We’re getting a lot of questions to our Inbox about the legalities of equity crowdfunding, as much of the American-led tech media still refers to it as illegal. We covered tax implications recently, but corporate structure is a little more complex. So I called up our legal brain and startup law expert Tommy Dahlen to get some answers. And here they are:
Provided that you structure the crowdfunding campaign correctly, equity crowdfunding is legal under applicable law in Norway.
It should however be pointed out that you should seek legal advice, either from the representatives of the crowdfunding platform provider, or an independent lawyer or legal advisor, to ensure that all formal requirements are met. The service provider will normally have all necessary information available and safely guide you through the various steps required to successfully, and legally, launch and execute your campaign.
You could for instance be required to prepare a “prospectus” for use in the campaign dependent on how much equity you are trying to raise, where the main threshold is €1,000,000 over a 12-month period. Under this threshold you would still be required to provide potential investors with certain information about the company, but without the same formal requirements.
It should also be pointed out that the current legal framework in Norway does not provide specific legislation for crowdfunding, insofar as that neither the process of placing the equity crowdfunding campaign nor the equity itself is specifically regulated, so that this is somewhat unchartered legal territory. However, done correctly, equity crowdfunding could prove to be a valuable source of financing for your venture.
Normally, an equity crowdfunding campaign would offer regular shares to the investors just as you would in a conventional private placement. The main difference would be the process of finding the investors, and the number of investors, but at the end of the day you would end up with investors who themselves will own regular stock in your company and exercise the rights normally associated with the shareholders position.
You need to keep in mind that a large number of shareholders add some administrative “burden” on the company, with respect to information requirements etc, so it’s wise to prepare some guidelines for how the company will interact with its owners.
Investors would enjoy all rights and benefits as the other shareholders of the company in accordance with applicable law. This would include a right to vote in the general assembly, have a right to various types of information, a right to equal treatment as other owners, a right to dividend etc. However, in preparation to launching a crowdfunding campaign, every company should look into the possibility of establishing shareholder-/investment agreements that could govern some practical aspects of having a large number of shareholders.
As I pointed out earlier, the existing legal framework does not specifically address the more practical aspects of having a large group of shareholders. Having a shareholder agreement could in this respect prove valuable for both the company and its shareholders.
Any further questions on equity crowd funding? Let us know!
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