On 08 July 2019, the Securities and Exchange Commission SEC issued Memorandum Circular 14-2019 or the “Rules and Regulations Governing Crowdfunding”.
The following is the summary of the salient provisions of the said circular:
- Coverage.The rules shall primarily govern the operation and use of equity-based and lending-based crowdfunding by registered persons such as brokers, investment houses, funding portal, and issuers and investors who participate in crowd funding through an online platform. Crowdfunding through means or medium other than online electronic platform is not within the coverage of the rules.
- Crowdfunding. This refers to the offer or sale of securities of a limited scale usually for start-ups, micro, small and medium enterprises (MSME) done through an online electronic platform.
- MSME. MSME is any activity or enterprise engaged in industry, agribusiness, and/or services, whether single proprietorship, cooperative, partnership or corporation whose total assets, inclusive of those arising from loans but exclusive of the land on which the particular business entity's office, plant and equipment are situated, shall have value falling under the following categories:
- Micro : not more than P3,000,000
- Small : P3,000,001 - P15,000,000
- Medium : P15,000,001 - P100,000,000
- Funding Portal.Funding portal is an intermediary organized and registered as a corporation to facilitate transactions involving the offer or sale of CF securities through online electronic platform. Funding portal does not: i. Offer investment advice or recommendations; ii. Solicit purchases, sales or offers to buy the securities displayed on its platform; iii. Compensate employees, agents, or other persons for such solicitation or based on the sale of securities displayed or referenced on its platform; or iv. Hold, manage, possess, or otherwise handle investor funds or securities.
- Exemption from Registration of Securities.An issuer may offer or sell securities under the rules without the need for registering said securities under Section 12 of the SRC, provided that:
- The issuer is an entity organized under the laws of the Philippines or a Filipino natural person, and accredited and/or accepted by a crowdfunding intermediary to utilize its platform;
- The aggregate amount of securities that can be offered and sold by the issuer within 12 months shall comply with the following limits:
- Offering of securities with an aggregate value of up to Ten Million Pesos or Php10,000,000.00 within a span of 12 months can be offered and sold to any investor ("investor" refers to any person or entity that seek to make, are making, or have made an investment in an investment vehicle with the expectation of achieving profit.)
- Offering of securities with an aggregate value of above Ten Million Pesos or Php10,000,000.00 but not exceeding Fifty Million Pesos or Php50,000,000.00 within a span of 12 months can only be offered and sold to Qualified Investors ("Qualified investors" include (1) Bank, (2) Registered Investment House, (3) Insurance Company, (4) Pension fund or retirement plan maintained by the Government of the Philippines or any political subdivision thereof or managed by a bank or other persons authorized by the Bangko Sentral ng Pilipinas to engage in trust functions, (5) Investment company, (6) Such other person as the Commission may by rule determine as qualified buyers, on the basis of such factors as financial sophistication, net worth, knowledge, and experience in financial and business matters, or amounts of assets under management)
For purposes of calculating the aggregate amount of securities offered and sold by an issuer under B above and determining whether an issuer has previously sold securities within a span of 12 months, the issuer shall include all entities controlled by or under common control with the issuer and any predecessors of the issuer.
- The aggregate amount of securities sold to any investor across all issuers in securities crowdfunding during the span of 12 months shall not exceed the following limits set forth:
- Retail Investors with income of up to Two Million Pesos or Php2,000,000.00 per year may purchase securities through a Crowdfunding Intermediary in a maximum value of 5% of their total income per year.
- Retail Investors with income of more than Two Million Pesos or Php2,000,000.00 per year may purchase securities through a Crowdfunding Intermediary in a maximum value of 10% of their total income per year.
- Qualified Investors are not subject to the limits set forth above.
- The issuance of securities is conducted through an intermediary that complies with the requirements for intermediaries and the related requirements under these Rules, and the issuance of securities is conducted exclusively through the intermediary's platform
Disclaimer: This article is for general information only and is not intended nor is to be construed as a substitute for legal advice on any specific matter. A professional legal advice is still necessary to an actual or particular issue.