In 2017, the amendments made to the Capital Markets Code No. 6362 formed the statutory basis of crowdfunding, creating an alternative funding method for start-ups. The Communiqué on Equity-Based Crowdfunding (the "Communiqué") prepared by the Capital Markets Board (“CMB”) took effect following its publication in the Official Gazette dated 3 October 2019.

This Client Alert summerises key points introduced by the new Communiqué on equity-based crowdfunding (donations/grant-based or reward-based crowdfunding are not regulated).

INCORPORATION OF PLATFORMS

Only those platforms authorised and listed by the CMB may carry out crowdfunding activities. To be listed by CMB, crowdfunding platforms are required to meet a certain number of conditions:

• Platforms shall be incorporated as joint stock companies (participating banks and broadly authorised intermediary institutions may also be able to mediate crowdfunding if they meet the conditions set forth in the Communiqué), with a paid-in share capital (issued as registered shares) of at least TRY 1,000,000.
   
• The platform's trade name shall contain the wording "Crowdfunding Platform", and its articles of association shall indicate that the company solely engages in crowdfunding activities, consisting in the collection of funds from the public through an equity crowdfunding platform; and monitoring and auditing whether the collected funds have been used in line with the announced purposes of funding a project or a venture capital company. This being said, platforms are also allowed to provide consultancy services to "Individual Entrepreneurs" or "Start-up Companies" (both terms are defined below; throughout the remainder of this client alert, "Start-ups" will be the only term used for both).
   
• The members of board of directors (at least 3 members) and shareholders must meet a number of eligibility conditions set further under the Communiqué. The board of directors shall prepare and approve the platform's conflict of interest policy.
   
• The platform's board shall establish an investment committee to review and approve the applications. In order to ensure transparency and fairness, the investment committee shall determine an assessment policy.
   
• Moreover, internal audit, risk management, accounting, operational units and IT infrastructure must be established and relevant personnel must be employed by the platform. The platform shall conclude an agreement with Central Registry Agency ("MKK") and the custodian firm (Emanet Yetkilisi, in Turkish) (either Istanbul Settlement and Custody Bank (Takasbank) or any other licensed portfolio depository entities), and its IT infrastructure shall be aligned with the IT systems of the same. Potential investors and entrepreneurs will be able to communicate with each other by way of such IT infrastructure.
   
• Save for the activities which shall be exclusively performed by the board of directors and investment committee, platforms shall be allowed to obtain support services from third party experts. Such outsourcing shall not, however, exonerate the platform from its liabilities as regards capital markets legislation.
   
• Any share transfer shall be notified to the CMB, together with the documents evidencing that new shareholders also meet the requirements set forth under the Communiqué within 5 business days from the completion of the share transfer. Any share transfer not made in accordance with the Communiqué shall not be registered in the share ledger (otherwise such registration would be deemed invalid).

It is also worth mentioning that crowdfunding platforms established abroad have been left outside the scope of the Communiqué. However, if (i) such foreign platforms establish a workplace in Turkey; (ii) launch a website in Turkish; or (iii) conduct direct or indirect advertising and marketing activities in Turkey; their activities shall be deemed as targeting Turkish residents (as defined in Decree No.32 on the Protection of the Value of Turkish Currency) and the provisions of this Communiqué shall be applicable to such crowdfunding platforms established abroad.

Please click on the PDF file below to read the full Client Alert.
 

In compliance with Turkish bar regulations, opinions relating to Turkish law matters that are included in this client alert have been issued by Özdirekcan Dündar Şenocak Avukatlık Ortaklığı, a Turkish law firm acting as correspondent firm of Gide Loyrette Nouel in Turkey.

This client alert is not intended to constitute legal advice and should not be taken as a recommendation to take action or withhold from taking action.