Crowdfunding in foreign soil

Continuing from our previous blog post on crowdfunding in Hong Kong, in this article we will study the legal rules and the crowdfunding platforms available in different jurisdictions. We will also study as to whether it is possible for Hong Kong companies to raise funds via these crowdfunding platforms.

USA

In the USA, the Jumpstart Our Business Startups Act, which is enacted in 2012, carves out specific exemptions for offer and sale of security.

Regulation Crowdfunding

In 2015 the SEC adopted Regulation Crowdfunding to allow companies to raise capital via a crowdfunding platform. Under the Regulation Crowdfunding, there are certain requirements to be fulfilled:

• Maximum Offering Amount of US$1,070,000 within a 12-month period
• Individual investors are subject to limits in the amounts they are allowed to invest. The limit depends on their personal net worth and income;
• Non-US companies are currently forbidden to use Regulation Crowdfunding

The crowdfunding exemption shall not apply to transactions involving the offer or sale of securities by any issuer that is not organized under, and subject to, the laws of a State or territory of the United States or the District of Columbia.

Although companies may use specific legal structure to achieve raising fund via Regulation Crowdfunding by setting up Delaware or Nevada holding company, the setup is expensive and may not be cost-effective considering the cost and time involved in creating viable structure.

Regulation S

Besides the Regulation Crowdfunding, SEC Regulation S has been continuously relied upon by companies to raise fund outside US. Generally offers and sales of securities that take place within US are subject to registration under the Securities Act while under Regulation S offers and sales of securities outside the US are not subject to the requirement of registration.

For crowdfunding platforms, companies can give a tiny twist to to the offer structure in their crowdfunding to meet the conditions of Regulation S:

• The offer is not made to a person in the US;
• There is no direct selling efforts in the United States with certain disclaimers included in the securities offerings;
• The Issuer must be a foreign private issuer incorporated under the laws of a country other than the United States,

Companies should beware of the limitation of each arm of fundraising under the laws of US. Also there will be tax implications for crowdfunding in USA. As a result of complicated rules and compliance costs, most crowdfunding platforms in USA are only open to US companies.

User terms in sites like Indiegogo:

Current regulations only allow companies that are incorporated in the US to raise capital. Foreign entities/corporations aren’t eligible to raise capital on the platform. All investments need to be into a US entity.

Singapore

There is currently no specific legal regulation for crowdfunding in Singapore. The Monetary Authority of Singapore applies the same rules on crowdfunding platforms as other financial institutions and in the Securities and Futures Act, it includes a comprehensive list of financial activities that are reserved to holders of Capital Markets Services license granted by the MAS. As such, equity crowdfunding platforms are normally subject to licensing requirements under the Securities and Futures Act in Singapore.

With license requirement to operate a equity crowdfunding platform, it is easy to understand why most equity crowdfunding platforms in Singapore now only admit institutional and accredited investors. The license embodies higher compliance costs. There are also some crowdfunding platforms that specialize in debt-based financings and open to retail investors.

There is no particular restriction for issuers. However, each major crowdfunding platform has different regulation. For example, Singapore-based FundedHere is one of the platforms matches startups with investors.Yet there is a requirement that The main requirements are that your startup be a Singapore-incorporated entity that’s been in operation for at least 3 months and has a minimum paid-up capital of at least SG$50,000 and at least one of the founders or beneficial owners must be Singaporean. While on the other hand, another Singapore-based platform Fundnel has no such restriction and welcomes foreign companies to raise fund on thier platform.

PRC

In PRC, the Guideline Opinion on Promoting the Healthy Development of Internet Finance defines equity crowdfunding as public equity financing in small amounts through internet based platform and the CSRC will be the regulatory authority in this area.

Looking closer into the rules, although there are no particular requirement as to the issuer, because of capital control on foreign exchange, it is nearly impossible for foreign companies including Hong Kong companies to raise funds on PRC crowdfunding platforms unless the companies have incorporated in China.

Still Crowdfunding?

Although there are numerous platforms in different jurisdictions, the way to raise fund via crowdfunding is not that straight forward. In short, save for the fundraising crowdfunding platform, almost all of the jurisdictions will require a local presence for any crowdfunding campaigns. Next we will look into the area of ICOs and cyrptocurrency, and see what sorts of implications it may hold for fundraising.

Disclaimer: The contents of this article are for reference only and do not constitute any investment advice or solicitation. Please do not rely on this document for investment decisions. Investment involves risks. The authors have tried to ensure the accuracy and reliability of the information provided, including the data, but it does not mean that such information can be used as a guide for investors. Any inaccuracies or omissions in the information will cause any loss to investors. Or damage, no liability is assumed.