I - Introduction

On December 5th, 2017, with the Omnibus Bill No. 7061

published on the Official Gazette, the Capital Markets Law No. 6362 ("Law") is

amended in a way to pave the way for the financing tool "crowdfunding" in

Turkey. As per the changes introduced under Articles 3, 4, 16, 35/A and 99 of the

Law, Turkey is now one of the few countries which governs crowfunding in its

domestic legislation. The Turkish Capital Markets Board ("Board") is now authorized

to regulate crowdfunding and license crowdfunding platforms in accordance with

the legislation. The Board is also authorized to enact the secondary

legislation for crowdfunding.

The idea behind the amendment is encouraging

investment in start-ups by way of building a bridge between small-scaled

funders and start-ups through online crowdfunding platforms.

Our article hereby summarizes how crowdfunding works

and the principles under the Law.

II - What is Crowdfunding?

Crowdfunding, as explained by the European Commission[1],

is a way of raising money to finance projects and businesses. It enables

fundraisers to collect money from a large number of investors (investors can

include companies, non-profit organizations, and individuals) via online

platforms.

In Turkey, Article 3 of the Law describes crowdfunding

as "fundraising through funding platforms in an attempt to provide a project or

entrepreneurs with the required funding within the principles set forth by the

Board, without being subject to provisions related to investor compensating of

the Law."

There are more than 600 crowdfunding platforms around

the world, with fundraising reaching billions of dollars annually, according to

the research firm Massolution.[2]

According to a Commission Report published in 2015, amongst 510 platforms

operating in the EU within the period under observation, the UK had the largest

number of platforms (143), which also accounted for the majority of the €2.0

billion raised by the participating platforms in total. The UK was followed by France,

with 77 platforms, Germany (65 platforms), the Netherlands (58 platforms) and

Italy (42 platforms)[3].

III - How Does Crowdfunding

Work?

Crowdfunding, so-called "social media version of

fundraising", is a new sector and is still developing. According to the

European Commission, fundraisers are usually charged a fee by crowdfunding

platforms if the fundraising campaign has been successful. In return,

crowdfunding platforms are expected to provide a secure and easy to use

service.

While advantages of crowdfunding are piling up from

reaching out to a global audience/customer group to actualizing a business idea

almost without cost, there is, as always, the flip side of the coin.  Many platforms require entrepreneurs to meet

their stated goals in order to receive the funds that have been pledged to

their idea. This means if entrepreneurs fail to reach their pre-determined

funding amount after putting in a longtime of work and effort, donations can be

returned to the funders.

IV - Legislative Criteria in

Turkey

Below is the outline of new crowdfunding principles

introduced with the Law in Turkey.

- The Board will be regulating crowdfunding within the

boundaries of the Law and enacting the secondary legislation accordingly.

- Online/electronically operating crowdfunding

platforms will be required to obtain a license from the Board and those who

carry out crowdfunding activities without obtaining a license from the Board,

will face access ban of the website with the decision to be given by the Information

and Communication Technologies Authority.

- Crowdfunding will not be deemed as a public offering

of shares, thus will not be subject to the related legislation such as requirement

of issuing an offering circular.

- The Board will determine the rules and procedures

applicable to establishment, shareholders, share transfers, employees, maximum

funding limits of these platforms and fund collection for one project/company

and will be authorized to monitor and audit compliance of crowdfunding

activities with these standards.

- According to Article 35/A of the Law, crowdfunding

platforms and relationship between investors and entrepreneurs will be subject

to the general conditions of Turkish laws (e.g. general rules under Turkish Commercial

Code and the Turkish Code of Obligations).

Authors: Gönenç

Gürkaynak, Esq., Ceren Yıldız and Ecem Elver, ELIG Attorneys-at-Law

(First published in Mondaq on January 2, 2018)

[1]

See at https://ec.europa.eu/growth/tools-databases/crowdfunding-guide/what-is/explained_es

[2]

See at https://www.entrepreneur.com/article/228125.

[3] http://www.europarl.europa.eu/RegData/etudes/BRIE/2017/595882/EPRS_BRI(2017)595882_EN.pdf