The Concept of Public Offering
The legal framework of crowdfunding begins with the concept of a public offering of securities: a public offering is a proposal to at least 100 persons or to a previously unspecified number of persons, in the name of the issuer, for the direct or indirect sale of securities. A proposal of this kind concerning the securities of a non-reporting enterprise, made in the name of a person who is not the issuer, is also treated as a public offering. This definition decides when a crowdfunding campaign takes the form of a public offering: the circle of targeted investors and the formulation of the proposal determine in advance which regulatory regime the campaign falls under. The threshold of one hundred persons is precisely the point where the transition from private agreement to the public market takes place.
The Prospectus Requirement
A public offering is carried out only upon the publication of an issue prospectus prepared and approved in compliance with the requirements of the law and of the rules established by the National Bank, at the moment of publication or after it. For approval of the prospectus the issuer applies to the National Bank and submits the documents contemplated as an application for a public offering. The prospectus is the legal backbone of the campaign: it is the document in which the investor must be explained both the nature of the offered security and the position of the issuer, and its quality directly determines the lawfulness of the campaign.
The substantive requirements for the prospectus are likewise exact: the preliminary prospectus is submitted in signed copies and contains a description of the issuer’s activity over the last 2 years and the principal risks connected with it, as well as auditor-confirmed financial statements for the last 2 business years — where the activity has lasted less than 2 years, the information covers the period from founding to the submission of the application. The application is considered within 15 days, and where no written information has been delivered within that period the prospectus is deemed approved; the financial information in the final prospectus may not be older than 18 months.