Crowdfunding opportunities in Lithuania

Authors: Erikas Saukalas, partner at METIDA, attorney-at-law, head of International Relations Division, court mediator; Aurimas Sobutas, Junior Lawyer at METIDA

The ambitious type of economy, namely, sharing economy, has successfully established over two decades by virtue of online platforms. One of varieties of such economy is crowdfunding described by the European Commission as the way of collecting money for funding of projects and business where money collectors may collect money from a lot of people or companies by virtue of online platforms. Since 2003 when the first global crowdfunding project was implemented the ideas have spread all over the world and the global crowdfunding market amounts to USD billions. In Lithuania, crowdfunding has already taken the first steps.

Forms of crowdfunding

The Bank of Lithuania has distinguished four forms of crowdfunding.
The first form of financing is investment where funds are invested in the capital of the company of the project owner through acquisition of the company’s shares, debentures and other securities. There is no such platform in Lithuania so far due to the lack of specific regulation although at the end of 2015 one company has already published that it would start such platform targeted at funding of business projects including the projects related to real property.

The second form of funding is peer-to-peer lending where funds are lent to the project owner by entering into a loan contract and, as a rule, the funds are repaid with interest. Although no platform of crowdfunding of such form is available in Lithuania due to the lack of specific regulation, peer-to-peer lending platforms based on similar principle are available in Lithuania already since August 2014 and such platforms are a particularly attractive alternative to the persons seeking to receive a consumer credit from banks or instant credit companies.

The third form of financing is reward based crowdfunding where the return to the financing person is expressed not in monetary form (for example, publication of a book with the author’s signature, an invitation to the concert of the sponsored band etc.) and is related to the success of the implemented project.

The last form of financing is support-based crowdfunding where funds are allocated for the respective project without expecting any benefit in the future and, as a rule, this is related to some noble intentions, for example, support to the persons who have suffered from a natural disaster, sending of necessary learning facilities to children in Africa etc. Unfortunately, the reward-based and support-based crowdfunding do not exist in Lithuania so far and, as a rule, project developers from Lithuania use foreign platforms.

Legal regulation

In Lithuania, there is no specific legal act regulating crowdfunding yet. Nevertheless, for the purposes of implementation of the priority measure under the Programme of the Government providing for improvement of the mechanism of investment of the residents’ savings in economy increasing a diversity of the sources of funding of business, the specialists of the Bank of Lithuania and the Ministry of Finance have drawn up and in May 2016 presented the draft Law on Crowdfunding aimed at regulating the financial forms of crowdfunding, i.e. investment and peer-to-peer lending, to the Government. The afore-mentioned draft law has been drawn up on the basis of the experience of France, Italy and Great Britain and the legal regulation of crowdfunding in force in the afore-mentioned states although the legal acts governing crowdfunding in Italy regulate only investment-based crowdfunding.

It is expected that the Seimas of the Republic of Lithuania will approve and adopt the afore-mentioned draft law which will clearly define and allow fully open functioning of investment-based and peer-to-peer lending platforms which will result in an increase in competition of the financial system of Lithuania already during the spring session in 2016. The afore-mentioned specific legal act will not regulate the reward-based and support-based crowdfunding and legal grounds for creation and operation of such platforms already exist; thus, the provisions concerning contracts set forth in the Civil Code of the Republic of Lithuania and the provisions of the Republic of Lithuania Law on Charity and Sponsorship and other laws must be applied.

 

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