SEC proposes crowdfunding framework, sets N70m limit for small companies

The Securities and Exchange Commission has published its proposed regulatory framework for crowdfunding activities in the country.

The document, seen by TheCable, defines crowdfunding as the process of raising funds to finance a project or business from the public through an online platform which could be a website, portal, intermediary portal, application, or other similar modules that facilitate interaction between fundraisers and the investing public.

SEC said eligible companies would be those that are incorporated as a company in the country and have been operating for a minimum period of two years.

“The funds may either be pooled from high net worth investors, or a large number of people through an online platform in exchange for any investment instruments approved by the commission, which also be plain vanilla bonds or debentures, and simple contracts,” the commission said.

“The aggregate amount of securities or investment instruments that can be offered and sold by the issuer within a 12-month period shall comply with the following limits:

“The maximum amount which may be raised by a medium enterprise shall not exceed N100 million;

“The maximum amount which may be raised by a small enterprise shall not exceed N70 million;

“The maximum amount which may be raised by a microenterprise shall not exceed N50 million.

“The limits set forth above shall not apply to MSMEs operating as digital commodities investment platforms or such other MSMEs as may be designated by the commission from time to time.”

According to the proposed framework, a crowdfunding portal that is located outside Nigeria will be considered as actively targeting Nigerian investors if the operator or the operator’s representative, promotes directly or indirectly the platform in Nigeria.

It stated that a crowdfunding portal might be registered and operated only by an operator registered with the SEC as a crowdfunding intermediary.

“Only entities registered with the commission as an exchange, dealer, broker, broker/dealer or alternative trading facility as prescribed under the act and the SEC rules and regulations may be registered as a crowdfunding intermediary.

“Every crowdfunding portal is required to appoint a custodian, who shall establish and maintain a separate trust account for each funding round on its platform with a financial institution registered by the commission as a custodian.”

Companies would also be required to submit information about the purpose of the listing, targeted amount and audited financial statements to be hosted in a crowdfunding portal.

Crowdfunding portals or crowdfunding intermediaries who fail to comply with the rules “shall be liable to a fine of not less than N1 million and the sum of N10,000 for every day the violation continues”.