Lithuanian Parliament’s Law on Crowdfunding
In 2016-11-03, the Lithuanian Parliament adopted the law regulating crowdfunding – financial technology ( Fintech) instrument that mediates for new investment-seeking companies. Crowdfunding Act came into force in Lithuania in 2016-12-01.
Lithuanian Finance Minister Rasa Budbergytė said this legislation is aimed at developing a new financing mechanism for small and medium-sized businesses, encouraging citizens to “hire” their capital and expanding opportunities in Lithuania for financial technologies. The form of crowdfunding is attractive because it can reach a wider circle of investors, also due to the possibility of testing the new products if they are attractive for potential customers.
Which means crowdfunding
Crowdfunding is an alternative platform to borrow capital, which is first and foremost useful to small and medium-sized companies, and also to start-ups seeking new investors in an easier way or simply to finance their business. The specific feature of the crowdfunding form is that project creators advertise their work on websites for crowdfunding and invite anyone to join their project funding. That would be direct borrowing or loaning, or issuing securities.
Key provisions of the Crowdfunding Act
Terms are provided for the operators of crowdfunding platforms to ensure adequate investor protection. Information provision, platform operators registration in the official list of regulators, and other requirements are applicable. For example , to protect unprofessional investors, unique investment suitability checks shall be conducted before investing. In addition, the crowdfunding law determines what kind of information the potential investor needs to access in order to assess investment-related risks.
Project developer who aims to raise investments amounting to EUR 100 000 – 5 mil. The document shall be prepared with project information for EUR per year. If the investment value had exceeded 5 mil. Creator will obtain this money in EUR per year only by issuing securities. Public information on the securities also needs to be presented to investors and society.
Platform operator will also have initial share capital of EUR 40 000 or 0,2 percent of the investors’ unrecovered assets. Also available will be civil liability insurance, financial company guarantee or guarantee, instead of the appropriate share capital.