Startups in Ghana now have a powerful new tool for securing funding, but with great opportunity comes the need for vigilance. The Securities and Exchange Commission (SEC), in collaboration with the UN Capital Development Fund (UNCDF) and Lelapa African FinTech Advisory, has unveiled groundbreaking guidelines for equity-based crowdfunding. These regulations, detailed in the Securities Industry (Crowdfunding) Guidelines 2023, promise to transform the way startups access capital and investors participate in the country’s burgeoning entrepreneurial scene.

However, while the guidelines open doors for growth, they also establish a strict framework to ensure investor protection and market integrity. Non-compliance with these rules can lead to severe penalties, making it essential for startups and investors alike to understand the landscape fully.

This comprehensive guide will walk you through the key provisions of the guidelines, the exciting opportunities they present, and the potential risks for those who fail to adhere to them.

Who Can Crowdfund?

• Public Company Status: Your startup MUST be incorporated as a public company in Ghana to be eligible for crowdfunding.
• MSME Classification: Your startup must meet the definition of a Micro, Small, or Medium Enterprise (MSME) as defined by the Ghana Enterprise Agency.

How Much Can You Raise?

• General Cap: The maximum you can raise through crowdfunding in a 12-month period is GHS 6,000,000.
• Exception for Specific Sectors: Startups in agriculture, physical assets, or agricultural projects can potentially raise up to GHS 10,000,000.
• SEC Approval for Higher Amounts: Raising more than the general limit without SEC approval can lead to fines and potential legal action.

What Investment Options Can You Offer?

• Diverse Instruments: Under the new crowdfunding rules in Ghana, you can offer various investment options to attract different types of investors. These include equity shares, debt securities, profit-sharing agreements, convertible securities, and more.
• No Cryptocurrencies or NFTs: Issuing digital currencies or non-fungible tokens (NFTs) is not allowed under these guidelines.

The Crowdfunding Intermediary:

• Licensed Partner: Your chosen intermediary MUST be licensed by the SEC. Operating without a licensed intermediary can lead to the shutdown of your campaign and legal repercussions.

The Crowdfunding Platform:

• Licensed and Secure: The platform must also be licensed by the SEC. Using an unlicensed platform is a violation of the guidelines.

The Crowdfunding Process: Step-by-Step

1. Find a Licensed Intermediary: Partner with a crowdfunding intermediary licensed by the SEC. They’ll guide you through the process, conduct due diligence, and facilitate the transaction.
2. Prepare an Offering Document: Create a comprehensive document outlining your business plan, financial projections, use of funds, and the risks involved.
3. Investor Onboarding: Your intermediary will verify potential investors’ identities and ensure they understand the risks.
4. Funding Round: The funding round has a maximum duration of 60 days, with a possible 30-day extension approved by the SEC. You’ll need to set a minimum funding goal.
5. Escrow Account: Investor funds are held in a secure escrow account until the funding round closes.
6. Successful Funding: If you reach your minimum goal, the funds are released to your startup. If not, the funds are returned to the investors.

Ongoing Obligations

• Regular Updates: Provide transparent progress reports to your investors.
• Annual Financial Statements: Share audited financial statements with your investors.
• Transparency: Inform investors of any major changes in your business, like mergers, acquisitions, or new product launches. administrative penalties.

Penalties for Non-Compliance:

• Administrative Penalties: Fines ranging from 50 to 20,000 penalty units.
• License Revocation or Suspension: The SEC can revoke or suspend the licenses of intermediaries or platforms that violate the guidelines.
• Criminal Charges: In severe cases of fraud or intentional misrepresentation, criminal charges may be filed.

Additional Considerations:

• Data Protection: Violations of data protection laws can result in fines and legal action.
• AML/CFT Compliance: Non-compliance with anti-money laundering and counter-terrorism financing regulations can lead to severe consequences.
• Foreign Investors: You can target investors from abroad, but they must comply with the guidelines.
• Marketing Restrictions: You’ll need to adhere to specific marketing regulations when promoting your crowdfunding campaign in Ghana.