One of the biggest challenges that micro, small and medium enterprises face when trying to settle in and achieve success as profitable businesses is to obtain capital and sources of financing. Sometimes, the most common sources of financial resources - such as bank loans, private equity and public offerings of securities - are beyond the reach of these companies and, consequently, many innovative ideas that could result in booming business for the national economy and for the creation of jobs are not developed.
Crowdfunding could be an alternative source of financial resources for potential businesses that do not have access to capital and traditional forms of financing. As its name indicates, crowdfunding is the collection of funds from the general public, usually constituted by contributions of small amounts from a large number of people. In the past, the costs of attracting smaller contributions from multiple investors were very high but they have decreased with the emergence of the Internet, as evidenced by the success of online platforms like Kickstarter, IndieGoGo, Lending Club, Afluenta, Prestadero and Comunitae, among others.
Depending on the consideration that is promised to investors, crowdfunding can manifest itself in multiple ways. There is a donation-based crowdfunding model whereby taxpayers do not receive any return for the contribution and, even, the contribution made by the donor is not returned. Although, in these cases, the person making the contribution does not expect to receive a consideration, the funds to be allocated can be used both for a venture whose purpose is to generate profits and for a non-profit initiative.
Another crowdfunding format is the equity crowdfunding model whereby investors provide capital and receive shares or another capital instrument that gives them the right to receive a percentage of the income generated by the business they are financing. There is also the debt-based crowdfunding model, in which investors lend funds on a temporary basis, waiting for the repayment of their investment in a certain period. In these cases, investors usually require that they be paid an interest on the borrowed capital, but models have arisen in which the participants have not demanded any consideration except the return of the amounts given in loan.
Regulatory challenges in Panama
Crowdfunding has two regulatory challenges in view of the regulations governing the securities market in the Republic of Panama. The first challenge arises from the fact that crowdfunding can result in the offer and sale, private or public, of stocks, bonds and other instruments to the investors that finance the businesses object of the crowdfunding, whose instruments can be considered as "securities" under the Single Text of Decree Law 1 of July 8, 1999 (as amended to date, the...