With the introduction of the amendments to Capital Markets Law No. 63621 ("Capital Markets Law") on December 2017, crowdfunding has been legally accepted. The respective changes have been set out in the earlier newsletter article titled "Crowdfunding in Turkey."2 Although the amendments bring significant impacts to the market, these are very general provisions. Many topics have not been regulated under the Capital Markets Law, and have been left to secondary legislation. Within this content, the type of crowdfunding to be legalized and regulated, the documents required for approval by the Capital Market Board ("Board"), transition clauses for the existing crowdfunding platforms, details regarding the investors, and the limitations regarding funding, are some of the topics left for the secondary legislation to address. Hence, the Board has published the Draft Communiqué on Equity Based Crowdfunding (III-35/A.1) ("Draft Communiqué") for the views and recommendations of all persons and institutions with its announcement dated 3 January 2019. This article will mainly focus on the innovations to be introduced in the near future through the Draft Communiqué with respect to crowdfunding platforms, membership to the platforms, procedures of the campaigns, and the principles to use the funds.
Innovations to be introduced through the Draft Communiqué
The Scope of the Draft Communiqué
The legislator has been silent in respect of its preference for the type of crowdfunding under the Capital Markets Law. As a matter of fact, only crowdfunding based on equity is regulated under the Draft Communiqué, and donation and reward-based models are kept outside of the regulation. The procedures and principles of equity based crowdfunding, crowdfunding platforms, their activities, membership to the platforms and campaign process, utilization of the funds and venture firms, and the control and audit of the funds as to whether they are utilized in line with the purposes generally, are regulated under the Draft Communiqué.
Inclusion to the List
For the existing platforms to continue their activities, or for new platforms to engage in crowdfunding, they should be included to the list by the Board. As per the Draft Communiqué, certain requirements must be met, in addition to the application documentation to be submitted. Notable requirements for the platforms includes, among others, that the platform should be formed as a joint stock company with a minimum paid-in capital of TRY 1,000,000, all the shares must be in registered form, the trade name of the platform should include the wording "Crowdfunding Platform," the articles of association should be in line with the provisions of the Draft Communiqués, and it should clearly be specified that the platform will mainly be engaged in crowdfunding activities under the scope and activities provision of the articles of association. As well, the shareholders and board of directors members should satisfy all the conditions and meet all the qualifications (including the conditions indicating the financial strength, or evidencing that it has not committed any capital markets crimes or financial crimes) as stated under the Draft Communiqué, the board of directors should be composed of at least three members, an investment committee must be established, and existence of the infrastructure must be provided.
Removal from the List
If the platform that is on the list has lost one of the specified conditions, then the Board should be notified of such situation within two business days. The Board then removes the platform that does not qualify under the respective conditions within the notified period of time. As well, the Board has the right to ex officio remove the platform without granting any period if it is detected that such platform acts contrary to the obligations arising from the Draft Communiqué. It is required that such unlisted platform must inform the Board once the trade name and the scope and activities under the articles of association have been amended. The platforms that are unlisted ex officio by the Board, or those based on an application, cannot reapply to be listed in order to engage in crowdfunding activities within one year following the resolution regarding the removal from the list. Likewise, the shareholders of such delisted platform cannot be assigned under any title or become a shareholder in another crowdfunding platform for a term of one year.
The entrepreneur who would like to be in the campaign under such platform must submit an application. The investment committee of the crowdfunding platform then evaluates the entrepreneur, and/or the business idea, and denies or approves. The approved submissions would be uploaded to the system, and the campaign process of a maximum of 60 days would begin. During the campaign process, the platform would provide daily updates to the entrepreneur. The result of the campaign should further be announced to the public, and the blocked funds should be transferred to the entrepreneur, or returned to the investors based on the results. If the campaign is successful, then the funds should be transferred to the entrepreneur, and the entrepreneur is to make a capital increase within 30 days. When the capital increase has been performed, the investors then become shareholders prorated to their investments.
Prohibited Activities of Platforms
The Draft Communiqué sets forth those activities that platforms cannot engage in. Accordingly, the platforms cannot intermediate in activities of granting loans or lending money, cannot engage in crowdfunding activities based on real estate, cannot perform crowdfunding activities in order to raise funds from residents in Turkey; for the companies that are resident abroad, cannot provide assessments, analysis, or comments regarding the venture firms, or projects to the investors that would qualify as investment recommendations, cannot publish advertisements of the venture firm or the project for which the campaign process is continuing, other than the introduction of such project or the venture firm, and the platform, together with its shareholders, the board members, and investment committee, cannot fund the venture firm or the project for which the campaign process is ongoing.
Membership of the Investor to the Platform
Investors are obliged to become a member, electronically, to the platform for the purposes of crowdfunding. The platforms should determine and confirm the authenticity of the identities of the investors who apply for this membership. Such information is to be transferred to the Central Registry Agency. A membership agreement, the minimum content of which is listed under the Draft Communiqué, is to be executed. The awareness of the investor in terms of the risks undertaken is to be determined, and then such application will be accepted, accordingly. Investors who become members as such would make investments 14 days from the acceptance to membership.
Other provisions under the Draft Communiqué regulate additional topics to the aforementioned provisions. In the transfer of the shares of a platform that is included on the list, the real person and legal entity becoming a shareholder, or shareholders, which have significant influence of such a legal entity, and that have significant influence in such platform, must meet the required qualifications of the shareholders. The Board must be notified of the share transfer, together with the evidencing documents. Share transfers that have not been ratified by the Board become void.
Other than the aforementioned provisions, foreign crowdfunding platforms are subject to the solicitation prohibition in Turkey. Additionally, an investment limit of TRY 20,000 has been set for real person investors, entrepreneurs cannot run two separate campaigns, simultaneously, control of the utilization of the funds in line with the purpose by the auditing companies, public disclosure requirements of the venture firms, and the responsibilities of the board members, are the other topics regulated under the Draft Communiqué.
Many topics that remain unaddressed are regulated within the scope of the Draft Communiqué. The scope of the Draft Communiqué only covers equity based crowdfunding. The platforms engaging in funding are required to be included on the list by the Board. As per the Draft Communiqué, there are certain conditions to be met by such platforms to be listed, such as capital adequacy, inclusion of mandatory content to the articles of association, and satisfaction of the required qualifications by the shareholder or board members. If the listed platforms lose one of the qualifications, or act contrary to the legislation, then the Board has the authority to remove such platform from the list. The campaign process of a maximum of 60 days is initiated by uploading the campaign that has been approved by the investment committee. The platforms cannot engage in certain activities, such as intermediating loans or lending money, providing investment recommendations, and cannot fund the venture firm or the project for which the campaign process is ongoing. The Draft Communiqué further regulates the membership procedures, change of shareholding in platforms, investment limitations, monitoring of the utilization of the funds, and obligations of the board members.
 Capital Market Law No. 6362, OG, No. 28513, 30.12.2012.
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.