Defective emissions on crowdfunding platforms

Equity Crowdfunding, also known as share Crowdfunding, has become a popular method of raising capital. In exchange for (usually) modest contributions, shareholders take up minority shareholdings, thus becoming a part of the shareholding, and the company obtains the funds needed for development. At the moment, at least 3 platforms dealing strictly with Equity Crowdfunding are operating in Poland. The scheme is very simple – potential investors enter the website of a given Crowdfunding platform and have in front of them a list of currently conducted issues. They can check there what the company is doing, by what amount it is planned to recapitalise, how many funds have already been raised and how many days remain until the end of the issue. It is enough to make a good decision, take a block of shares and that is it – all that remains is to wait for the fruits of our (undoubtedly) successful investment. Undoubtedly, from the investors’ point of view, this is a very simple process.

What are the legal requirements for companies seeking capital in this way?

Such offers usually do not exceed the equivalent of EUR 1,000,000, so the provisions of the EU Regulation 1129/2017 on the prospectus to be published in connection with the public offer of securities or admission to trading on a regulated market do not apply to them (…). Therefore, the provisions of the Commercial Companies Code and the Act on Public Offering (…) remain. Regarding the regulation of the Commercial Companies Code, Equity Crowdfunding is carried out in the form of an open subscription (Article 431 § 2 point 3 of the Commercial Companies Code), and in accordance with Art. 440 § 1 of the Commercial Companies Code, when starting the subscription process, the company should make an announcement calling for subscribing for shares – essential, so that it contains all the elements imposed by the Commercial Companies Code and meets the requirements that the law provides for announcements.

What is a notice within the meaning of the provisions of the Commercial Companies Code?

Pursuant to Art. 5 § 3: “The notices required by law from the company are published in the Court and Economic Monitor, unless the law provides otherwise.” After analysing the share crowdfunding offers present on the market, it can be stated with concern that some issuers are not aware that the announcement referred to in Art. 440 § 1 of the Commercial Companies Code must be published not only on the company’s website, but also in the Court and Economic Monitor.

What is the risk for failure to comply with the code requirements in the above scope?

The registry court may refuse to enter a defective increase in the register of entrepreneurs, which in the light of the law will mean that the subscription is invalid. In practice, this will require the whole procedure to be relaunched; and this is, as is well known, a matter of months. At best, the company will lose “only” time, but it may also lose a lot more – investor confidence.

The Polish Financial Supervision Authority may also raise doubts regarding compliance with the provisions of the Commercial Companies Code in the course of crowdfunding subscriptions. It should be noted that failure to comply with the written recommendations of the Polish Financial Supervision Authority may have severe consequences, such as the prohibition to continue conducting public offers.

Compliance with legal procedures in the course of raising capital is an overriding and crucial issue. Unlike some (to put it mildly) little transparent legal regulations, the Commercial Companies Code and the regulations on subscription and related announcements contained therein belong to the ones not raising doubts and which also should be mentioned – have been in force for more than twenty years.


Maksymilian Marciniak