The legal framework for equity crowdfunding in Sweden

The past few years have seen the introduction of a new method for the financing of small and medium-sized companies through the sale over the internet of equity securities to many investors for a limited consideration. This method is often referred to as “equity crowdfunding”. In addition to the issuers and the investors, equity crowdfunding also involves the provider of an internet funding portal, a “crowdfunding platform”. This article examines the legal framework for equity crowdfunding in Sweden from the issuer’s perspective.

Sweden has not issued any legislation specifically addressing equity crowdfunding. However, equity crowdfunding involving the sale of securities to Swedish investors is subject to Swedish legislation in general, including Swedish securities law (primarily the Swedish Act on Trading in Financial Instruments) and Swedish marketing and consumer law (primarily the Swedish Marketing Act). The Swedish Companies Act also applies to the extent the issuer is a Swedish company. As crowdfunding normally takes place over the internet, a number of Swedish acts are applicable, such as the Swedish E-commerce Act and the Swedish Distance and Off-premises Sales Act which, for example, carry certain information requirements.

Under the Act on Trading in Financial Instruments, issues of securities by an issuer to the public for a total consideration of less than EUR 2,500,000 from investors within the European Economic Area (the European Union countries plus Iceland, Norway and Liechtenstein) during any 12-month period are exempt from the general obligation to prepare and register a prospectus with the Swedish Financial Supervisory Authority. As an equity crowdfunding typically falls below this threshold, the generally burdensome and costly process of preparing a prospectus can often be avoided in equity crowdfunding. It should be noted that the above provisions apply to Swedish and foreign issuers alike, provided that the relevant issue is directed at Swedish investors. Consequently, a foreign issuer targeting only Swedish investors in the European Economic Area can use the EUR 2,500,000 exemption to avoid having to prepare and register a prospectus.

If the issue is directed at Swedish consumers the Swedish Marketing Act applies, stipulating that marketing must comply with “good marketing practices”.

For Swedish issuers, it may be noted that consideration received by the issuer does not constitute taxable income from a Swedish tax perspective. However, Swedish law differentiates between public companies and private companies. Under the Swedish Companies Act, private companies are prohibited from advertising with the aim of placing securities of the company. It should be noted that a number of Swedish private companies are presently involved in equity crowdfunding that could potentially be in breach of such prohibition, and our advice would be not to launch an equity crowdfunding project using a Swedish legal entity without first consulting legal professionals.