Republished with permission.
A new law that regulates crowdfunding came into force at the beginning of 2020 in Russia. The Law on Crowdfunding (also known as the Law on Raising Capital) has now come into force, clarifying the use of investment platforms and introducing amendments to certain acts. It offers new, alternative tools for raising capital for small and medium-sized businesses, introduces the concept of an investment platform and utility digital rights and outlines the terms for using these platforms in Russia and requirements for the operators of investment platforms.
The new law defines an 'investment platform' as an online information system that concludes investment agreements by using information technologies. Access to these platforms are provided by their operators.
The law establishes the following requirements for an operator:
- It must be a Russian legal entity with no less than Rb5 million of its own funds.
- It must not conduct any other financial activity than that of the investment platform.
- It must be included in the registry of operators of investment platforms of the Central Bank of the Russian Federation.
The Central Bank is the supervising authority, which oversees the activities of the platform operators. It has the power to create secondary regulations and audit the operators.
Methods of investment
'Investors' are defined as individuals or legal entities that receive the services of the investment platform. The law provides the following forms of investment available on these platforms:
- the purchase of issued securities (based on a closed subscription); and
- the purchase of utility digital rights.
The term 'utility digital rights' was incorporated to define the concept of a 'token', which is actively used in crowdfunding and initial coin offering (ICO) spaces. In other words, the law codifies the first type of digital rights in Russian law.
Utility digital rights include:
- the right to demand the transfer of things;
- the right to demand the transfer of exclusive rights to intellectual property and/or rights to use intellectual property; and
- the right to demand the execution of works and/or the provision of services.
Investments for a project through these platforms can be made by any person, including unqualified investors and individuals not registered as individual entrepreneurs. Individuals can invest up to Rb600,000 in one calendar year. This limitation does not apply to individuals registered as individual entrepreneurs or qualified investors, or in the case that the investor purchases the utility digital rights through a joint stock company.
The new law has set a Rb1 billion limit on capital investments on a platform in one calendar year for a company or individual entrepreneur. However, this limit does not apply to the sale of utility digital rights issued by a joint stock company.
The law offers various solutions for alternative sources of financing for early-stage companies, particularly those in the IT industry. It is also intended to address a gap in existing legislation and reflects technological trends in Russian and global business.