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.
The Prohibition of Distribution Before Approval
The law sets a strict temporal boundary: it is prohibited to distribute an issue prospectus before its approval by the National Bank. It is likewise prohibited, before approval, for the issuer, a brokerage company acting in its name or a licensed financial institution to offer for sale the respective security. This means that marketing activity — landing pages, announcements, preliminary communication with investors — cannot grow into an offer of sale while the prospectus remains unapproved. In practice this is precisely the dangerous period: campaign designers often try to warm up the market under conditions of uncertainty, which qualifies as an act prohibited by law.
Suspension and Cancellation of the Prospectus
An approved prospectus is a dynamic document: where the issuer, a brokerage company acting in its name or a licensed financial institution violates the requirements connected with the prospectus, or the information indicated in the prospectus is materially incorrect or incomplete, the National Bank may suspend the operation of the prospectus and set a period for correcting the violations; if the violations are not corrected within that period, the Bank cancels the prospectus. Cancellation removes the legal foundation of the campaign, and its consequences extend to the investors as well, so the completeness and accuracy of the information in the prospectus must be maintained throughout the campaign's life.
The Report on Issuance and Placement
Within 1 month of the completion of the public offering the issuer submits to the National Bank a report on the issuance and placement of securities, containing information on the exact number and price of the offered and sold securities. Where the securities to be issued under the emission are not fully placed, the issuer submits a report on the securities actually placed. Such reporting is a mandatory element of the campaign's completion, and its omission puts the lawfulness of the offering's completion in doubt.
Frequently Asked Questions
When does a campaign become a public offering?
When the proposal is addressed to at least 100 persons or to a previously unspecified number of persons.
May an offer of sale be made before approval?
No — distribution of the prospectus and offers of sale are prohibited before approval by the National Bank.
What happens in the case of incomplete information?
The National Bank suspends the prospectus and sets a period; if the deficiencies are not corrected, the prospectus is cancelled.
What happens when sale proceeds in breach of the rules?
The buyer may renounce the purchase; upon suspension or cancellation of the prospectus the right to refuse the purchases likewise opens.
How We Help on Legal.ge
A crowdfunding campaign rests on a single legal logic running from concept to report. Our team will help you qualify the offering, prepare the prospectus and manage the ongoing obligations. Contact us for a plan tailored to your campaign.