CROWDFUNDING LICENSE. SECURITY TOKEN OFFERINGS (STO) LICENSING IN EUROPE

Crowdfunding or Peer to Peer financing platforms are intermediaries helping investors/lenders finding businesses that needs financing. Licensing time – from 1 month. Equity capital –  EUR 40 000.

European Crowdfunding Regulation coming soon predicts crowdfunding boom in  EU/EEA area. Banks and other traditional lenders are not able to finance all the businesses need financing because of the risk regulations and other regulatory requirements. Crowdfunding platforms provide a marketplace for other lenders to fill the gaps and finance existing and new businesses. Interest rate paid by the crowdfunding and P2P financing platforms to the investors is usually higher than paid by traditional finance institutions.

Crowdfunding is ideal financing tool to finance start-ups, letting lenders to get the share in start-ups, lend them through bond or token issue expecting higher return. Lithuanian Crowdfunding Law makes Lithuania one of the few jurisdictions in  EU/EEA having modern, clear and transparent crowdfunding regulation. Securities issued by licensed crowdfunding platforms are allowed for distribution in all European market allowing to attract capital for crowdfunding needs from all around European Union (EU).

The Bank of Lithuania (regulator) makes the decision regarding inclusion in the list (licensing) within 30 business days after the submission of licensing documentation.

The capital requirement for the Crowdfunding platform operator amounts to EUR 40,000.

Crowdfunding instruments. Rise of capital through STO and Token offerings

Licensed Crowdfunding platform operators are permitted to raise capital of their client companies through crowdfunding platforms using different instruments: (i) simple loan agreement; (ii) issue of debt securities (i.e. bonds); (iii) issue of equity securities (i.e. shares); (iv) assignment of claim rights deriving from existing credit agreements. Modern instruments like Initial Coin Offering ICO, Security Token Offering STO and other kinds of utility Token offerings can be used in order to raise the capital of investment project owners through licensed crowdfunding platforms. This opens completely new opportunities distribute investment instruments all over  EU/EEA area.

Passporting of Crowdfunding license in Europe (EU/EEA area)

Crowdfunding license currently considered as Lithuanian national license. Lithuania is expected to be one of the first  EU/EEA jurisdictions adopting coming new European Crowdfunding Regulation in to the national legislation and creating fully passportabe pan-European Crowdfunding license. All the applicants currently applying for the license may consider further pan-European reach of the Lithuanian license. In case the local regulations of other  EU/EEA member states does not require domestic crowdfunding licensing, national Lithuanian license was frequently used rising the funds from the investors in other European jurisdictions without any additional licensing. Moreover, full passportization of Lithuanian Crowdfunding license within the  EU/EEA area can be achieved combining Crowdfunding license with investment advisory or securities brokerage license issued under MIFID directive or other passportable license. Both licenses can be issued to the same company.

Requirements depending on the value of crowdfunding transaction

Simplified project owner information disclosure requirements are applicable for the crowdfunding transactions amounting 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 as licensed financial advisory firms and do not require additional licensing. Crowdfunding Platform Operators may provide following investment advisory services for investors (i) reception and transmission of orders and (ii) investment recommendations.

More about FinTech licensing. 

More about ECOVIS experience. 

Kęstutis Kvainauskas

Lawyer, attorney at law, partner of the law firm.

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