Turkey: Recent Developments In Turkish Capital Markets – March 2022

In this monthly bulletin, we have summarized a specific piece of capital markets legislation for you: Turkish Crowdfunding Communiqué.

Turkish Crowdfunding Communiqué

Communiqué No. III – 35/A.2 ("the Crowdfunding Communiqué") published by Turkey's Capital Markets Board ("CMB") makes it possible for an entrepreneur or venture capital company to be funded by raising money from the public through platforms allowed by the CMB. The Crowdfunding Communiqué includes the general principles of crowdfunding and also determines the criteria that platforms and venture capital companies should meet.

According to the Crowdfunding Communiqué, crowdfunding can be conducted in two ways: equity-based crowdfunding and debt-based crowdfunding. Companies that are prevented from raising funds through crowdfunding are also included in the communiqué.

Below we highlight the prominent regulations of Communiqué No. III – 35/A.2.

The role of platforms in the funding process and the elements they should have

In order to allow the establishment of platforms by the CMB in accordance with the Crowdfunding Communiqué, the platforms must: (i) be a joint stock company, (ii) have a certain minimum capital, and (iii) the platform's founders must meet certain criteria, such as having determined qualifications. It is foreseen that changes in the partnership structure of a platform will be subject to CMB approval or a written notification, depending on the rate and nature of the change.

Platforms place funds collected from investors during a crowdfunding process in a bank account opened in the name of the funded company with escrow authority. Subsequently, it ensures that that the collected funds are transferred to the relevant company or returned to the investors under the principles determined within the framework of the communiqué.

General framework of fundraising through equity and debt-based crowdfunding

In equity-based crowdfunding, a new joint-stock company must be established before the funds are transferred to the entrepreneur. If the venture capital company is a limited liability company, the conversion of the company to a joint-stock company must be completed and registered within the periods specified in the communiqué. In this case, the funds will only be transferred to the company in exchange for newly issued shares through a capital increase. If the fundraising company is already a joint-stock company, a capital increase is made in the amount of the collected funds.

In debt-based crowdfunding, funding activities cannot be carried out against any capital market instrument other than debt instruments. The investment committee determined by the board of directors of the platform shall prepare an evaluation report on whether the company funded by the debt instrument can make repayments on a regular basis.

In both types of crowdfunding, the Crowdfunding Communiqué includes some common regulations:

• The campaign period for fundraising cannot exceed 60 days;
• The right of withdrawal can be exercised within 48 hours from the moment the payment order is given by the investors; and
• No new campaign process based on another share or debt can be started by the same entrepreneur or venture capital company before any on-going campaign process is completed. However, while a share-based campaign process continues for a project, it is possible to initiate a debt-based process for the same project and vice versa, within the scope of the communiqué.

Investment limits determined

In accordance with the Crowdfunding Communiqué, real persons who are not qualified investors can invest a maximum of TRY 50,000 (approximately EUR 3,000) in a calendar year. This limit can also be applied as 10% of the annual income of the investor, provided that the investment amount does not exceed TRY 200,000. In addition to these amounts in debt-based crowdfunding, real persons who are not qualified investors are able to invest a maximum of TRY 20,000 in a single project.

Qualified investors are exempt from the above limitations for crowdfunding investments.

ISSUANCES APRROVED BY THE CAPITAL MARKETS BOARD OF TURKEY – MARCH 2022

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.