Crowdfunding in Nigeria: what does the law say about this?
Crowdfunding is when a large number of persons contribute a small amount of money for a project or investment. An Example of crowdfunding is GoFundme.
Crowdfunding is a legally acceptable means of raising money in Nigeria and it is regulated by the Securities and Exchange Commission (SEC). SEC amended its rules in 2021 to include regulation on crowdfunding, more particularly investment crowd funding and it defines the model as the raising of funds from the public through an online portal in exchange for shares, debt securities, or other investment instruments approved by the SEC.
Who is a fund raiser?
A Fund raiser is defined under the rules as a company seeking to raise capital through the issuance of investment instruments to members of the public through a crowdfunding portal.
SEC also stated the type of entities that are allowed to go into crowd funding in Nigeria;
- it must be a registered company incorporated in Nigeria;
- It must be an MSME Micro, small and Medium Enterprises; and
- It must be in operation for 2 years or has a technical partner with over two years’ experience or a major investor.
Despite the above rules, certain companies are prohibited from running a crowdfund. This includes listed companies and their subsidiaries, companies deemed suspicious, companies with no clear-cut business plan or companies whose owners can not be easily ascertained.
There is also a minimum amount that can be raised in crowdfunding under the rules and it depends on the type of company. For instance, Micro companies cannot raise more than 50 million for 12months. This limit does not in any way affect Commodities Investment platforms (CIP).
The rules also protects a retail investor while an individual investor is allowed only to invest 10 percent of what he/she receives annually.
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