The proposed scenario requires amendments to the laws of the “Market Authority” and companies
– Platforms make it possible to raise and pay money through cash or in kind profits in a short period of time
There are no lawsuits for liquidation, restructuring or bankruptcy within the terms of the activation of the platform
Al-Bakr: The success of small projects requires legal mechanisms and funding through comprehensive platforms
Al-Jarallah: Facilitation of entry and exit of the project is required
Al-Fahd: Multiple financing options encourage the launch of quality projects
A specialized committee chaired by a member of the Board of Directors of the Kuwaiti Economic Association, Muhammad Al-Joaan, has finally come up with a comprehensive vision for providing unconventional support to small and medium-sized enterprises through crowdfunding platforms, a technical research conducted in collaboration with legal, financial and investment parties.
In an exclusive statement to Al-Rai, Al-Joaan said that preparations were being made to present the file for extensive discussions with the Ministry of Trade and Industry, the Capital Markets Authority, the Chamber of Commerce and Industry and other relevant authorities with the purpose. to reach a formula that serves that important sector, while proposing to form a working group to follow up on the matter.
He added that experience has shown that the support of these projects should not be traditional, as project owners do not need loans as much as they need investment support, or the so-called venture capital, and this is especially so by the so-called. crowdfunding platforms.
Al-Joaan said crowdfunding has experienced remarkable growth worldwide, from a $ 1.5 billion market in 2011 to $ 114 billion in 2021, while expectations point to a growth of about $ 196 billion during the period 2021 to 2025 , with a compounded growth rate of 15 percent crowdfunding platforms is the second most important source of funding for SMEs.
The proposal of the Economic Association provided that the laws of the Capital Markets and Companies Authority and their regulations include strategic amendments that contribute to the success of crowdfunding platforms, as follows:
First: The Market Authority Law and Regulations
1 – Added to the first book (definitions) of the Executive Regulations of the Capital Markets Authority Act, the definition of the term “crowdfunding activities” as follows: “Invite the public to finance projects or subscribe to support projects through electronic platforms in accordance with the rules and conditions set by the authorities. ” Definition of the term “crowdfunding platform”: an electronic operating system for managing crowdfunding operations.
2 – Amendment of the text of the last paragraph of Article 5-5 of Book Eleven (Trading in Securities) of the Executive Regulations to be as follows: “In all the cases mentioned in this Article, promotional advertisements for subscription may not directed by means of public advertising available to the public, with the exception of the invitation By crowdfunding platforms in accordance with Schedule No (20) – crowdfunding activities – from the fifth book of these executive regulations, and unless the authority decides otherwise.
3- Addition of Schedule No. (20) Crowdfunding Operations in Book Five of the Executive Regulations.
Second: Company Law and its Regulations
1- The definition of the term “mass funding operations” is added to the text of Section (1) of the Act as follows:
“The public invites to fund or subscribe to support projects through electronic platforms in accordance with the rules and conditions set by the Authority.”
2 – Amendment of the text of the last paragraph of Section (14) of the Act to be as follows: “Special purpose companies may be established to issue sukuk, or other securitization activities, or crowdfunding activities, or for any other purpose, and the executive regulations indicate the controls and provisions for this matter. ”
3 – Issuance of a decision by the Minister of Trade and Industry to implement Section (19) of the Executive Regulations of the Companies Act which lays down the control measures for the establishment of special purpose companies to carry out crowdfunding activities according to the following:
A- Acceptance of applications for the establishment of crowdfunding platforms (as a commercial entity and an electronic entity within the entity’s commercial register).
B- The incorporation will be in the form of a special purpose company in accordance with the Companies Act and its Executive Regulations (its entity is a closed joint stock company).
C- Obtaining the approval of the Capital Markets Authority, and that the applicant to establish a special purpose company for crowdfunding purposes, is a company that holds a public subscription (investment) license.
D- The capital of the special purpose company will be not less than one million dinars.
e- The term of the company’s contract is for the duration of the crowdfunding term, and the shareholders may extend or terminate the company’s term, either by liquidation or listing on the stock market or the acquisition of projects financed thereby.
In the context of the review of the perception presented by the competent committee of the Economic Association, advocate Abdullah Al-Bakr said that the association has made great efforts to develop an appropriate legislative formula for the financing of small and medium projects. achieved, adding that each project needs the necessary support. in its beginning, which differs from one idea to another.
He pointed out that crowdfunding mechanisms and platforms began to emerge in 2015 through specialized electronic entities, which proved its effectiveness and success, especially as these mechanisms were exploited in public and private subscriptions, noting that medium and small projects require such funding, as it will provide liquidity needed as well as the appropriate investor willing to participate.
Regarding the executive partner in Balance Financial Consulting, Abdullah Al-Jarallah, he said that such files require the necessary steps to be taken to accommodate the state all the changes in the financial and technological markets to cover all important sectors develop and not continue. miss opportunities for creative ideas.
Al-Jarallah added that the market for private equity funds and venture capital funds is still at a later stage compared to developed countries due to government bureaucracy, the difficulty of establishing different types of joint stock companies, and the lack of a business environment. . which makes it possible to provide flexible investment instruments for entry into and exit of small and medium enterprises, in view of the difficult requirements of Inclusion of these projects in secondary markets that enable the trading of shares and ownership among investors.
In turn, OG Capital Holding CEO Romy Al-Fahad said the initiative to introduce a new financing instrument represented in crowdfunding platforms would encourage the launch of more projects within a clear framework of financing options, and would make investment instruments available be. for individuals and capital.
He expected the availability of these platforms to have a positive impact on individual investors, allowing them to contribute to emerging projects by owning interests or shares in the early stages of the project and benefiting from the future growth thereof, by diversifying their investment and savings options. , in addition to reducing the risks of By spreading investments across various sectors and industries.
On the impact of the case on the level of the economic system in general, Al-Fahd emphasized that the availability of these platforms is a necessity for developing markets, the activation of key sectors and the raising of creative ideas to contribute. contribute to supporting exports or even attracting foreign capital. . Financing for unlisted and “closed” companies with limited liability
The Economic Association has proposed to Annexure No. (20) Crowdfunding Operations to add to Book Five of the Executive Regulations of the Capital Markets Authority Act, which stipulates the following:
First: general rules
Article 1: Authorized persons may engage in the activity of a subscription agent to manage crowdfunding activities through Government – approved crowdfunding platforms.
Article (4): The granting of crowdfunding through crowdfunding platforms is restricted to limited liability companies and closed joint stock companies that are not listed on the stock exchange.
Article (7): The securities subject to subscription may not be offered on more than one crowdfunding platform in the same period, and not more than one million dinars over a twelve month period.
Article (11): The underwriting agent must provide adequate information to the platform’s clients about the securities subject to subscription, including the following:
A- Basic information, project data and commercial activity of the securities subject to enrollment.
b- The purpose of the crowdfunding, the target amount, the presentation period and the minimum percentage of the pooled funds of the target amount.
C- A business plan for the commercial project and the financial statements – if any.
Second: The rules for accrediting crowdfunding platforms
Article (15): Crowd Funding Platforms to be approved must provide the Authority with documents and data indicating the following:
1 – Its ability to operate a regulated, equitable and transparent platform, and to meet the obligations imposed on it.
2 – Obtaining the approval of the bodies subject to its supervision and control, if any.
3 – The absence of any requests or lawsuits for liquidation, settlements, restructuring or bankruptcy.
4- She should not have been sentenced to judicial detention.
5 – The person managing it must have competence and integrity, and provide the Authority with evidence of the following:
(a) is suitably qualified, including the possession of the relevant experience necessary to perform the functions assigned to him;
b- He has not been convicted of an offense or a crime against honor or trust, or any provisions of penalties relating to the violation of relevant laws or regulations.
C- No disciplinary or punitive measures were taken against him by the Authority.
6- Any other documents or information requested by the Authority.