Law on Crowdfunding adopted by the Lithuanian Parliament
Lithuanian Parliament in 2016-11-03 has adopted the law which regulates crowdfunding – financial technology (Fintech) instrument which mediates for the companies seeking new investments. Law on Crowdfunding came into force in 2016-12-01 in Lithuania.
Minister of Finance of Lithuania Rasa Budbergytė has stated that this law is aiming to create modern financing tool for small and medium businesses, to promote people to “employ” their money and to expand financial technologies opportunities in Lithuania. Crowdfunding form is attractive because it can reach wider circle of investors, also because of possibility to test the new products if they would be attractive for the potential clients.
Crowdfunding meaning
Crowdfunding is an alternative
opportunity for borrowing money, first of all most useful for the small and
average businesses, also for the start-ups seeking for new investors in easier
way or simply to finance their business. The specific feature of crowdfunding
form is for the project creators to advertise their work on crowdfunding
websites and invite anyone to join their project financing. Borrowing or
lending would be direct or by issuing securities.
Key provisions of the Law on Crowdfunding
Terms are provided for the crowdfunding platform operators in order to secure appropriate protection of investors. Information provision, registration of the platform operators in the official regulators list and other requirements apply. For example, in order to protect unprofessional investors, before investing they shall perform specific investment suitability tests. In addition, the Law on Crowdfunding determines what kind of information must be reachable for the potential investor in order to evaluate risks related to the investments.
Project creator who is planning to attract investments from 100 000 EUR – 5 mil. EUR per year, shall prepare the document with project information. If the value of investments would exceed 5 mil. EUR per year, creator would be able to receive this money only by issuing securities. Also, public information about the securities must be presented in front of investors and society.
Platform operator shall also have initial share capital of 40 000 EUR or 0, 2 % of unreturned money for the investors. Civil liability insurance, financial institution warranty or guarantee would also be applicable instead of required share capital.