What is Crowdfunding?
Crowdfunding means the practice of raising money from a large number of people. There are many forms of crowdfunding, however, the Capital Markets Authority regulates the form that is related to securities activities, which the Securities-based Crowdfunding.
Securities-based Crowdfunding
A means through which companies can raise funds for projects in exchange for waiving part of their shares or issuing securities.
Special Terms Related to Securities-based Crowdfunding Service
Registered Crowdfunding Platform: a legal entity that is registered with the Authority to provide the digital operating software system that allows issuers and members of the general public to interact with each other through the offering and sale of Securities of a Crowdfunding Offer.
Offer Issuer: a corporate entity that offers Securities of its project or business venture to source funding through listing the offer in the Crowdfunding platform for the members of the public to invest in.
Subscription Agent (In the Context of Securities-based Crowdfunding): The one who is responsible of handling the operation and the organization of the subscription process in Securities offered on the Registered Crowdfunding Platform.
Eligible Offer: an offer that satisfies all the requirements outlined in Module Nineteen of these Executive Bylaws.
Special Purpose Vehicle (In the Context of Securities-based Crowdfunding): An entity that is incorporated for the purpose of making payments to fund the Offer Issuer’s project subject to the offering, in return of the Eligible Offer Issuer’s waiver of part of its capital in stakes/shares to the Special Purpose Vehicle Company, where the company’s Shares of the Special Purpose Vehicle Company are offered for subscription on the Registered Crowdfunding Platform.
How Does Securities-based Crowdfunding Work?
The Direct Model:
1. The company (offer issuer) offering the project hires a licensed investment advisor by the CMA to assess the viability of its project, and then prepares all required documentation for submission to the registered crowdfunding platform.
2. The crowdfunding platform reviews the offer to ensure its satisfaction with all requirements and, if approved, lists it on the platform.
3. A licensed Subscription Agent deposits and manages investors' subscription funds in a dedicated bank account.
4. Once the targeted amount is raised, the company (offer issuer) will allocate and register securities according to the Crowdfunding offer document and distribute them to subscribers.
The Indirect Model (Through a Special Purpose Vehicle):
1. The company (offer issuer) offering the project hires a licensed investment advisor by the CMA to assess the viability of its project, and then prepares all required documentation for submission to the registered crowdfunding platform.
2. The crowdfunding platform reviews the offer to ensure its satisfaction with all requirements and, if approved, lists it on the platform.
3. A licensed Subscription Agent deposits and manages investors' subscription funds in a dedicated bank account.
4. The Subscription Agent will establish a Special Purpose Vehicle (SPV) company for the purpose of making payments to fund the Offer Issuer’s project subject to the offering. Investors acquire shares in this SPV instead of directly in the company (offer issuer), and the SPV uses the funds to finance the project. In return, the company will waive up a portion of its ownership (shares) to the SPV.
5. The SPV can be dissolved according to one of the cases outlined in Article (2 – 3 – 49) of Module 19 (Financial Technologies) of the Executive Bylaws.
The framework of this service is available in Chapter Two of Module Nineteen (Financial Technologies) of the Executive Bylaws of Law No. 7 of 2010 and their amendmends.
