,000 liras and conducting any of the brokerage and investment consultancy activities.) may participate in crowdfunding within the scope of the Communiqué if possess the stipulated conditions. All Crowdfunding platforms must be listed by the Capital Market Board. In order to operate under the provisions of the Communiqué, each platform must:

• be added to the CMB’s list;
• be established as a joint stock company;
• have paid-in capital of at least TRY 1,000,000 and maintain this amount of paid-in capital and shareholders’ equity.
• use the expression “Crowdfunding Platform” in its trade name,
• establish a Board of Directors consisting of at least three directors.
• have shareholders and directors who meet the conditions set out in the Communiqué, and
• establish an investment committee in accordance with the requirements set out in the Communiqué. The platforms may operate exclusively in crowdfunding.

III.  The Application Conditions for Share Based Crowdfunding 

Entrepreneurs who needs resources and/or venture capital firms with the potential for development who are in need of resources will be able to apply. Venture capital firms must;

• be engaged in activities such as, technology or manufacturing,
• be established within the last five years starting from the publication date of the information form,
• must have financial statements accordingly,
• must have a registered website, which gets checked periodically.

In the Communiqué, companies that are not allowed to raise funds by Crowdfunding were also determined as;

1. Publicly- Held corporations
2. Companies whose management control belongs to another legal entity.
3. Companies whose partners are publicly-held corporations and/or the Capital Market Board

 IV. Investment Through Crowdfunding Platforms

People who are planning on investing through Crowdfunding Platforms must be a member of said platform. The members can be;

• resident real persons and legal entities in Turkey
• nonresidents of Turkey.

The steps which must be taken in order to acquire a membership are as follows:

Step 1 – Authentication

Step 2 – Membership Contract between the member and Platform

Step 3 – General Risk Form (signed by the investors.)

Finally, another important issue is the term “qualified investors”. Qualified investors are professional clients, and after completing the aforementioned steps just like any other investor, a determination by the Central Risk Agency is required to confirm their status as a “qualified investor”.

V. The Application and Campaign Process 

The campaign process begins with an application made by the entrepreneur or the venture capital firm to any Crowdfunding Platform. The Investment Committee approves the campaign applications, if they fulfill the conditions that are required and after said approval, publishes the information form related to the campaign and starts the campaign process which last for a maximum of 60 days. Investors can use their right to withdraw within 48 hours after the payment order is delivered.

In order to end the campaign process the last investor’s right of withdrawal should have expired even if the targeted fund gets collected before 48 hours. Real persons who are not qualified investors may invest a maximum amount of TRY 20,000 within one year. This limit can be applied as 10% of the annual net income that the investor declares to the Platform, provided that it does not exceed TRY 100,000. The CRA is in charge of monitoring the compliance level of the investment limits. It should also be noted that changes that may affect the investment decision during the campaign must be reported to the platform immediately.

If a fund has been raised for;

• A Venture Capital firm, the fund should then be transferred to blocked account belonging to the trustee of the Platform. Capital increase should be made accordingly within 30 working days following the end of the campaign process.
• An entrepreneur;a Venture Capital Firm should be established within ninety days following the campaign period

The platform should inform the CPA regarding nominal pars after the capital increase. With this, the campaign process comes to an end. If on the other hand, the fund could not be raised by the end of the campaign process, the Platform shall notify the trustee for a refund within the working day following the end of the campaign process .

VI. The Usage of Funds and Audit 

An Independent audit report which is prepared by an independent audit firm determines whether the fund is being used for the specified purposes. If not, a notification shall be made to the Capital Markets board regarding the misuse of funds. Platforms which successfully operates according to the provisions of the Communiqué can not use the funds for real estate trading and financing.

VII. Delisting

The Capital Market Board is entitled to delist the Platforms by request or ex-officio due to their non-compliance with the provisions of the Communiqué. In the event that the platform cannot fulfill the required conditions set forth in the Communiqué, due time will be given by the Board for them to remedy said deficiencies. If the required conditions are not fulfilled by then, the Board shall delist the Platform. Platforms that the CMB removes from the list upon request or ex-officio will be unable to apply to the CMB for re-listing to engage in Crowdfunding for a period of one year.

VII. Conclusion

Crowdfunding is a system used for financing and investment for venture projects that is frequently used in America and in Europe. Turkey has adopted this system in 2016 and it can be observed that it has brought much welcome benefits to it’s economy in doing so.

In Turkey, where the number of start-ups are increasing rapidly, the Communiqué, which brings together entrepreneurs and investors in order to realize their projects as well as protecting the funds, it is expected to speed the conclusion process of projects with it’s entry into force.

 

 If you would like to know more on this matter or require legal assistance, you may get in touch with BerkerBerker Law Office via info@berkerberker.com or any other contact information listed at our website www.berkerberker.com