Extended obligation to publish a prospectus in grey capital markets in Germany


The Exemptions

There are, however, the following exemptions from the prospectus requirement.

Crowd investing: the legislation aims to protect the financing of small and medium-sized innovative businesses via crowd investing. Crowd investing is part of crowd funding, i.e. the financing a specific project by means of a plurality of investors. In a crowd investing model, investors get a participation in future profits or shares or debt instruments. Crowd investing is exempted where the selling price of all investments issued by the same issuer and offered via an online platform, does not exceed EUR 1 million in total and, in essence, that each investor does not invest more than EUR 10,000. This limit is comparable to the regulation in the US in Title III of the Jumpstart Our Business Startups/JOBS Act 2012.

Cooperative societies: investments issued by a cooperative society ("Genossenschaft") which are offered only to members of the society are also exempted.

Social and charitable projects: These projects are also exempted from the prospectus requirement, i.e. the loan has been issued by a small companylimited by shares (“Kleinstkapitalgesellschaft”) whose members are registered associations with social or charitable aims. However, the selling price of all investments may not exceed EUR 1 million and the lending rate of the loans must be under the standard market interest rate of mortgage bonds with the same maturity.

The impact of the new legislation

The consequences of this new legislation will be varied.

Even where there is no obligation to publish a prospectus under the exemptions, an investment information sheet ("Vermögensanlagen-Informationsblatt") must be published regularly. This is particularly relevant to crowd investing, as there is the relatively low threshold of EUR 250 per investment.

Where the exemptions do not apply, subordinated loans and participating loans are subject to the statutory obligation to publish a prospectus. As these investments qualify as financial instruments it is very likely that, in future, the sale of these products will require a license under the German Banking Act ("Kreditwesengesetz" or "KWG") for investment consultancy or brokerage.

The new legislation is expected to come into force in the middle of 2015.

Further information

You can read the draft legislation here (in German).

For further details see our articles "Federal Ministry of Finance publishes draft legislation for reinforcement of investor protection" and "German Federal Cabinet approves the German Federal Ministry of Finance’s draft legislation to strengthen the protection of investors".