In our newsletter last week, we commenced a series on crowdfunding – a viable capital raising alternative to enterprises seeking to raise capital. The write up provided a brief history on crowdfunding, how it works and the various types that may exist in various jurisdictions.
We understand that the Nigerian economy is becoming increasingly aware and embracing the idea of crowdfunding as a viable funding alternative, especially because of the resultant benefits it portends to enterprises, investors and other stakeholders. Therefore, in a bid to protect the general public when investing in crowdfunding platforms for underlying Micro, Small, & Medium Enterprises (“MSME”s), the SEC recently released a draft of the Proposed Rules on Crowdfunding (the “Rules”).
In this week’s edition on crowdfunding, we shall be reviewing in summary the exposed draft rules and highlights of important sections within the exposed rules in regards to the players, their obligations and limitations.
Summary Review of Exposed Crowdfunding Rules
The Rules define crowdfunding as the process of raising funds from the public through an online platform (“Crowdfunding Portal”) to finance a project or business. It stipulates that:
The Rules provides obligations and limitations to the key players in a crowdfunding process: crowdfunding portals and intermediaries, issuers and investors.
The Rules provide some restrictions and prohibitions on crowdfunding portals and intermediaries such as:
NASD believes this exposure draft is a welcome development and once finalized it will provide reliable channels for MSMEs to raise funds from the investing public through registered crowdfunding platforms while providing protection for the investors. Below is a link to the full SEC crowdfunding rules for exposure: