THE CROWDFUNDING LAW FOR BUSINESS VENTURES

After months of prolonged work on a draft Polish law to apply the ECSP Regulation in our country, on the 7th of July 2022, the Parliament passed the Act on Crowdfunding for Business Ventures and Borrower Assistance (the “Act”). In the past week, the Act was signed by the President of Poland and promulgated in the Official Gazette, and will become effective on the 29th of July 2022.

Just a few weeks ago, there were few indications that the slow-moving work on the delayed Act would gain such significant acceleration and that the Crowdfunding Act itself, by accident, would become a widely discussed topic not only in the specialized press. This happened, of course, due to the addition of provisions introducing the so-called “credit holidays”. From perspective of those interested in crowdfunding, the most important thing is that the Act was finally passed, although the aforementioned legislative procedure (expanding its regulation to include “credit holidays”) may raise constitutional concerns. Leaving the above doubts for separate later considerations, and concluding this part of the series on investment crowdfunding in this article, we will try to introduce the most relevant aspects of the soon-to-be entered into force Act.

1. Importance of the Act for the investment crowdfunding market in Poland

The market for crowdfunding services in the area of business ventures, which has been developing dynamically over the past few years, has remained in Poland without a dedicated statutory regulation.

The Regulation of the European Parliament and of the Council on European crowdfunding service providers for business (the “ECSP Regulation”), in force since the 10th of November 2021, created a uniform legal framework for the provision of crowdfunding services across the European Union, however, the lack of a Polish act to apply the above regulation to date meant that the EU regulation remained effectively dead letter in our legal order. With the entry into force of the commented Act, the above status comes to an end.

It is worth noting at this point that in the community we can listen to both voices of satisfaction drawing attention to the benefits of the regulation coming into force (including a significant increase in the allowed limit on the value of crowdfunding campaigns) and voices full of concern about the freedom and flexibility that has so far been characteristic of the Polish investment crowdfunding market being lost with the market coming under the supervision of the Financial Supervision Authority (KNF).

Regardless of the above discrepancies, in the light of the transitional period expiring on the 10th of November 2022 in which crowdfunding service providers could still continue their activities under the rules prior to the entry into force of the ECSP Regulation, the lack of a Polish act to apply the ECSP Regulation threatened to fully paralyze the Polish crowdfunding market. This is because the ECSP Regulation prohibits, after the expiration of the aforementioned transition period, any further provision of the above services without the license required by the ECSP Regulation. In Poland, only in the Act, just over 3 months before the end of the transitional period, it was indicated that the Polish Financial Supervision Authority was appointed to issue licenses to interested entities for the provision of crowdfunding services.

2. Scope of regulations

As indicated above, the Act, insofar as it concerns crowdfunding, is intended to apply the ECSP Regulation in Poland. As a result, the majority of norms regulating the rules of providing crowdfunding services to business ventures will have their source in the ECSP Regulation itself, which is directly applicable to the Polish legal system (more on this topic in the previous article in the series: https://www.linkedin.com/feed/update/urn:li:activity:6913118766369259520 ). However, the commented Act contains a significant supplement to the EU regulation, including in particular that it:

• indicates the Polish Financial Supervision Authority (“KNF”) as the authority competent to supervise the providers of crowdfunding services for business ventures,
• grants the KNF appropriate supervisory powers (including to suspend specific crowdfunding offerings or suspend the operation of providers, and to cooperate with judicial and supervisory authorities from other EU member states),
• imposes appropriate administrative and criminal sanctions for non-compliance with the ECSP Regulation or the Act,
• introduces civil and criminal liability for the correctness and truthfulness of the information provided in information documents prepared in connection with crowdfunding offers,
• introduces provisions on professional secrecy and rules for the retention of records related to the provision of crowdfunding services to business ventures.

3. Key changes resulting from the Act

Among the norms introduced by the Act, the most noteworthy are several regulations relating directly to crowdfunding, as well as some amendments to existing regulations, including in particular:

• Setting a temporary threshold for the value of crowdfunding offers conducted through platforms at €2.5 million. After the 9th November 2023, it will increase to €5 million.
• A related amendment to the Act on Public Offering and the Conditions for Introducing Financial Instruments to the Organized Trading System and on Public Companies, which introduced an increase, effective on the 10th November 2023, in the amount threshold for proceeds from the issuance of securities that exempts the obligation to prepare a prospectus, from €2.5 million to €5 million.
• The introduction of a prohibition in the Commercial Companies Code on offering to an undesignated addressee the acquisition or taking-up of shares in a limited liability company. It also prohibited promoting the above by directing advertising or other forms of promotion to an unspecified addressee. This change means that limited liability companies, which are the most numerous group among commercial companies operating in Poland, have been excluded from the group of entities that can raise capital through equity crowdfunding. Those interested in crowdfunding limited liability companies were left with crowdfunding based on loans or the issuance of bonds as well as the possibility of becoming a joint-stock company or a simple joint-stock company.
• Introduction of the obligation to inform the KNF, at least 3 months in advance, of the intention to start the individual loan portfolio management service by crowdfunding service providers providing loan facilitation services.
• Impose on crowdfunding service providers, the obligation to submit to the KNF at least 7 days in advance the key investment information sheet. The above is an exercise by the Polish legislator of the so-called “national option” provided for in Article 23(14) of the ECSP Regulation leaving to the discretion of the national legislator whether the key investment information sheet is to be notified before the start of the crowdfunding campaign.

4. Fees from crowdfunding service providers

Fee for granting a permit (license)

The Act adopts the solution that the granting of a permit (license) under the ECSP Regulation, to the full extent of the provision of crowdfunding services, is subject to a fee of no more than 4,500 euros. The exact amount of this fee, as well as the amount of the fee for a partial license, i.e. for facilitating lending or underwriting without underwriting guarantees, will be specified in a pending regulation.

Annual surveillance fee

The annual surveillance fee charged to crowdfunding service providers will be calculated on the basis of the average value of revenues in the three years preceding the year for which the fee is due. The fee will be no more than 0.5% of the above average, but no less than the equivalent of 750 euros in PLN. The detailed method of calculation, as well as the method and deadline for payment of the annual fee will be specified in a pending regulation.

5. Reporting obligations of crowdfunding service providers

Providers of crowdfunding services will be obliged to provide the KNF with information on their activities, their financial situation and events that may affect their crowdfunding activities or their financial situation. If the aforementioned information requires that, the Law provides for the possibility of imposing an obligation to submit the documents from which it derives. The above information will be provided in the form of current and periodic reports and periodic reports whose detailed scope and delivery dates will be specified in the pending regulation.

6. Administrative penalties for unreliable crowdfunding service providers

The KNF will be authorized to apply an administrative penalty of its choice from the range: prohibition of further violations of the Act, order to cease future violations, monetary penalty to or impose the above penalties jointly on the provider of the crowdfunding services. The amount of the monetary penalty may not exceed the amount of PLN 2,250,000, or an amount equivalent to no more than 5% of the crowdfunding provider’s total annual revenues as shown in the most recent audited financial statements for the fiscal year, or in the absence of such statements, in an amount of no more than 5% of the provider’s projected total annual revenues in the first year of operation, if it exceeds PLN 2,250,000.

The legislator also empowered the KNF with the right to publish information to the public about: the crowdfunding service provider, the type and nature of its violation and the content of the decision to impose an administrative penalty. However, the imposition of the above penalty on a crowdfunding service provider requires a resolution by the KNF.

The entry into force of the commented Act opens a new chapter in the functioning of equity crowdfunding in Poland, adaptation to new requirements and conditions may prove to be a challenge for current and future market participants, but we believe that the benefits of the regulations coming into force, as well as the current global trend of increasing importance of equity crowdfunding in the economy, will allow the development of this another form of financing also in Poland.

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Disclaimer: This publication has been prepared for clients and professional associates of Miller Canfield, and is based on the facts and guidance available at the time of its release which may be subject to change. The purpose of the publication is to draw attention to the legal events indicated in it and should not be the sole basis for any decision regarding a particular course of action; nor should it be relied on as legal advice or regarded as a substitute for detailed advice in individual cases.