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Public Offerings and ICOs About to Become Much Easier in Germany?

Federal government is planning a “short prospectus” for public offerings of up to eight million euros

Whenever a company wishes to realize a business project or a large investment, the question about the financing will inevitably arise. Beyond traditional bank financing by loans, a security issue represents a suitable alternative form of corporate financing. Companies that issue securities, for instance, do not need to provide collateral as usually required for loans. Instead, companies have to provide the necessary information about the security and the issuing company in a prospectus that has to be made publicly available.

New “light” version of prospectus for securities of less than eight million euros

With its bill of June 2018 relating to the issuance of sales prospectuses, the federal government has caused a sensation. According to this bill, a new provision is planned to be inserted in the Securities Prospectus Act (Wertpapierprospektgesetz; “WpPG”). This new provision would considerably reduce the prospectus requirements for smaller issues with a volume of up to eight million euros. The providers would no longer be required to present a complete sales prospectus in accordance with the provisions of the Securities Prospectus Act. Instead they would only have to publish a three-page “securities information leaflet”.

New law could help boost ICOs

The new provision could be especially attractive for providers of so-called initial coin offerings (ICOs) and/or token sales. This new form of corporate financing recently attracted enormous interest and could, by this new provision, virtually be taken to the second stage of its development. So far, most tokens were issued by way of ICOs without sales prospectuses, which was usually simply due to the fact that tokens were not classified as securities. As the effort in terms of formal requirements was low, this was an advantage for issuers.

On the other hand, however, the tokens were not allowed to promise dividends or distributions, and no granting of participation rights to token holders was admissible. As a consequence, when buying tokens in the past, investors only got tokens promising capital appreciation opportunities with respect to the tokens themselves resulting from price increases. But these were never associated with claims or rights vis-à-vis the issuing company.

Less effort required for fulfilling information duties

The new prospectus requirements could however resolve this problem. Given that much less effort will be required for preparing an information leaflet of only a few pages than for drawing up a full securities prospectus, it would be much easier to grant investors rights similar to participation rights in future ICOs. As a consequence, tokens – similar to company shares – could grant real legal positions and would, hence, be attractive for a larger investing public compared to previous ICOs.

WINHELLER assists companies in their financing projects and ICOs

It may actually be worthwhile for companies with investment needs in the single-digit millions to keep an eye on the further development of the legal provisions on sales prospectuses. Should the bill be implemented, very attractive opportunities may arise for running an ICO or issuing conventional corporate bonds. Our attorneys specializing in banking and capital markets law will be pleased to advise you.

Continue reading:
Standardization of Prospectus Requirements Under European Prospectus Regulation
Which information must be disclosed in the German prospectus?

Stefan Winheller

Attorney Stefan Winheller has specialized in tax law for about 20 years, especially in the areas of cryptocurrencies, foundations/nonprofits and international tax law.

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