Crowdfunding in Turkey

There are many available funding mechanisms, including Venture Capital Investment Funds. However, alternatives designed for smaller-scale businesses remain limited. It is therefore necessary to unlock and expand opportunities for such enterprises. Crowdfunding in Turkey provides this opportunity for companies with strong entrepreneurial characteristics.

In Turkish legislation, crowdfunding was initially regulated as equity-based crowdfunding. If the investment-seeking company has already been incorporated, the process may be completed through a capital increase; if the company is incorporated specifically for crowdfunding purposes, it may be completed through the sale of shares to be issued at incorporation. Debt-based crowdfunding, on the other hand, entered Turkish legislation at a later stage. In this model, the investor is provided with consideration through repayment within the maturity period. However, although debt-based crowdfunding has been introduced into the legislation, there is currently no crowdfunding platform operating in Türkiye under this model.

Table of Contents

• What is Crowdfunding?
• Types of Crowdfunding in Turkey?
  • Equity-Based Crowdfunding
  • Debt-Based Crowdfunding
• Crowdfunding Platforms
  • How to Establish a Crowdfunding Platform
• What is the Crowdfunding in TurkeySystem?
• Crowdfunding Provisions under the Capital Markets Law
• The Crowdfunding Communiqué
  • Information Form
  • Legal Nature of Crowdfunding Agreements

What is Crowdfunding in Turkey?

Investors’ access to financing is not limited to institutions such as public offerings regulated under theCapital Markets Law No. 6362 (“CML”); crowdfunding also provides an alternative means of funding. Start-ups and newly established ventures may need to prefer less burdensome alternatives in order to secure the financing they require. Since the requirements for conducting procedures such as a public offering are designed for more institutional and large-scale operations, they are not feasible for every venture. In this context, crowdfunding in Turkey is used by smaller companies and initiatives to obtain financing under comparatively easier conditions.

Although it may appear less burdensome than a public offering, crowdfunding is subject to strict criteria. These criteria aim to ensure investor protection. Indeed, crowdfunding enables “the public” to participate easily and to invest even small amounts. Therefore, crowdfunding may be compared to a public offering while being examined. In the definitions section of the CML, when defining public companies, it became necessary to explicitly state that crowdfunding is excluded.

Types of Crowdfunding in Turkey

There are four types of crowdfunding in Turkey: debt-based crowdfunding, equity-based crowdfunding, donation-based crowdfunding, and reward-based crowdfunding. However, the Communiqué regulates only debt-based and equity-based crowdfunding. The procedures and principles regarding the collection of funds from the public through crowdfunding in Turkey are set out in the Communiqué.

Equity-Based Crowdfunding

The legal nature of the relationship between the investor and the fundraising business varies depending on the type of crowdfunding. In equity-based crowdfunding, a conditional share purchase agreement and, subsequently, a shareholder relationship are established. There is a doctrinal view that this agreement constitutes a contract of sale. In debt-based crowdfunding, a conditional purchase agreement for a debt instrument is executed; upon completion of the transaction, a creditor–debtor relationship arises.

Debt-Based Crowdfunding

In debt-based crowdfunding, investors do not acquire shares of the company; instead, they purchase a debt instrument. Accordingly, they obtain the status of creditor rather than shareholder. The principles regarding repayment of the nominal value of the security forming the basis of the debt relationship must be stated in the information form. Platforms are obliged to establish the necessary infrastructure to ensure that payment obligations are fulfilled in accordance with the information form. In equity-based crowdfunding, the security subject to the transaction is not a debt instrument but rather a share representing the capital of the fundraising company and granting corporate rights.

Not every crowdfunding platform authorised by the Capital Markets Board (“Board”) is permitted to intermediate both debt-based and equity-based crowdfunding. The relevant platform must specify, on its website and in its articles of association, the type(s) of crowdfunding it is authorised to provide. A platform conducting debt-based crowdfunding must ensure that its investment committee fulfils additional criteria and obligations. Furthermore, for debt-based crowdfunding, the platform must continue to publish annual reports regarding the fundraising company until the debt is fully discharged.

In European Union legislation, crowdfunding is categorised as lending-based crowdfunding and investment-based crowdfunding. Lending-based crowdfunding must include an unconditional commitment to repay the lender. This model should enable investors and fundraising businesses to enter into a credit agreement relationship among themselves or with each other. In this context, EU legislation provides that transferable securities may be subject to crowdfunding. In investment-based crowdfunding, the transfer of shares is permitted to the extent allowed by national laws.

Crowdfunding Platforms in Turkey

The current Communiqué on crowdfunding entered into Turkish legislation in 2021. Before this date, there were three crowdfunding platforms that had obtained authorisation and remain active. Subsequently, the number of platforms reached the level listed below, and the establishment of platforms conducting debt-based crowdfunding was enabled.

Crowdfunding in Turkey platforms holding an operating licence are listed on the Board’s website.

• Vakıf Yatırım Menkul Değerler A.Ş.
• Global Kitle Fonlama Platformu A.Ş.
• Halk Yatırım Menkul Değerler A.Ş.
• Dijital Kitle Fonlama Platformu A.Ş.
• İnfo Yatırım Menkul Değerler A.Ş.
• Fongogo Kitle Fonlama Platformu A.Ş.
• Girişim Kitle Fonlama Platformu A.Ş.
• Basefunder Kitle Fonlama Platformu A.Ş.
• Global Menkul Değerler A.Ş.
• Ecofolio Kitle Fonlama Platformu A.Ş.
• Nar Kitle Fonlama Platformu A.Ş.
• Startupfon Kitle Fonlama Platformu A.Ş.
• Forte Kitle Fonlama Platformu A.Ş.
• Mag Kitle Fonlama Platformu A.Ş.

In total, there are fourteen crowdfunding platforms. As stated on the Board’s website, all existing platforms are authorised only for equity-based crowdfunding. Debt-based crowdfunding has no application in Türkiye. In our view, the underlying reasons are primarily economic conditions. Crowdfunding platforms with operating licenses are listed on the Board’s website. (Click here to access.)

How to Establish a Crowdfunding Platform?

Companies seeking authorisation to operate as a crowdfunding platform must include certain provisions in their articles of association. There is no freedom regarding business scope for these companies. The Communiqué prohibits platforms from engaging in activities other than crowdfunding; otherwise, authorisation cannot be granted. The platform’s scope of activity is also limited in terms of the type of crowdfunding: it must be explicitly stated whether the platform will conduct debt-based crowdfunding and/or equity-based crowdfunding.

Applications submitted to the Board by companies whose articles of association comply with the required business scope provisions may nevertheless be rejected for various reasons. In such case, all references to crowdfunding in Turkey must be removed from the articles of association, including provisions regarding scope of activity and corporate purpose. The term “crowdfunding” must also be removed from the company’s trade name. Furthermore, there is a doctrinal opinion that an existing company cannot apply to become a crowdfunding platform merely by amending its articles of association, due to risks arising from prior commercial activities.

What is the Crowdfunding in Turkey System?

In addition to regulating platforms, the Communiqué includes significant provisions regarding the articles of association of venture companies. Similar to platforms, fundraising companies are also subject to restrictions on their scope of activity. It is prohibited to include business activities outside the commercial activity subject to crowdfunding. For example, if a company is active both in tourism and in mobile game development, the investment obtained through crowdfunding may relate only to one of these activities, and the company may not engage in any other activity. A company that conducts crowdfunding for game development cannot carry out tourism activities.

There is a view that such restrictions on innovative and small-scale ventures contradict the purpose of crowdfunding—namely, facilitating financing for small and entrepreneurial companies—since they may force such ventures to establish new companies for each activity, causing additional costs and effort. On the other hand, the Communiqué provides that, after crowdfunding is completed, the company may engage in other activities provided that the required quorums are met. Under the Communiqué, the only provision required to be included in the articles of association is that, upon meeting the quorums set out under Article 421 of the Turkish Commercial Code (“TCC”), it is possible to transition to other activities after crowdfunding.

In EU legislation on crowdfunding, it is observed that no specific conditions are imposed on the articles of association. The legislation does not explicitly set out requirements regarding business scope or other corporate elements for platforms or fundraising companies; it merely states that platforms must submit their articles of association during the authorisation application process.

Crowdfunding Provisions under the Capital Markets Law

In 2017, the definition of “public company” under the CML was amended and the phrase “excluding the collection of funds through crowdfunding” was added at the beginning of the definition. Thus, despite the similarity of crowdfunding to a public offering, it was emphasised that they are distinct. Likewise, when defining the term “issuer”, a provision was added stating that crowdfunding processes do not fall within this scope. Both processes involve collecting funds from the public. In the definition of “crowdfunding” added to the end of the “Abbreviations and Definitions” section of the Law, the expression “collecting funds from the public through crowdfunding platforms” is included.

In practice, companies receiving investment by collecting funds from the public through various activities may issue shares to investors in exchange. Therefore, even if there is no public offering as defined under capital markets legislation, a similar outcome arises and certain measures must be taken. Accordingly, the CML provides that companies with more than five hundred shareholders shall be deemed to have made a public offering and shall be subject to public offering obligations.

In the context of crowdfunding, in equity-based crowdfunding—one of the two regulated types—shares are granted to investors and the situation of offering to the public arises. As a result of collecting funds from the public, the shares of the fundraising company are held by a wide investor base. However, the relevant provision expressly states that, for crowdfunding in Turkey companies, the number of shareholders shall not cause the company to be deemed publicly offered, and such companies shall not be subject to public company provisions.

Processes that involve collecting funds from the public inherently carry significant risks. Since such processes may be abused and enable manipulation of large groups, they must be conducted with due diligence. For this reason, public offering requirements are highly stringent. Therefore, it is essential that measures are taken against similar risks in crowdfunding in Turkey as well. Unlike a public offering, a secondary consideration is the objective of facilitating financing for less institutional enterprises. Consequently, a balance is sought between protective measures and practical accessibility.

The CML regulates, under Article 4, the obligation to prepare a prospectus in public offerings. It is explicitly stated that crowdfunding is not subject to the prospectus requirement. Preparing a comprehensive document such as a prospectus is not expected in crowdfunding. However, the prospectus serves an important disclosure function. In order to mitigate certain risks in crowdfunding, mechanisms fulfilling a similar function are required. Accordingly, preparing an information form has been made mandatory, and Article 35/A of the Law refers to this form.

While a prospectus must be approved by the Board, no additional permission is required from the Board during crowdfunding. Nevertheless, only platforms authorised by the Board may conduct crowdfunding activities.

Article 35/A of the CML contains the primary regulations on crowdfunding. With respect to unlawful acts, it refers to the measures under Article 96. Furthermore, it is stated that crowdfunding in Turkey platforms, investors, and fundraising entrepreneurs are subject to general provisions. In the absence of provisions under the CML or the Crowdfunding Communiqué, the provisions of the Turkish Commercial Code, Turkish Code of Obligations, and other relevant legislation shall apply. It is also stated that the crowdfunding platform, the fundraising party, and all signatories shall be jointly and severally liable for the content of the information form, which is mandatory to publish and whose elements are defined in the Communiqué.

The Crowdfunding Communiqué

The procedures and principles of equity-based crowdfunding were originally regulated underCommuniqué No. III-35/A.1 on Equity-Based Crowdfunding. This Communiqué was replaced by Communiqué No. III-35/A.2 on Crowdfunding (“Communiqué”). Under the new Communiqué, in addition to equity-based crowdfunding, the procedures and principles for debt-based crowdfunding were also regulated. However, debt-based crowdfunding still has no application in Türkiye.

Information Form

As stated above, the signatories of the information form are jointly and severally liable for its content. However, pursuant to the Communiqué, the form is prepared by the fundraising company. The board of directors of the crowdfunding platform appoints an investment committee, and this committee must approve the information form. The committee is also responsible for evaluating feasibility and credibility reports in addition to the information form. In the case of debt-based crowdfunding, the infrastructure referred to in Article 5(g) must be established in order to ensure fulfilment of the payment obligations stated in the information form.

Whether matters not included in the information form are binding upon investors is an issue requiring separate examination. In this regard, our discussion on restrictions regarding share transfers is provided below under the heading “Shareholding Structure of the Fundraising Company”.

Shareholding Structure of the Fundraising Company and the Escape Clause (TCC Art. 493)

Under Article 16/7 of the Communiqué, for a period of three years following the launch of a crowdfunding campaign, shareholders who have a significant influence over the fundraising company may not voluntarily transfer their shares to third parties. However, cases of universal succession, qualified investors, and transfers to other shareholders of the company are expressly excluded from the scope of the transfer restriction. This paragraph regulates the same subject matter as Article 493 of the Turkish Commercial Code No. 6102, which contains the “escape clause” mechanism.(Click here to access our article containing detailed information about the escape clause.)

The types of acquisition and transferees excluded under the Communiqué are, pursuant to the TCC escape clause, subject to that mechanism; therefore, in accordance with the hierarchy of norms, the provisions of the TCC—being superior legislation—must prevail. However, we do not agree with the view that, for the escape clause to prevent a transfer, a transfer restriction must also be предусмотр in the articles of association of the company that raised funds through crowdfunding. The existence of a provision in the articles of association is a requirement only for the contractual linkage (articles-based restriction) set out under paragraph 1 of the relevant TCC article.

Where an articles-based restriction applies, the “just cause” must be specified in the articles of association. In order to be valid vis-à-vis investors, we are of the view that such restrictions should also be stated in the information form. Nevertheless, in a concrete dispute, questions such as whether the transfer of shares may be requested by court order despite a refusal based on a just cause not stated in the information form, and whether corporate effect would arise, must be assessed separately. In such evaluation, TCC Article 493 and the Communiqué provisions must be interpreted together.

The application of the Communiqué’s share transfer restriction rule to bearer shares requires a separate assessment. Since bearer shares cannot be restricted in transfer, an evaluation must be made in terms of the Central Securities Depository (Merkezi Kayıt Kuruluşu) and the company’s authority to approve.

When EU and US legislation is examined regarding investors’ transfer of shares to other persons, it is observed that significant restrictions exist, which has slowed the development of a secondary market for crowdfunding. In Türkiye, similar restrictions on investors’ transfer of shares are not encountered.

Legal Nature of Crowdfunding Agreements

The legal nature of the agreement between the platform and the fundraising party is compared to an intermediary relationship in a public offering process. According to this view, the legal nature of the agreement is best characterised as a “best efforts” intermediation. On the other hand, the Communiqué imposes certain obligations upon crowdfunding platforms. However, these obligations do not mean that the platform operates independently of the fundraising company’s instructions.

Between the platform and the investors, a membership agreement is executed. There is a doctrinal view that this agreement constitutes an agency agreement aimed at managing the process of concluding purchase and sale contracts.

CONCLUSION

In brief, crowdfunding in Turkey means collecting funds from the public for investment purposes through a crowdfunding platform. This investment is not deemed a public offering. Although debt-based crowdfunding has been introduced into Turkish legislation as one of the two crowdfunding types, it has not been sufficient to ensure widespread preference. However, if economic conditions change, it may begin to be used in practice.

It is mandatory to provide detailed information in the information form regarding the shares of a company that raises funds through crowdfunding in Turkey, since there is a disclosure obligation regarding its shareholding structure. Restrictions have also been imposed on the scope of activity of the fundraising venture company, which is therefore significant in terms of the articles of association. Moreover, the Crowdfunding Communiqué contains a provision restricting the exit of shareholders with significant influence over the company. These rules must be assessed in light of the articles-based restriction and escape clause provisions set out under Article 493 of the Turkish Commercial Code. Under the hierarchy of norms, priority should be given to Article 493.

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