Crowdfunding is a method of raising funds to finance projects and businesses from a large number of donors and investors through online platforms. It is an alternative method of funding projects, most commonly used by startups or growing businesses.

Types of crowdfunding

Crowdfunding can be divided into financial and non-financial, depending on what the investor receives in return for providing financial resources to the project owner.

Non-financial crowdfunding can take the form of donor crowdfunding, in which individual investors provide their funds to the project owner without any consideration. This type of funding is mainly used for charity projects or sponsorship.

The second type of non-financial crowdfunding is reward crowdfunding, which consists of the provision of funds by the investor in exchange for in-kind consideration in the form of services or products. Typically, the investor receives from the project owner a product that has been developed and manufactured within the project on the basis of the funds raised from investors.

In financial crowdfunding, investors expect a financial return on their investment.


Crowdfunding is most often used by start-ups and small or medium-sized businesses looking to expand their operations.

Start-ups often have difficulty obtaining financing for their projects from traditional banks and financial institutions due to lack of track record, lack of profitability, insufficient assets or the riskiness of the project. Crowdfunding investors can support projects with relatively small amounts of money, which, due to the large number of investors in the aggregate, allow businesses to fund projects that could not otherwise happen.

Crowdfunding also allows businesses to test the market before launching a product or service with relatively little financial risk.

Given the large number of investors, crowdfunding projects, and with them the owners of these projects, are gaining increased awareness in society. For businesses, crowdfunding also serves as a platform for marketing and advertising their project and company.

Regulation on crowdfunding

The European Parliament has introduced a new regulation of crowdfunding, which is Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European crowdfunding service providers for business (the Regulation). In general terms, the Regulation is designed as an exemption from the regime for the provision of investment services under MiFID II and from the regulation of public offerings of securities, respectively Act No. 256/2004 Coll., on capital market undertakings.

Under the Regulation, a crowdfunding service provider is a legal entity established in the European Union that provides crowdfunding services consisting of matching of business funding interests of investors and project owners through the use of a crowdfunding platform and which consists of any of the following activities:

  • the facilitation of granting of loans (credit crowdfunding);
  • placement of transferable (investment) securities and instruments accepted for the purposes of crowdfunding issued by project owners without a firm commitment and the receipt and transmission of client orders in respect of such securities and instruments (investment crowdfunding).

Credit crowdfunding consists of an agreement whereby the investor provides the project owner with an agreed amount of money for an agreed period of time and the project owner unconditionally agrees to repay the investor this amount together with the interest accrued in accordance with a repayment schedule.

In the case of investment crowdfunding, the investor buys transferable securities issued by the project owner or unlimited transferable shares in a limited liability company of the project owner (this option is currently not possible in the Czech Republic) through an online platform.

The definition of a crowdfunding provider implies that the Regulation only applies to the regulation of financial crowdfunding, and only to certain forms of crowdfunding. The Regulation does not apply to:

  • crowdfunding services provided to project owners who are consumers;
  • other services related to crowdfunding services provided in accordance with national law;
  • group financing offers with a consideration of more than EUR 5 000 000 per 12 calendar months per project owner (in the Czech Republic, a reduced limit of EUR 1 million will apply until 10 November 2023.

Certain obligations of crowdfunding providers

The regulation sets requirements primarily for crowdfunding providers, not for projects offered on online platforms or their owners.

In accordance with Article 16 of the Regulation, providers will be obliged to comply with the information obligation to send annually a list of projects financed through the crowdfunding platform, with information on the project owner and the amount raised, the instrument issued and summary information on the investors and the amount invested, broken down by tax domicile of the investors, distinguishing between qualified and non-qualified investors. Providers will fulfil the information obligation towards the Czech National Bank (CNB), which will then provide the information to the European Securities and Markets Authority (ESMA).

In addition, crowdfunding providers must always have in place prudential guarantees equal to at least the higher of EUR 25 000 or one quarter of the fixed overheads for the previous year. Prudential guarantees shall take one of the following forms:

  1. the capital consisting of the common equity tier 1 items referred to in Articles 26 to 30 of Regulation (EU) No 575/2013 of the European Parliament and of the Council after deductions pursuant to Article 36 of that Regulation in full, without applying the threshold exemptions under Articles 46 and 48 of that Regulation;
  2. insurance covering the EU territory where the crowdfunding offerings are actively marketed, or a comparable guarantee; or
  3. combination of a) and b)


The regulation introduces the obligation for crowdfunding providers to obtain a licence from the regulator, which is the CNB in the Czech Republic. The license obtained is valid throughout the European Union, so the new European regulation makes it much easier for providers to provide crowdfunding services internationally.

The licence for the crowdfunding provider under the Regulation cannot be replaced by any other licence issued by the CNB. Thus, banks, securities dealers or non-bank credit providers must also apply for the licence.

Article 12 of the Regulation lays down the requirements for an application for a licence to operate as a provider of crowdfunding services. The essential elements are:

  • a programme of activities defining the types of crowdfunding services the applicant intends to provide and the crowdfunding platform it intends to operate;
  • a description of the governance systems, management and internal control mechanisms;
  • a description of the systems, resources and procedures for controlling and protecting data processing systems;
  • a description of operational risks and prudential safeguards;
  • information on the identity of natural persons in a managerial position of the provider, their integrity, good repute, sufficient knowledge and professional skills to manage the provider;
  • information about the controlling persons up to the beneficial owners.

The preparation of the application and all attachments is a demanding process that can take several months. Within 25 working days of receipt, the CNB will review the application for a crowdfunding provider licence for completeness and, if necessary, invite the applicant to complete it. The CNB then has 3 months to decide whether to grant or refuse the licence. However, in view of the extremely short timeframe for the decision, it can be expected that licensing procedures will be interrupted and applicants will be invited to amend their licensing documentation in the context of the CNB’s comments without the 3-month timeframe running.


The regulation brought relatively strict EU regulation of some forms of financial crowdfunding, while at the same time allowing online platform providers to expand relatively easily into other Member States of EU thanks to the EU-wide validity of the licence.

There is a transitional period until 10 November 2023 during which existing providers of group financing services may continue to operate as they did on 10 November 2021 under the existing conditions. Thereafter, only CNB licence holders will be able to provide group financing services under the Regulation.

In view of the length and complexity of the whole process of obtaining a CNB licence for a group financing service provider, we recommend that clients start dealing with the situation as soon as possible.

If you are interested in our crowdfunding licensing services - crowdfunding provider licenses or other financial services, please contact us at or call +420 222 767 393 to arrange a free initial consultation.

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