Legal aspects of obtaining a crowdfunding license in Lithuania

With the development of fintech, alternative methods of financing are gaining popularity. One of them is crowdfunding; it’s a financing system that relies on voluntary contributions from people. Having a good idea and creating a company using a crowdfunding platform, you can not only raise the amount necessary for implementation, but also attract like-minded people and potential clients. In recent years, crowdfunding has become increasingly popular as an innovative and affordable way to finance various projects and startups, which has opened new horizons for entrepreneurs in Lithuania and investors throughout the European Union. Below we will look at the main legal aspects of obtaining this type of permit in Lithuania, as well as all the aspects that need to be implemented for this.

Our team is made up of first-class specialized specialists who have been working in the field of establishing and licensing commercial structures for many years. We are ready to provide comprehensive assistance on the way to obtain crowdfunding license in Lithuania, Germany, France, Cyprus and other countries.

Legal Aspects for Crowdfunding in Lithuania: Compliance Requirements and General Insights

Crowdfunding in Lithuania not only represents a new financial instrument, but also reflects broad social and economic changes associated with the digitalization and democratization of financial markets. This movement opens doors to a wide range of entrepreneurs and innovative start-ups, giving them the opportunity to realize their ideas and projects through public support.

In response to the growing number of successful crowdfunding campaigns and increasing interest in this area, the European Union is actively working to create an enabling and regulated environment for crowdfunding. The main step in stabilizing the regulatory framework is the introduction of Regulation (EU) 2020/1503, which includes requirements for licensing the activities of crowdfunding platforms.

Licensing is an important element to ensure transparency, security and reliability in the crowdfunding industry. This requirement ensures that crowdfunding platforms meet strict standards for managing risk, protecting user data and ensuring fair conditions for all participants. Thus, licensing helps to increase confidence in crowdfunding platforms among investors and entrepreneurs, which, in turn, contributes to the further development and growth of this area in the European Union and Lithuania in particular.

The EU crowdfunding regulation came into force in November 2021 and forecasts a boom in crowdfunding in continental Europe, considered the world’s largest single market with 450 million consumers and more than 20 million businesses. The regulation creates common public finance crowdfunding rules and uniform licensing across the European Union and the European Economic Area, helping crowdfunding platforms operate across Europe. The aim of the new regulation is to support cross-border financing and improve access to innovative forms of finance for small and medium-sized enterprises (SMEs) and start-ups.

Licensed crowdfunding platform operators have the opportunity to finance their client companies through crowdfunding platforms using different instruments:

loan agreements;
issue of debt obligations (bonds);
issue of equity securities (shares) or other securities;
transfer of their rights arising from existing loan agreements.

Modern tools such as token issuance and offering tokens as STO securities can be used to raise capital for investment projects through a licensed crowdfunding platform. Securities offered to investors through licensed crowdfunding platforms can be freely distributed throughout the European Union.

Lithuania is actively developing the fintech services industry and attracting innovative financial companies. Our service for obtaining a Lithuanian crowdfunding license is aimed at facilitating market entry for crowdfunding platforms. We provide comprehensive guidance on Lithuanian crowdfunding regulation, assist with the preparation and submission of required documents, and advice on regulatory compliance issues. Our goal is to simplify the licensing process for our clients, ensuring their successful and legal operation in the Lithuanian crowdfunding services market.

Main Licensing Procedures Steps: Requirements and Documentation

From 11 November 2023, all crowdfunding platforms are required to have an appropriate license to legally provide their services in the European Union. To obtain a license, providers must prove they meet a number of criteria, including financial strength, adequate risk management systems and fraud prevention measures.

Licensing also means that platforms must follow certain rules regarding providing information to investors, managing conflicts of interest and handling customer complaints. These measures aim to create a standardized and secure crowdfunding market in the EU, promoting innovation and supporting SMEs. Licensing of crowdfunding platforms is therefore a key element of the regulation of this sector in the European Union, providing a high level of protection for all participants in the process and contributing to the development of trust and stability in the field of collective finance.

When issuing licenses, the Bank of Lithuania carefully evaluates the applicant’s readiness to next-mentioned.

Conduct business in accordance with the regulatory framework.
Respect the interests of investors in projects.

This assessment process includes analysis of the next-mentioned points and documentation.

Business-plan and organizational structure of the company.
Reputation of the management and owners of the company.
Compliance with fulfillment of anti-money laundering (AML) policies.
Suitability of the crowdfunding service for investors.
The credibility of project owners, including their reputation and creditworthiness.
Assessment of the project’s credit rating and pricing of proposals.
Providing individual loan portfolio management services.
Contractual agreements with clients and implementation of know your customer (KYC) mechanisms.
Custody of client assets (funds and financial instruments).
Managing conflicts of interest.
Operational and business continuity strategies.
Information disclosure practice.
Mechanisms for handling customer complaints.

Particular attention is paid to protecting the interests of investors, in particular in such areas as asset preservation, adequacy of transactions, assessment of project owners and management of conflicts of interest.

Strengths of Crowdfunding Niche for Entrepreneurial Ventures in Lithuania

Crowdfunding is a popular online way for startups to raise money. With crowdfunding, startup teams can crowdsource money from their backers to help them continue their business. Some of the benefits of crowdfunding for startups in Lithuania include next-mentioned.

Fast and easy funding: startup teams can quickly and easily raise money from their backers. This allows them to continue their business even if there are limited funds.
Increased access to capital: startup teams can get more money from their backers than they could through traditional venture capital funding. This allows them to focus on their business rather than worrying about securing additional financial support.
Greater visibility and exposure: startup teams can get more exposure and feedback from the public. This increases the likelihood that people will recognize their business and invest in it.
Greater community participation: with the help of crowdfunding, startup teams can build a strong community around their business. This helps them communicate better with potential clients and partners and makes it easier for them to grow their business.

Lithuania was one of several EU members with a national crowdfunding law in place even before the European regulation was approved. The Lithuanian crowdfunding law complied with the requirements of the new European regulation and allowed the Lithuanian national crowdfunding license to be transformed into a new pan-European license. Thus, Lithuania is a profitable and quite promising jurisdiction for launching this type of business.

Our company is ready to provide you with comprehensive advisory and practical support in obtaining this type of permit and in implementing your commercial ideas of any nature. We are ready to become your reliable allies and trusted partners. Contact us now.

Article’s author is Denys Chernyshov – founder and CEO of the globally-famous organization Eternity Law International