This week the Financial Committee of the Knesset approved securities regulations which address activities known as 'crowd funding'. This refers to the phenomenon of raising capital funds from the general public over the internet without limitation on the numbers of investors. This phenomenon is widely used by emerging hi-tech companies or small businesses which – given the expensive costs of making a public offering on the stock exchange – choose to approach the general public directly in order to raise capital for financing their operations. The new regulations deal with the activities of the entity known as the 'offer coordinator' who acts as broker between the company/young entrepreneurs which are offering their securities and the general public. According to the new regulations, the offer coordinator shall be a company whose website is suitable for the activities, holds appropriate insurance, which has deposited an amount of NIS 100,000, is registered in the 'Register of Coordinators' managed by the Securities Authority and which has paid the official fee. The regulations include provisions as to the composition of the Board of Directors of the offer coordinator and also provisions to prevent conflicts of interest.
The regulations even contain provisions as to the legal liability of the offer coordinator. So, inter alia, it is to take reasonable measures to ensure that the offer meets the requirements of the law and the regulations, although the coordinator is allowed to rely on the representations of the company unless there is a reasonable basis for not believing their correctness. The offer coordinator is to ensure that the investors responding to the offers have read the information and the warnings on the website and meet the conditions of the regulations although once again the coordinator is allowed for this purpose to rely on the investors' declarations unless the coordinator has reason to assume that they are not true.
In the event that the offer coordinator rates the offers, it is required to adopt an organized method of evaluation and publish the same. In this respect, the coordinator is prohibited from recommending offers outside the website and the said rating as well as from conditioning the salary of its employees upon the income from certain offers. The regulations also detail the annual and on-going reporting which the offer coordinator is required to file with the Securities Authority. Also imposed on the offer coordinator are obligations of transparency with respect to the rules for retaining and securing information; payment for its services; description of its holdings - holders of control in it as well as its officers; warnings concerning deceit which was discovered in offers; and any other activity of the coordinator which is likely to be material to an investor.
The companies making the offers can only offer shares or debentures to an unlimited number of investors for a total consideration amount for one offer (or several offers of a company which were made during one continuous year) of NIS 4 million. This amount can be increased by an additional NIS 1 million if there is an examination report about company from the Innovation Authority or the Small Businesses Agency or where there is an investor which leads the investment. A regular individual investor can invest up to NIS 10,000 in a single investment and up to NIS 20,000 in a year, while investors whose income is high can invest more than these amounts.
The regulations provide that the offers will be made via a valid and fair process and will detail the information which should be included in the offer. This information should include the incorporation documents, financial statements, last report from the Board of Directors, agreements with holders of control or interested parties, the capital and ownership structure of the company, the investment plans and details of risks involved in responding to the offer, including those concerning risk of insolvency of the offeror.
Our firm and its clients took an active part in the formulation of the new regulations, which are to enter into force within 6 months of their publication.
Reference: Securities (Offer of Securities via Offer Coordinator) Regulations, 5777-2017
