Definition and Basics of Crowdinvesting
Crowdinvesting refers to a specific form of crowd financing in which many private investors as well as institutional investors collectively provide capital to finance companies, projects, or real estate ventures. In contrast to other forms of crowdfunding, investors in crowdinvesting often acquire a stake in the economic success of the financed project—for example, in the form of company shares, profit participation rights, or subordinated loans.
The aim is to offer young companies or start-ups, as well as real estate projects, an alternative way to access capital by raising micro-investments from a large number of funders via online platforms. In return, investors receive a share of the profits or interest payments, which clearly distinguishes crowdinvesting from pure donation-based or rewards-based crowdfunding.
Legal Framework for Crowdinvesting in Germany
Statutory Foundations
Crowdinvesting operates within the legal framework of numerous laws, especially investment law and supervisory law. Key statutory foundations include the Investment Products Act (VermAnlG), the Securities Prospectus Act (WpPG), the German Banking Act (KWG), and the Act on Electronic Securities (eWpG).
Investment Products Act (VermAnlG)
The Investment Products Act regulates under which conditions and in which form certain investment products, which are not classified as securities, may be publicly offered. These include, for example, subordinated loans or participation loans, which are commonly used in crowdinvesting. The VermAnlG prescribes prospectus requirements to protect investors. Products subject to prospectus requirements are simplified for offerings with an emission volume starting at a threshold of 2.5 million euros.
Securities Prospectus Act (WpPG)
If securities within the meaning of the Securities Prospectus Act are offered within the framework of crowdinvesting—such as shares or bearer bonds—extensive prospectus obligations must be observed. The WpPG serves transparency purposes and, among other things, requires publication of a securities prospectus approved by the Federal Financial Supervisory Authority (BaFin).
Crowdfunding Exemption Regulation (SchwarmFAV)
The Crowdfunding Exemption Regulation specifies exceptions from the prospectus obligation for certain cases of crowdinvesting. This makes it easier for companies to raise smaller amounts without comprehensive prospectus requirements, as long as information sheets are prepared following the statutory model and investors are informed about risks.
Role and Duties of Platform Operators
Platform operators providing crowdinvesting services play a central role. They are subject to regulatory requirements if, under certain circumstances, they require a license under the German Banking Act (§ 32 KWG) or must operate as financial investment intermediaries under the Trade Regulation Act.
In addition, they have obligations regarding investor education, information provision, and compliance with regulations to prevent money laundering pursuant to the Money Laundering Act (GwG).
Investor and Consumer Protection
A central concern of legislation in the field of crowdinvesting is investor protection. Various safeguards have been established for this purpose:
Information Obligations
Issuers must provide investors in a timely manner with standardized information sheets (Investment Products Information Sheet – VIB or Securities Information Sheet) that include all essential features and risks of the investment.
Risk Notices
Investors must be specifically informed about loss risks, subordination, and the limitation of repayment claims before entering into a contract. There is an increased risk of default in the event of insolvency, particularly for subordinated loans.
Investment Limits
To protect against excessive risks, maximum investment limits exist for retail investors in crowdinvesting projects. Typically, individuals without proof of wealth may invest a maximum of 1,000 to 10,000 euros per project.
Withdrawal and Cancellation Rights
Investors can reverse their participation within certain periods. Statutory cancellation rights ensure that investment decisions can be made with due consideration.
Special Legal Forms and Contract Design
Subordinated Loans
The most common form of investment in crowdinvesting is the qualified subordinated loan, under which the claims of the investors are subordinated in the event of insolvency. The legal structuring must clearly establish this subordination, for example, through explicit contractual clauses.
Profit Participation Rights and Silent Partnerships
Additionally, profit participation rights or silent partnerships are used, allowing investors to share in the profits and, in some cases, losses.
Equity-based Investments
On certain platforms, participation is through shares or GmbH (limited liability company) interests. Here, further legal requirements under the Securities Trading Act and, if applicable, obligations concerning participation in shareholder meetings must be observed.
Regulatory Classification and BaFin Supervision
Authorization Requirements and Licensing
Crowdinvesting platforms are subject to regulatory obligations depending on the design of their services. For instance, if the brokering of financial investments is offered professionally, a permit under § 34f of the Trade Regulation Act may be required. The Federal Financial Supervisory Authority (BaFin) also examines whether an authorization is required under the German Banking Act or the Payment Services Supervision Act (ZAG).
Amendment by the European Crowdfunding Regulation
Since November 10, 2021, the “EU Regulation 2020/1503 on European Crowdfunding Service Providers” has been in force. It harmonizes, in particular, the requirements for operators of crowdfunding platforms (crowdfunding service providers) and introduces a specific licensing regime that applies throughout the EU. Compliance with these requirements and the underlying business model is monitored by national supervisory authorities, in Germany the BaFin.
Tax Aspects of Crowdinvesting
Income from crowdinvesting—such as interest, profit shares, or capital gains—is subject to taxation. For private investors, this is usually considered investment income, which is generally subject to flat-rate withholding tax.
On the project sponsor’s side, the funds received are to be treated as debt capital, so interest expenses may be tax-deductible. Special regulations exist, for example, in the case of silent partnerships or for the fees of platform operators.
Risks and Legal Disputes in Crowdinvesting
Despite extensive statutory regulations, crowdinvesting investments always involve specific risks:
- Risk of Total Loss: The insolvency of the project sponsor can result in a total loss of the investment, particularly in the case of subordinated loans.
- Legal Contestability: Incorrect or incomplete information sheets can result in rescission and compensation claims.
- Liability and Fault Issues: The liability of platforms and issuers to investors is tied to the fulfillment of all regulatory obligations.
- Contract Interpretation: Ambiguous contractual clauses, especially regarding subordination or repayment modalities, can lead to lengthy legal disputes.
Conclusion
Crowdinvesting has established itself as a significant alternative financing method in the German capital market. The legal framework is characterized by a multitude of specific regulations in investment and supervisory law. Investors and providers must fulfill extensive information, transparency, and due diligence obligations. At the same time, considerable risks remain, which must be taken into account above all through the structuring of the contracts and through oversight and regulation by supervisory authorities. A sound understanding of the relevant legal requirements and contract design is essential for the legally compliant implementation of crowdinvesting projects.
Frequently Asked Questions
What legal requirements must issuers meet in crowdinvesting?
Issuers—that is, companies or project sponsors seeking to raise capital through crowdinvesting—are subject to various legal requirements in Germany, depending on the design of the offer. The central regulation is the Investment Products Act (VermAnlG), which applies when so-called investment products (e.g., subordinated loans, profit participation rights, or participation loans) are issued to retail investors. Up to a current threshold of 8 million euros per year and per issuer, a public offer may often take place by means of a simplified sales prospectus or a securities information sheet (VIB), which is reviewed by the Federal Financial Supervisory Authority (BaFin) before publication. Issuers must also comply with general transparency and information obligations, for example, through ongoing reporting to investors and compliance with relevant data protection provisions (in particular, GDPR). These requirements are supplemented by regulations from other laws, such as the Securities Trading Act (WpHG), if securities are issued. Violations of regulatory obligations can result not only in civil liability to investors, but also in regulatory measures or administrative fines.
What statutory investor protection mechanisms exist in crowdinvesting?
Various statutory mechanisms exist to protect investors in the context of crowdinvesting. First, the Investment Products Act limits the investment amount per investor: in Germany, private individuals may invest a maximum of 1,000 euros per issue, unless they have freely available assets of at least 100,000 euros or can provide a self-disclosure, which allows a higher investment up to a maximum of 25,000 euros per issuer and year. In addition, the issuer is required to provide a securities information sheet that summarizes all essential information and risks of the offered investment in a concise and understandable manner on two to three pages. Platforms are required to inform investors of risks and, as part of a so-called investment test, educate them about their financial circumstances and related risks. In addition, investors are entitled to cancellation rights and transparency obligations regarding the development of the investment. Compliance with these regulations is monitored by BaFin or the responsible state supervisory authorities.
What role does BaFin play in the crowdinvesting process?
The Federal Financial Supervisory Authority (BaFin) plays a central role in crowdinvesting. Its primary tasks are to oversee compliance with the formal legal requirements of the Investment Products Act and, if applicable, the Securities Prospectus Act by reviewing and approving sales prospectuses and securities information sheets. If legal requirements are violated, BaFin can issue orders, prohibit issues, or impose sanctions. In addition, BaFin ensures that the financial products offered are correctly categorized and marketed. BaFin also publishes warnings regarding dubious or unauthorized offers and ensures transparency in the market to safeguard investor protection.
Are crowdinvesting platforms subject to special regulation?
Yes, since the entry into force of the Crowdfunding Accompanying Act and the European Regulation (EU) 2020/1503 on European Crowdfunding Service Providers, crowdinvesting platforms themselves are subject to specific regulatory requirements. Platforms wishing to provide cross-border services require authorization as “crowdfunding service providers” under the above-mentioned regulation, which sets uniform standards regarding investor information, risk management, and corporate governance. At the national level, an authorization requirement under the Trade Regulation Act and, if applicable, under the German Banking Act (KWG) exists if financial services as defined by law are provided. Platform operators must also take measures to prevent money laundering and are obligated to neutral processing and documentation of investor processes. Compliance with these regulations is monitored by BaFin as well as by European supervisory authorities.
What civil liability risks exist in crowdinvesting?
Both issuers and crowdinvesting platforms are exposed to various liability risks. Essential sources of liability arise from prospectus defects, meaning if the sales prospectus or securities information sheet is incomplete, incorrect, or misleading. In such cases, affected investors have a civil claim for damages against the issuer and, if applicable, the responsible persons (board members, managing directors). Moreover, general civil liability rules may apply, for example, if disclosure obligations are not met or if incorrect information is provided. If losses result from breaches of duty, investors may enforce their claims in court. To reduce liability risks, legally secure processes and comprehensive documentation of investor communication are recommended.
What tax aspects need to be considered in crowdinvesting?
From a legal perspective, it is particularly important to note that income from crowdinvesting is subject to tax. The type of taxation depends on the structure of the investment: if it concerns interest from a subordinated loan or earnings from profit participation rights, these are generally considered investment income, which is subject to capital gains tax (flat-rate withholding tax). Profits from maturity or sale of securities or profit participation rights may also be taxable. Issuers and platforms are legally required to inform their investors of tax issues when entering into the contract. Furthermore, there is often an obligation to report certain income to the tax authorities (§ 43 EStG). For investors—especially for larger investments—it is recommended to consult a tax advisor to fulfill their tax obligations correctly.
What special disclosure and information obligations apply to issuers and platforms?
Legal requirements demand that issuers disclose all relevant information about their company, the planned project, and the structure of the investment. This especially includes information about the economic background of the project, the exact use of funds raised, potential risks, the legal structure of the investment, as well as the costs and fees associated with the investment. These disclosures must be clear, understandable, and complete in the sales prospectus or securities information sheet. After successful financing, there is an obligation for regular reporting about the progress of the project and notification of significant events. Platforms, in turn, must monitor issuers’ compliance with these information obligations and ensure that all information is communicated to investors in a timely and complete manner. Incorrect or incomplete information can have significant legal consequences, especially claims for damages by investors.
