Italy: Brief Overview On The New Italian Crowdfunding Regulation

Last Updated: 20 March 2014
Article by Antonia Verna

1 Introduction

Crowdfunding is an innovative instrument to finance projects by using on-line portals as an alternative to traditional forms of financing. The public can support projects with a social purpose, as well as new entrepreneurial initiatives, by paying their contributions through on-line portals which usually operate as platforms for donation-based or social lending, or through reward based crowdfunding, depending on whether the contribution is made as a donation or loan between private individuals, or whether a reward is provided for each contributor when certain circumstances are met.

The main characteristic of crowdfunding is that each contribution is usually represented by a small amount of money. Accordingly, the more people making contributions, more the chances are that the relevant project will attract enough funds for its implementation.

The crowdfunding phenomenon is continuously evolving. Its latest form is equity crowdfunding, according to which the public can support a project by subscribing to equity securities and becoming shareholders/quotaholders in the relevant company.

In October 2012, the Italian legislator outlined some measures related to equity crowdfunding whose effectiveness has been subject to regulation by the authority responsible for the Italian securities market (Consob). The regulation was issued in July 2013; Italy is now the first country in Europe to regulate equity crowdfunding.

2 How equity-crowdfunding works under Italian law

2.1 Who are the parties involved?

According to Italian law, the equity crowdfunding mechanism is based on a four-sided relationship amongst: a) start-ups, b) investors, c) on-line portals and d) banks or investment companies.

  • Start-ups: only start-ups qualifying as "innovative" or start-ups with a social utility purpose, according to the applicable law, can launch a public offer of their own equity securities through an on-line portal.1
  • Investors: the investors who can take part in the public offer by subscribing to the start-up's equity securities can be professional investors or the general public.
  • On-line portals: only companies duly registered with a new register kept by Consob can operate as on-line portals. In order to be enrolled in this register, companies shall submit specific documents to Consob allowing the latter to verify that they meet the requirements provided by the new regulation. Companies admitted to operate as on-line portals will be subject to ongoing monitoring activity by Consob and they will not be entitled to perform any investment services, nor to take care of any payment made by the investors to finalize their subscription.
  • Banks and investment companies intending to act as on-line portals will be automatically registered in a special section of the above registry without submitting any documentation to Consob.
  • Banks/investment companies: in cases where the on-line portal is not represented by a bank or an investment company, the subscription to the equity securities and the payment of the related contributions shall be made by investors through the support of specific banks or investment companies. The on-line portal shall communicate the orders of subscription received by the investors to these institutions, and the start-up shall open its own bank account with them in order to collect the funding.

2.2 How does the operation of equity-based crowdfunding work?

The equity crowdfunding mechanism consists of the following steps:

  • Selection of the on-line portal and definition of the relevant contractual terms: a start-up intending to launch a public offer of equity securities shall select an on-line portal enrolled with Consob's special registry. It shall then provide the portal with all information concerning the offer, as well as that concerning its business and organization, to allow the latter to make the relevant assessment. The on-line portal will host the public offer and publish it on its portal on condition that it agrees with the start-up on the terms and conditions of their business relationship, and that the start-up meets the requirements provided by law, such as: (i) the public offer does not exceed, in aggregate, the value of EUR 5 million; (ii) the by-laws of the start-up provide for specific way-out mechanisms (i.e. withdrawal or tag along rights) in favor of the investors in the event that, after the subscription of the entire offer, controlling quotaholders/shareholders sell their quotas/shares to a third party; (iii) the quotaholder/shareholder agreements have been communicated to the start-up and are published on its website.
  • Launch of the public offer on the on-line portal: the on-line portal must provide investors with specific, detailed information about the start-up and the public offer (i.e. information on the project; the business plan and internal organization of the start-up; rights and duties concerning the equity securities subject to the public offer; existing provisions on the transfer limitations of such securities; information on the banks and investment companies which will take care of the payments related to each subscription; any costs to which the investors are liable; information on the professional investors already subscribed to a portion of the equity securities; information on any public offer already launched by the same start-up on other on-line portals, etc.) and such information shall be continuously updated as necessary. Such measures are designed to ensure that each investor is fully aware of the risks connected to their investment. The information reported in the public offer published on the on-line portal is not subject to any approval by Consob. Only the start-up will be liable for its completeness and truthfulness.
  • Access to the public offer and subscription to equity securities by investors: the on-line portals will allow access and subscription to the public offer only to those non-professional investors who have (i) knowledge of the information on investor education provided on the Consob website, (ii) positively answered a questionnaire attesting that the investor is fully aware of the risks connected to the investment in the start-up, (ii) declared that they are in the position to support any economic loss deriving from the investment. The non-professional investors who have subscribed to a portion of the offer will be entitled to withdraw within seven days following their subscription, or to revoke their subscription should an event occur, or an error in the information relating to the public offer appear before it is definitively closed which might have a negative impact on the decision of the non-professional investor to complete its investment.
  • Payment of contributions by investors: the on-line portal must transmit the order of subscription received by each investor to the bank/investment company which will collect the relevant contributions. The latter shall carry out its tasks in compliance with the regulation on investment services, which includes a series of disclosure duties in favour of the investors, except in cases where the value of the contribution made by each investor falls under certain thresholds (i.e. in the case of contributions made by an individual, the value of a single subscription is less than EUR500 or the aggregate value of all subscriptions made in the same year by the same person with respect to the same securities is less than EUR1000; in the case of contributions made by a company, the value of a single subscription is less than EUR5000 or the aggregate value of all subscriptions made in the same year by the same investor with respect to the same securities is less than EUR10,000). This is because, in cases of small contributions, the need to protect non-professional investors from the risks connected to the investment is not so great.
  • Closing of the public offer: to close the funding operation, at least 5% of the equity securities must be subscribed to by professional investors, banks or incubators of the start-up.

3 Some preliminary comments on the new regulation

We must highlight the missed opportunity to open equity-based crowdfunding up to any start-up, and not only to those defined as innovative or those with a social utility purpose. Indeed, during a time of crisis such as that which we are experiencing, equity crowdfunding could have been a tool for any type of start-up to raise financing from the market.

Moreover, although the main purpose of the equity crowdfunding regulation is to help newly incorporated companies to raise funds in an easy and informal way by allowing non-professional investors access to public offers, it seems to aim at protecting such investors more than simplifying and facilitating the entire process of investment.

In this respect, how can we not be critical of the provision stating that at least 5% of the shares/quotas subject to the public offer must be subscribed to by professional investors, banks or incubators of start-ups in order to finalize the funding? This is certainly a form of protection for non-professional investors but it could nevertheless risk compromising the finalization of the entire fund-raising operation.

Furthermore, according to the applicable regulation, the on-line portal is not obliged to accept any public offer submitted to its attention by any start-up even though such start-up complies with the requirements of law. Indeed, the choice made by the on-line portal is not only based on the verification that the start-up is compliant with the requirements of law, but also on discretional assessments. Consequently, it might happen that an innovative start-up does not find an on-line portal willing to public its offer. In this respect, we wonder whether it would not have been more appropriate, and in the interest of start-ups, to provide clear and express criteria of assessment to be followed by the on-line portal.

Pursuant to the new regulation, it might be argued that should a start-up reach an agreement with more than one on-line portal, the same offer will be published on different platforms. In such a case, it is not clear how such platforms will communicate amongst themselves to periodically ascertain the number of subscribers and verify whether and when the offer can be considered closed.

4 Conclusions

Notwithstanding some preliminary critical remarks, we are of the opinion that the efforts made by the Italian legislator firstly, and later by Consob, to regulate for the first time a phenomenon that is under development and is becoming widespread are to be commended.

However, we should wait for the implementation of this regulation to verify whether gaps or inappropriate rules come to the light and whether some amendments need to be introduced to facilitate and improve the use of this new instrument, particularly in light of our first comments.

Consob has expressed its willingness to review the regulation in case it proves unsuitable. We hope that Consob will keep its promise and play an active role in monitoring the effects of the implementation of this new regulation and accepting suggestions by the relevant stakeholders, as already done during the drafting phase. (Article first published in Portolano Cavallo Newsletter Inform@ Corporate, December 2013)

Footnote

1 Please refer to the definition of "innovative" start-up reported in our alert on start-ups published in this newsletter.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions