Equity Driven Crowdfunding in Lebanon

Crowdfunding, an alternative means of financing for individual projects and companies, has become an increasingly popular concept in recent years. It emerged in response to the financial crisis of 2007–08, but didn’t officially appear in Lebanon until 2013 with the launching of Zoomaal and has grown throughout the surrounding region. Fundamentally, financing through crowdfunding relies on a large number of relatively small investments from a variety of individuals often facilitated with internet based platforms.

Crowdfunding can follow a few different models but all are based on the funders’ expectations of return being either financial or non-financial. Those providing the funding can donate based on a desire to help without financial expectations, give money in exchange for some benefit or reward, loan the money, or receive a loyalty interest or some sort of equity instrument, such as shares.  Crowdfunding platforms, like Zoomaal, typically use some combination of these models to attract more investors. These platforms earn money through some combination of fixed upfront fees in exchange for listing a request for funds, contingency fees payable upon successful funding and other means. The Lebanese Capital Markets Authority (CMA) took measures to regulate the equity based crowdfunding model.

In 2011, the CMA issued a decree regulating the formation and operation of companies offering crowdfunding through equity instruments in Lebanon as well as the procedures to request capital increases through these Lebanese crowdfunding companies.

Formation and Operation of Crowdfunding Company

Decision no. 3 lays out the requirements and processes for any company, Lebanese or non-Lebanese, to operate a platform that facilitates the raising of funds by small and medium sized enterprises and start-ups through the sale of shares of equity to many individual investors (“Platform”) in Lebanon.

First, a request to form a company that will offer the Platform must be submitted to the CMA along side a feasibility study that outlines the projected profits and losses, financial balance statements and cash flow for the upcoming three years.

Once this approval is obtained, the company must be formed as a Lebanese joint stock company, otherwise known as a Société anonyme libanaise, with a minimum capital of 1,000,000,000 Lebanese Pounds, roughly equivalent to 666,666 United States Dollars, or as a registered branch of a foreign company with the same amount available to finance its operations.

Thirdly, the Company cannot begin operating until it obtains a license to offer the Platform from the CMA by submitting a series of documents best summarized as a detailed business plan, risk management procedures and background checks for its directors and auditors among other documents. As outlined in the Decision no. 3, the Company must submit

(i)    administrative documents proving successful registration at the commercial registry and that the minimum capital or required funds are available in a bank in Lebanon, as well as a list of the Company’s authorized signatories and directors,
(ii)    internal regulations concerning the job description of employees, any user manual(s) or code(s) of conduct, and the procedures in place to protect investors from fraud, prevent money laundering, subscribe to shares, protect personal information and professional secrecy, accept electronic signatures, and
(iii)    technical precautions taken to make the platform effective and safe such as antispam, antivirus, firewalls, log in access restrictions, authentication procedures, etc…

Once the CMA is satisfied that the Company has fulfilled all the conditions above, it issues a license to operate the Platform that must be used within 6 months of issuance or it becomes void.

In operating the Company, the Company is required to have an electronic platform to connect the companies seeking investment with potential investors and an interest bearing escrow account at a bank operating in Lebanon for each crowdfunding transaction with release to either the company seeking investors upon reaching the stated funding goal or to the investor, with interest, if funding goals are not reached within 180 days.

Finally, the Company should cooperate with the CMA by facilitating CMA supervision, sending periodic reports and annual financial reports to the CMA and clarifying that the CMA takes no responsibility related to the information on the Platform. Specifically the Company cannot give advice to any investor or company nor display anything other than shares on the Platform, restricting the Platform to only the equity based model of crowdfunding.

Capital Increases through Crowdfunding

In order for any company to request funds through a Platform operating out of Lebanon, the Company must receive the former’s commercial registry certificate, statues, financial reports, a feasibility study and a list of all directors, general manager and shareholders signed by the Chairman. This means that only already existing entities can raise funds by offering shares on the Platform.

Each attempt to raise funds must be at least 30,000,000 Lebanese Pounds, roughly equivalent to $20,000, and each investor’s direct and indirect investment must be between 750,000 LBP and 15,000,000 LBP, roughly equivalent to $500 and $10,000.

Furthermore the Company should ensure that the company requesting funds submits a term sheet to the investor consisting of: Capital of Company to be crowdfunded, Conditions for investment, summary on risks that the Investors might encounter, relation with Organization and CMA and that the company executes a contract detailing subscription conditions with the investor governed by the Lebanese Commercial Law.

Crowdfunding presents a unique model to test out ideas and venture before expending the capital to put them into the market, while allowing more individuals to invest. As crowdfunding continues to grow as an alternative finance method, we can expect regulations to increase with it.

Samantha Joyce Bradshaw

Samantha Joyce Bradshaw

Senior Foreign Counsel at Aziz Torbey Law Firm

Email: [email protected]
Tel: +961 1 422466

Samantha focuses her practice on corporate, M&A, technology and intellectual property matters. She is a member of the Virginia State Bar and awaiting her oath ceremony to join the United States Virgin Islands Bar. She obtained her Juris Doctor from Charlotte School of Law (2012).


About Samantha Joyce Bradshaw

Email: [email protected]
Tel: +961 1 422466
Samantha focuses her practice on corporate, M&A, technology and intellectual property matters. She is a member of the Virginia State Bar and awaiting her oath ceremony to join the United States Virgin Islands Bar. She obtained her Juris Doctor from Charlotte School of Law (2012).