BAKU, Azerbaijan, June 17. A new draft law "On crowdfunding" has been developed in Azerbaijan to ensure access to alternative financing channels for startups, micro, small and medium-sized entrepreneurs, Trend's correspondent reports from the event.
The draft law "On crowdfunding" was put up for the discussions at today's meeting of the Parliament Committee on Economic Policy, Industry and Entrepreneurship.
During the discussions, it was noted that the document regulates the legal, organizational and economic foundations of equity and debt crowdfunding in the country. The implementation of this law will serve to increase business activity and protect the rights of investors by using the opportunities of the capital market.
According to the draft law, operators managing a crowdfunding platform can only be established in the form of a limited liability or a joint-stock company. The authorized and total capital of operators mustn't be less than the minimum amount determined by the Central Bank of Azerbaijan (CBA). Moreover, each operator must be included in a special register maintained by the CBA in order to start operating.
Strict requirements and specific rules have also been established for persons wishing to own a significant stake in the platform. A stake constituting 10% or more of the authorized capital is considered a significant stake, and its acquisition is possible only with the consent of the CBA. The bank must consider applications for permission to increase the stake to 20, 33 or 50% within 60 calendar days.
One of the main conditions is that the persons performing management functions have a higher education and civic integrity. At least one of the managers must have at least 3 years of work experience in the field of financial services. Managers of financial institutions that are bankrupt or have been liquidated for violating prudential requirements cannot hold a management position in the operator for 3 years.
In order to prevent conflicts of interest, operators are subject to certain restrictions on their platforms. The operator can offer an investment of a maximum of 20% of the targeted amount for financing each project. At the same time, the operator's employees and significant shareholders cannot be direct owners of projects placed on that platform.
According to the document, a special "cooling off period" mechanism is applied to protect the rights of individual investors. This period, starting from the day following the day the investment proposal was submitted, covers 7 calendar days. During these 7 days, an individual investor can withdraw his investment proposal without giving any reason and without paying a penalty.
The duration and types of crowdfunding campaigns are also set in a clear time frame. The campaign starts from the date of publication of the main information sheet and can last for a maximum of 90 days. Only joint-stock companies can act as project owners for equity-based crowdfunding, and they can finance a maximum of 2 projects in the last 12 months.
Debt-based crowdfunding activities should be carried out only through bond issuance. The maturity of bonds issued under this rule cannot exceed 5 years. Under the debt-based model, the project owner is also given the right to finance a maximum of 2 crowdfunding projects in the last 12 months.
After the successful completion of the campaign, investors' funds and securities are managed operationally. The operator must begin placing securities within 3 business days after the end of the campaign. The total duration of this placement process cannot exceed 3 business days.
Control over the implementation of the new draft law is fully entrusted to the CBA. The law will enter into force 6 months after its official publication. During this period, operators wishing to operate in the market must adapt to new infrastructure requirements.
