Blog

Authors:

  • Michał Skrzypczak

    Duraj Reck & Partners Law Firm

  • Daniel Reck

    Attorney-at-law, Duraj Reck & Partners Law Firm

26 November 2023

Changes in equity crowdfunding in limited liability companies

Equity crowdfunding, or crowdfunding, has become a popular way to raise capital for business ventures. However, from November 10, 2023, limited liability companies (LLCs) will not be able to use this form of financing. Amendments to the Commercial Companies Code prohibit the purchase of existing shares or the acquisition of new shares in a limited liability company to an unspecified addressee.

The Genesis of Crowdfunding

Equity crowdfunding, also known as equity crowdfunding, is one form of crowdfunding. It consists in raising a certain sum of money by entrepreneurs conducting business activity in the form of a limited liability company through a public offering to private investors. In exchange for these funds, entrepreneurs issue shares in a limited liability company, which become the property of the sponsors of the ventures. Crowdfunding in Poland was regulated by Regulation (EU) 2020/1503 of the European Parliament and of the Council and the Act on crowdfunding for business ventures and assistance to borrowers.

Amendments to the Commercial Companies Code

On November 10, 2023, amendments to the Commercial Companies Code regarding equity crowdfunding in limited liability companies came into force. The new regulations prohibit the submission of offers to acquire existing shares or to take up newly created shares in a limited liability company. limited liability company to unspecified addressees. So far, the possibilities of financing limited liability companies through equity crowdfunding have been limited, mainly due to the need to carry out the sale of shares in a form with notarized signatures. However, now, in accordance with the new regulations, limited liability companies completely lose the possibility of using this form of financing.

The effects of the ban as new challenges for entrepreneurs

The introduction of a ban on equity crowdfunding in limited liability companies may have significant consequences for entrepreneurs. The current practices of raising capital through crowdfunding platforms, organizing events or business meetings are banned. Limited liability companies will have to look for alternative sources of financing, such as bank loans, business angel investors, venture capital funds or public grants. However, these forms of financing may be more difficult to obtain than equity crowdfunding, which has been available to a wide range of private investors.

Investor safety

The introduction of the new regulations is aimed at increasing the safety of investors and ensuring stability and transparency for entrepreneurs. Equity crowdfunding carries some risks, especially for non-professional investors who may not have the relevant knowledge and experience to invest. The prohibition on offering shares to an unspecified recipient and promoting the purchase of shares is intended to reduce the risk for investors who could make ill-considered investment decisions.

The Commercial Companies Code and crowdfunding

Amendments to the Commercial Companies Code concerning equity crowdfunding in limited liability companies are part of a broader process of regulating this market. Crowdfunding will continue to be available to other forms of companies, such as public limited companies or limited joint-stock partnerships, where different rules governing capital raising apply.

Consequences of violating the prohibition

Violation of the prohibition on submitting offers to purchase existing shares or taking up new shares to unspecified addressees may result in a fine, restriction of liberty or even imprisonment for up to 6 months.

Summary

The ban on equity crowdfunding in limited liability companies, effective from 10 November 2023, has significant consequences for entrepreneurs. Limited liability companies will have to look for other sources of financing, and entrepreneurs will have to adapt their strategies for raising capital to the new regulations. The ban is intended to protect investors, but it may also hinder the development and growth of companies. Entrepreneurs will have to be creative and flexible in finding other forms of financing that will allow them to continue to develop their projects and ventures.

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