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