Entrepreneurs and small business owners often face significant challenges in securing traditional financing due to banks' stringent requirements. As a result, they are increasingly turning to flexible and suitable alternatives, with crowdfunding emerging as a prominent option. Crowdfunding enables the collection of small amounts of capital from a large number of investors to fund promising projects. It has also become an attractive investment avenue for small investors, allowing them to participate in startup ventures with limited capital and the potential for future returns.

Legal Regulation in Kuwait

The Kuwaiti legislature has responded to the evolution of non-traditional financing methods by issuing the 19th chapter of the Executive Regulations of Law No. 7 of 2010, which regulates the legal framework for securities-based crowdfunding activities. This regulation allows companies to raise funds through the issuance of securities or by transferring a portion of their shares or stakes, via licensed digital platforms. The law stipulates that:

• Crowdfunding transactions must be conducted through a licensed legal entity providing an approved electronic platform.

• The issuance and subscription process must be managed by a licensed underwriting agent.

• Rights of all parties must be protected through clear regulatory controls.

The 19th chapter divides securities-based crowdfunding into two models:

• Direct Model: Funding occurs through the allocation and registration of securities in favor of subscribers following the offering.

• Indirect Model: Funding is facilitated through the establishment of a Special Purpose Vehicle (SPV) to finance a specific project, with the issuer transferring part of its shares or stakes to the SPV. The SPV’s shares are then offered for subscription via a licensed crowdfunding platform.

Detailed provisions for each model cover licensing requirements, disclosure obligations, offering procedures, and liquidation processes.

Our Role at AlSarraf, AlMutawa & Partners Law Firm – ASAM & Partners

Due to the complexity of legal procedures and regulatory compliance requirements related to crowdfunding, our firm provides comprehensive legal support to our clients. We assist with establishing and regulating digital crowdfunding platforms, forming SPVs, drafting and reviewing contracts and agreements, ensuring full compliance with the regulations issued by the Kuwait Capital Markets Authority, and handling the entire subscription and fundraising process.

Our clients are our priority, and we are always ready to support their legal needs to achieve their strategic goals. You can review our main services, our team of experienced lawyers and legal consultants, and stay updated with the latest legal developments through our website, which features information on recent legal projects we have handled for our clients.

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