What does the company management need to consider before and during equity crowdfunding?
Equity crowdfunding - also known as crowdinvesting - has experienced a real boom in recent years. Companies of all sizes are using this modern form of capital raising to realise their growth plans and at the same time build a close relationship with their customers and suppliers. But a successful equity crowdfunding must be carefully planned, as numerous formal legal aspects have to be taken into account before, during and after. This requires efficient tools and solutions.
The change in the corporate structure
With the planned crowdfunding, your company is facing an exciting future. The investments of the co-owners will help to realise your vision and take the company to a new level. It will also allow you to engage your community and develop previous customers and suppliers into proud co-owners and compelling brand ambassadors.
But this phase of growth also requires a targeted approach to complying with formal requirements and managing the new co-owners. Various steps need to be taken into account both in the preparation of the equity crowdfunding and during its implementation:
Tasks during the preparation of the crowdfunding
- The existing shareholders of the company must pass a formal resolution to increase the capital at an ordinary or extraordinary general meeting. Either new capital must be created by means of an ordinary capital increase or by means of a capital band.
- This resolution must be publicly certified by a notary public. In the case of a capital band, the articles of association must also be amended.
- In its proposal to the general meeting, the board of directors must be clear about how it intends to handle the subscription rights of existing shareholders: In principle, every shareholder has the right to receive new shares to the extent of his or her previous participation in the company. Depending on the proposal of the board of directors and the wording of the new articles of association, however, this right can be withdrawn or limited by the AGM or by the board of directors, which, depending on the formulation, can entail additional verification obligations and associated costs.
- Marketing and community building are essential components of crowdinvestment. In order to reach the financing goal as quickly as possible, the possibility of financial participation must be made understandable and sustainably palatable to the community.
During the implementation of the crowdfunding
- Collecting funding commitments from future co-owners (so-called "soft commitments") is probably one of the most gratifying tasks in the context of crowdinvesting. At the same time, the necessary care must be taken, as all the information that will later be needed for the public certification and the maintenance of the share register must be collected. Of course, this does not only apply to crowdinvesting by means of shares, but also with participation certificates.
- In the case of a capital increase by means of a capital band (see above), the Board of Directors must pass a formal capital increase resolution corresponding exactly to the sum of all financing commitments from the previous step.
- In order for the investors' financing commitments to be legally binding and to be used for the formal steps of the capital increase (so-called "hard commitments"), they must be recorded in the subscription form. This is a formal document that is checked by the notary public in the course of the public notarisation. Therefore, when drawing up the subscription form, all legally required information must be inserted meticulously and correctly. The shareholders must sign the subscription forms either by hand or with qualified electronic signature. All other forms of signatures, copies or scans thereof are inadmissible. The preparation and sending of the subscription forms is therefore a central element of a capital increase and therefore requires a lot of time and attention.
- Alternatively, shares can also be created through underwriting by a third party. However, this process places further requirements on the AGM resolution and the articles of association. Furthermore, the shares created in this way must be formally and correctly assigned to the new shareholders by means of a written declaration of assignment. The requirements described above for the correct preparation and signing of the subscription forms apply mutatis mutandis to the declarations of assignment.
- After the company has received the subscription forms from all new shareholders and the investment amount has been paid into the capital contribution account, the meeting of the board of directors with the statements on the capital increase must be prepared. In addition to the original subscription forms of the new shareholders and the capital contribution confirmation of the bank, any necessary waivers of existing shareholders, the capital increase report of the board of directors and the registration with the commercial register must also be prepared. Since these documents are also checked by the notary public and, in some cases, by the registrar of companies, the necessary care must be taken to ensure that the information is complete and correct. The preparation of these documents is correspondingly time-consuming.
- As soon as the capital increase is registered in the commercial register, the shares can be transferred to the new shareholders. In addition, the share register must be updated with all legally required information.
- In the past, stock corporations issued printed share certificates, which were also proof of ownership for the shareholders. Today, however, dematerialised shares are common, which are only recorded in the corresponding registers, which are in principle not accessible to the shareholders. For the shareholders, therefore, their ownership of the shares is not obvious without further confirmation. The written confirmation of ownership signed by the company's board of directors is therefore of central importance. By sending this confirmation, the company can formally conclude the crowdfunding process.
Efficient and formally correct execution of the crowdfunding thanks to Konsento
Equity crowdfunding has emerged in recent years as a significant method of capital raising and community strengthening for companies. However, the process can be complex and requires strict adherence to formal requirements, from capital raising resolutions to the transfer of shares to new shareholders.
In this exciting journey of growth and connection with your community, Konsento stands by your side. Our LegalTech platform offers efficient tools and solutions to make the entire equity crowdfunding process time- and cost-efficient, smooth and true to form. Intuitive workflows and automation support you in preparing and executing all necessary general meeting and board resolutions, creating and sending all necessary documents and collaborating with all relevant stakeholders such as shareholders, notary publics, fiduciaries and auditors.
Contact the Konsento team for a free, no-obligation consultation..
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