After July 2022 amendments to the law, companies can now benefit from crowdfunding. As usual, the devil is in the details.
Poland’s Crowdfunding Act (Act on Crowdfunding for Business and Assistance to Borrowers of 7 July 2022) came into effect on 14 July 2022. The act refers to the EU’s Crowdfunding Regulation (Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European providers of crowdfunding service providers for business, and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937).
The EU regulation is directly applicable in the member states, so the issues covered by it have not been fully implemented into Polish law, and the Polish act merely cross-references the EU regulation. Thus a combined analysis of both the EU regulation and the national act is necessary to fully determine what crowdfunding provisions have been introduced.
What is crowdfunding?
A crowdfunding service means matching investors interested in funding business with project owners using a crowdfunding platform. This service includes activities such as loan facilitation or placing of financial instruments without a firm commitment basis.
As outlined in the preamble to the EU regulation, the provision of crowdfunding services aims to facilitate project financing by raising capital from a large number of persons, each investing relatively small amounts through a publicly accessible online information system. Thus, it includes services open to an unlimited number of investors who receive investment proposals at the same time, and involves raising funds mainly from natural persons.
In addition to general provisions defining requirements for delivering crowdfunding services for businesses and the procedure for carrying out supervision of such activities, the Polish act introduces changes to a number of other acts. Here we would like to signal those relating to corporate law and capital market law.
Amendments to the Commercial Companies Code
The EU regulation authorises member states to allow shares in limited-liability companies to be sold through a crowdfunding platform, but only when there are no restrictions on disposal of shares, including restrictions on the ability to offer or advertise shares to the public.
Under Poland’s Act on Trading in Financial Instruments, shares in limited-liability companies are not financial instruments and are not subject to oversight by the Polish Financial Supervision Authority (KNF). And under the Commercial Companies Code, they are not intended for public trading, due to the formal requirements associated with the sale of shares, i.e. notarisation of the buyer’s and seller’s signatures and the ban on issuing bearer documents for shares or profit rights in the company.
Pursuant to the EU regulation, a limited-liability company can raise capital by issuing bonds or taking out loans using crowdfunding as a project owner.
But the Polish act did not exercise the national option, and to ensure even rules for raising capital by companies with different legal forms, it includes a ban on publicly promoting the acquisition or subscription of shares.
This means the lack of possibility for disposing of shares by entities not overseen by KNF, which otherwise could, under the principle of business freedom, publicly promote the acquisition of such shares through online portals, performing an analogous function to platforms operated by providers of crowdfunding services.
As amended by the Crowdfunding Act, under the Commercial Companies Code, an offer to acquire shares in a limited-liability company may not be made to unspecified addressees, and acquisition may not be promoted by directing advertising or other forms of promotion to unspecified addressees.
Anyone who makes an offer to acquire shares in violation of these rules is subject to a fine, probation or imprisonment for up to six months.
Amendments to the Act on Trading in Financial Instruments
The amendments to the Act on Trading in Financial Instruments mean that a company operating a regulated market and any other legal entity can conduct financial crowdfunding activities only after obtaining authorisation as specifically detailed in the EU regulation.
The application for such a permit should be addressed to KNF. It is KNF’s task to assess whether the applicant meets the regulation requirements. In doing so, KNF takes into account the nature, scale and complexity of the crowdfunding services.
KNF may refuse to issue a permit if there are objective grounds for a potential threat to the effective, proper and prudent management of the legal entity in question, or a potential threat to the continuity of its operations and to adequate consideration of the interests of its clients and the integrity of the market.
Notably, as a result of the amendment, making a public offering, subscription or sale on the basis of a public offering through a crowdfunding provider does not require the intermediation of an investment company.
Amendments to the Act on Public Offerings and Conditions for Introduction of Financial Instruments into Organised Trading and on Public Companies
The Polish Crowdfunding Act also amended the Public Offerings Act regarding the offering of securities through a crowdfunding provider.
Such an offering requires disclosure to the public of the “key investment information sheet” referred to in Art. 23 of the EU regulation. The provider must deliver to KNF the information contained in the sheet at least seven business days before it is made available to the public. The issuer may make such a sheet available on its website no earlier than when the crowdfunding provider makes it available, along with a notice that participation in the offering is only possible through that provider.
Anyone who makes a public offering without complying with the EU regulation is subject to a fine of up to PLN 10,000,000 or imprisonment for up to two years, or both.
Danuta Pajewska, attorney-at-law, Aleksandra Nowacka, attorney-at-law, Capital Markets & Financial Institutions practice, Wardyński & Partners