On December 29, 2017, the Argentine Securities and Exchange Commission (“CNV” after its acronym in Spanish) issued General Resolution No. 717-E/2017 (the “Resolution”) regulating Crowdfunding.
Crowdfunding is a collaborative mechanism to finance projects. As the name indicates, the promoter reaches out to the general public or “crowd” seeking collaboration to finance a given project. The collaboration of each public investor generally represents a small percentage of the total investment. Given that a huge amount of the success of this type of financing rests on the publicity that is given to the project, the most important collective financing platforms are based on the internet due to its mass reach and low comparative costs.
Through a virtual platform known as an online Crowdfunding Platform (the “Platform”) the public at large may invest to finance specific Crowdfunding Projects, to create and/or develop goods and/or services.
In Argentina crowdfunding was implemented by Law No. 27,349 (the “Law”) , which was published in the Official Gazette on April 12, 2017, with the intention of promoting financing for entrepreneurs and entrepreneurial capital institutions through the capital markets.
Pursuant to Section 24 of the Law, investors can participate in a Crowdfunding Project by investing in: (i) shares of a Corporation (sociedad anónima or “SA”) or a Simplified Corporation (sociedad anónima simplificada or “SAS”); (ii) loans convertible into shares of a SA or a SAS; and (iii) certificates of participation in a trust.
The Law excludes from the Crowdfunding system projects with charity purposes, donations, direct sales of goods and services or loans that cannot be converted into SA or SAS shares.
The Resolution incorporates regulations of Crowdfunding Systems as Title XIX of the CNV Rules.
Platform
The Resolution provides for the requirements that Platforms must fulfill for purposes of their authorization and registration by the CNV, as well as the reporting requirements they must comply with during its term.
The Resolution provides that the Platform may not perform any other activity subject to CNV regulation or enroll in other categories of agents and/or subjects under CNV supervision except for opening its capital through an Initial Public Offering or debt issuance. Also, the Platform is allowed to carry out related and complementary activities not subject to CNV regulation as long as there is no conflict of interest and the Law’s principles are observed (transparency, objectivity, diligence and good faith in dealing are observed with its clients).
Platforms must permanently comply with a minimum net worth of ARS 250,000.
The Resolution also establishes the Platforms’ performance criteria, regulating their obligations, prohibitions, rules of conduct, general requirements of internal organization, content and operation of its website and information to the investor, among other aspects.
Responsible Platform
The Resolution provides that a human must be appointed at a shareholders´ meeting of the Platform to supervise the functioning of the Platform.
The Platform must ensure the Platform Supervisor the resources and access to all information necessary for the proper performance of his or her duties. In addition, the remuneration of the Platform Supervisor cannot be linked to the economic performance or profitability of the Platform or subject to any other situation or future event in order to guarantee independence in his or her performance.
Crowdfunding Projects
The Regulation provides that the Crowdfunding Projects must qualify as "Argentine Entrepreneurship" (Emprendimiento Argentino) under the regulations established by the Ministry of Production.
Additionally, the instruments issued by the Entrepreneurs within the scope of the Platform are excluded from the requirements of the Public Offering regime. The Resolution also states that the placement procedure provided in the Resolution is an ad-hoc procedure exclusively applicable to crowdfunding and will be controlled by the Platform.
The Resolution establishes the minimum requirements to be met by each Crowdfunding Project. The Platform is liable to investors for the diligence in obtaining and verification of information provided to them.
The amount of accumulated securities issued by a Project may not exceed ARS 20,000,00 during a 12- month period.
The Resolution also provides an annual and quarterly informative regime to be complied with by the Entrepreneur through the Platform, once the subscription period ends and while it is within the Crowdfunding System.
Resale Market
The Platforms must have a section within their website for the exclusive trading of the instruments placed through it. Only cash transactions are allowed.
Investment Limits in the Crowdfunding System
Investors may not allocate more than 20% of gross annual income -in accordance with the last closed fiscal year- in the same calendar year to the acquisition of Crowdfunding instruments.
In addition, no Investor may participate in more than 5% of the subscription of a Crowdfunding Project, or in an amount greater than ARS 20,000, whichever amount is lower. If the Investor is a Qualified Investor as provided in the CNV Rules, only 5% per Crowdfunding Project investment limit will apply.
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This insight is a brief comment on legal news in Argentina; it does not purport to be an exhaustive analysis or to provide legal advice.