According to Brazilian Security and Exchange Commission (Comissão de Valores Mobiliários – CVM) Instruction No. 400, dated 29th December 2003, amended by Instruction No. 482, dated 5th April 2010, Brazilian companies may collect funds by issuing securities without registration before CVM utilizing equity crowdfunding.
Article 4, of Instruction No. 480/2003 (amended by Instruction No. 482/2010), waives registration or requirements, including publications, time schedules and proceedings contained in such Instruction for certain operations of issuing securities. For the dismissal of the registration, CVM shall consider the aggregate amount of the securities to be offered, the distribution plan, target market and jurisdictions involved in the offer.
Attached to the dismissal request, the offeror shall present a draft of a declaration, to be signed by the subscribers of the offer, acknowledging:
- subscriber has experience in capital market and deals;
- subscriber had access to information deemed relevant and suffice to decide investing, specifically those contained in the prospect; and
- subscriber is aware that such offer had its registration requirements waived.
Further to that, any communication shall disclose the waiver of registration of the offer by CVM and that CVM does not guarantee the truth and accuracy of the information rendered by offeror or the securities offered.
The declaration shall be signed and shall be included in the subscription bulletin or acquisition receipts.
Instruction No. 480/2003 also waives the registration requirements for offers related to one single and indivisible lot of securities, pursuant to its Article 5, II, limited to one offer of such issuer within 4 months as of the date of closing of the offer.
CVM has also stipulated the possibility to small and medium companies to issue securities without the need of registration of the offer1. In such cases, the amount of the offer is limited to R$2.4 million (US$1.1 million) and shall observe all the above mentioned requirements. Issues as to the registering of the shareholders – in case of a limited liability company, title of shares are demonstrated in the Articles of Association and, thus,
CVM has not stipulated prohibition as to how to proceed with the subscription and to collect the funds, provided that all requirements referred are fully and duly accomplished. Thus, crowdfunding is not prohibited for such purposes and can be utilized.
Prior to the more frequent use of the crowfunding – and even before the US JOBS Act (2012) –, since 2010, Brazil had set forth rules allowing companies to collect equity through issue of securities, without registration, provided the requirements demanded by CVM are fully accomplished.
There are indeed issues to overcome, since the dismissal of requirements of registration of the offer before CVM are applicable to the limited liability companies – for this type of company, proof of title of shares is contained directly in the articles of association and any change shall be reflected in an specific amendment. Granting of proxies to represent investors on signing the corporate documents could be used to expedite this matter.
To conclude, the use of equity crowfunding can be considered for equity collection, assisting companies to move forward their capitalization plans and also assist investors in pursuit of new targets.