Questions and Answers on Crowdfunding for Entities
1. What is crowdfunding?
Crowdfunding is the financing of entities or their activities and projects through their registration on electronic platforms available via the Internet, from where they raise investment tranches from one or several individual investors.
2. What types of crowdfunding are there?
The legal framework on crowdfunding established in Law No. 2012/2015 provides for four types of crowdfunding:
• Donation-based crowdfunding, where the funded entity receives a donation in return for, or not, consideration of a non-monetary nature;
• Reward-based crowdfunding, where the funded entity is obliged to provide the financed product or service in return for the funding obtained;
• Equity crowdfunding, where the funded entity repays the funding obtained through a share of its share capital, dividend payments or profit sharing;
• Loan-based crowdfunding, through which the funded entity pays interest on the financing obtained, at the rate defined at the time the funds are raised.
3. Which crowdfunding types are subject to CMVM's regulation and supervision?
The crowdfunding types that are within the scope of the CMVM's supervisory powers are solely those that pertain to equity and loan-based crowdfunding.
4. Are crowdfunding platforms able to pursue more than one type of crowdfunding?
Yes. Crowdfunding platforms can simultaneously pursue more than one crowdfunding type and are bound by specific requirements applicable to each type.
If a platform intends to pursue simultaneously crowdfunding types subject to CMVM supervision and those that are not subject to that supervision, management entities shall demonstrate to CMVM the segregation of the businesses in question.
5. Can one resort to equity and loan-based crowdfunding without using a platform?
No. equity or loan-based crowdfunding is a form of fund-raising by entities or individuals who intend to finance business activities and/or projects through their registration on electronic platforms, from which they obtain investment from one or more individual investors.
6. What type of information should be made available to investors by the management entities of crowdfunding platforms?
Management entities shall make available all the relevant information for informed investment decision making on the crowdfunding platforms, including:
• Information on the respective prior registration with the CMVM;
• Prior information on each offer, presented in a document containing the "key information for investors of crowdfunding" (IFIFC), the format and minimum content of which is described in Annex II of CMVM Regulation No. 1/2016, and which must be written in Portuguese;
• Information on current offers including identification of the beneficiary, the type of crowdfunding, deadline, remuneration rate, total amount of the offer, percentage of the amount raised, any credit ratings and guarantees provided, as well as any other materially relevant information on the terms and conditions of such operations;
• Historical information on the financed projects, including the number of projects and their amounts, broken down by type of crowdfunding and by the status of the financing (financing not due, financing repaid on time and financing not repaid on time), indicating the average rate of return and the average term of the loans;
• Price list;
• Information on investor protection procedures that should be adopted in the event of insolvency, cessation of activity and prolonged inactivity by the managing entity of the electronic crowdfunding platform.
7. Should the document with key information for investors in crowdfunding platforms registered in Portugal be written in Portuguese?
Yes. The document containing the "key information for investors of crowdfunding" (IFIFC) shall be drawn up in Portuguese, succinctly, without using technical language, does not mislead and shall be understood by the average investor. However, it may be simultaneously provided in another language.
8. Can the investor statement on investment limits be done without specifying the amounts specifically?
Yes. The investment limits' statement to be made by investors when subscribing to an offer, pursuant to the provisions of Article 20(4) of the legal framework on crowdfunding, and in Article 12(3) of CMVM Regulation No. 1/2016 and taking into account the need to conciliate de previous norms to that which is provided for in Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of individuals with regard to the processing of personal data and on the free movement of such data, may be issued without investors having to indicate the exact amount invested in the last 12 months (including the amount to be invested in the on-going offer) and may just declare that in the last 12 months (including the on-going offer) did not invest more than €10,000 in crowdfunding.
It should be noted that the duty to ensure the filling in said statement by the investor is based on the crowdfunding platform, in accordance with Article 17(2) of CMVM Regulation No. 1/2016.
9. Can holders of non-qualifying investment in the management entity of the crowdfunding platform invest in the offers made available on the platform?
Yes. Article 11(2) of CMVM Regulation No. 1/2016 should be interpreted as prohibiting investment in the offers made available on the platform by the holders of the management company of the crowdfunding platform to include the partners or shareholders holding qualifying holdings in the management entity (as established in Article 9(3) – (6) of CMVM Regulation No. 1/2016). Partners or shareholders of the management entity that hold non-qualifying shares may invest in the offers made available on the platform provided that the policy of management of conflicts of interest establishes procedures that mitigate potential conflicts of interest that may arise from such investments, namely the following:
(i) disclosure to investors on the platform's website, on how the partners/shareholders of the management entity, holders of non-qualifying shares, may invest in the offers made available on the platform;
(ii) establishing a maximum investment threshold by the partners/shareholders (e.g. 5% of the total amount of the financing in each bid);
(iii) the duty of the partners/shareholders concerned, in investing in all the offers made available on the platform and provide justification whenever they do not invest in a particular offer;
(iv)the need to register all investments made by partners/shareholders and the situations of offers in particular, that have not been object of investment by partners/shareholders and justification for said purpose; and
(v) the need for the compliance officer to monitor investment (or non-investment) situations in the offers made available on the platform by the partners/shareholders concerned, controlling the amount that was actually invested.
10. Can crowdfunding platforms publish project offers located in other jurisdictions?
Yes. Any natural or legal persons, national or foreign, interested in raising funds for their activities or projects through raising funds, may use crowdfunding platforms.
11. Are the offerings of the beneficiary companies on the equity and loan-based crowdfunding subject to public offer framework of the Securities Code (SC)?
The offers of securities in the scope of crowdfunding may be public offers, if the requirements set forth in Article 109 and none of the circumstances set forth in Article 110(1) of the SC occur.
Nevertheless, subjection to the rules of Articles 112 and ss of the SC (namely, the compulsory intervention of a financial intermediary and the need for prospectus approval and publicity for the offer, by the CMVM), will not be verified, among other exceptions set forth in Article 111 of the SC, if distribution offers are at stake and whose total value in the European Union is less than € 5,000,000, calculated based on offers made over a 12-month period.
Even if they benefit from any of the exceptions provided for in Article 111 of the SC, these offers will not be considered as public tenders and if, as a result of their execution, they fulfil any of the requirements set out in the sub-paragraphs of Article 13(1) of the SC, the company (beneficiary) will be classified as a publicly-held company (public company) and will be subject to the legal regime applicable to such companies.
The legal regime applicable to public companies includes, inter alia: (i) rules regarding the mention of such quality in external acts, the communication and disclosure of qualifying holdings and shareholder agreements aimed at acquiring, maintaining or strengthening qualifying holdings in these companies; (ii) rules on the convening and functioning of general meetings and resolutions and (iii) the application of the provisions on mandatory takeover bids.
12. Can a managing entity of foreign crowdfunding platforms, registered in the country of origin, carry on its activity in Portugal?
Yes, but the managing entity of the foreign equity or loan-based crowdfunding platforms located or registered in another country must register with the CMVM to carry out the crowdfunding activity in Portugal.