I. Drawing up of a prospectus

1. Initial enquiry

Before drawing up the prospectus, we recommend that issuers get in touch with BaFin to clear up any questions, such as whether the capital investment involves a blind pool or how to present an unusual business model. Often, questions issuers may have relating to prospectus requirements can be clarified upfront. Preliminary enquiries of this nature can speed up the approval process.

2. Content of a prospectus

The prospectus must begin with a cover sheet containing a clear statement that BaFin does not check whether the statements made in the prospectus are substantively correct. It is not permissible to include any additional information that attenuates this statement. In particular, advertising content and misleading figures are to be avoided. The prospectus may not use the term “fund” (“Fonds”) or any term including the word “fund” (“Fonds”) to describe the offeror, the issuer or the capital investment. Each prospectus may only refer to one specific capital investment, though prospectuses for various capital investments from the same issuer can be summarised in print in one document.

The prospectus must contain a table of contents. It must include the date of publication, the name of the company, the company’s commercial register number and the business address of the offeror. The material and legal risks associated with the capital investment must be described in a separate section containing only this information. In particular, this section must describe liquidity risks, risks associated with the use of external funds, risks from potential debt financing by the investor and the risk that the contract terms or investment rules change in such a way, or the business of the issuer changes in such a way, that the capital investment represents an investment fund within the meaning of the German Investment Code (Kapitalanlagegesetzbuch – KAGB), leading BaFin to order a reversal of the contract. The maximum risk for the investor must be described to its full extent in a prominent place in the prospectus.

Any information based on a forecast must be clearly labelled as a forecast. In addition, the prospectus must contain detailed information on the capital investment (e.g. the main characteristics of the capital investment, the term of the capital investment and any cancellation notice periods). For shares which confer the right to participate in the earnings of a company within the meaning of section 1 (2) no. 1 of the German Capital Investment Act (Vermögensanlagengesetz – VermAnlG), the prospectus must include the partnership agreement, the articles of association, the participation agreement and, if applicable, the trust agreement or investment application control agreement and the last report drawn up and published by the person monitoring the application of funds for the specific capital investment in line with section 5c (2) of the VermAnlG, or any other agreement playing a significant role in the investment arrangement. Furthermore, the prospectus must contain information on the issuer (e.g. founding date and business address) and on the founding shareholders and other shareholders at the time when the prospectus is drawn up (e.g. profit participation and withdrawal rights). The description of the issuer’s business activities must include their dependence on patents, licences and contracts as well as information on current investments.

With regard to the capital investment’s investment strategy, investment policy and investment objectives, the prospectus must explain

• for which specific projects the net proceeds from the offer are to be used,
• which stage of realisation these projects have already achieved,
• whether the net proceeds alone are sufficient to realise the projects and
• for which other purposes the net proceeds are to be used.

In compliance with the ban on blind pools set out in section 5b (2) of the VermAnlG, the prospectus must include a detailed description of the investment object.

To provide information on the financial position and financial performance of the issuer, the prospectus must contain the issuer’s most recent annual financial statements drawn up and audited in accordance with sections 24 and 25 of the VermAnlG, including the date on which they were drawn up, and the last management report drawn up and audited in accordance with these provisions. It should also include an interim overview from a reporting date at most two months prior to the drawing up of the prospectus as well as detailed information on the individual items of the interim overview. If the issuer is obliged to prepare consolidated financial statements, these must also be included in the prospectus. The prospectus must also describe the forecasted financial position and financial performance for at least the current and subsequent financial year.

If the issuer was founded less than 18 months prior and has not yet prepared any annual financial statements or management reports in accordance with section 24 of the VermAnlG, the prospectus must include different information as set out in section 15 of the VermVerkProspV.

II. Approval process

1. BaFin as the competent authority

BaFin’s competence covers capital investments which are offered to the public in Germany. In the context of the VermAnlG, though, BaFin is not the competent authority for public offers made by crowdfunding service providers authorised under Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European crowdfunding service providers for business, and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937 (OJ EU L 347 dated 20 October 2020, p. 1), as amended, as long as the offer does not exceed the threshold defined in Article 1(2)(c) of that Regulation.

2. Procedure

The prospectus is to be submitted together with the capital investment information sheet to BaFin Division WA 34 exclusively via BaFin’s reporting and publishing platform (MVP Portal) in a searchable electronic format.

After registering for the “Prospectuses” specialised procedure, users can securely send their documents by encrypted connection to BaFin. When electronically submitting the required documents in the MVP Portal, please note that all documents must use the following name format: VermAnlG_[maximum of 80 characters without spaces and special characters].zip. This name format must be used not only for the zip file to be created for electronic submission, but also for the individual documents within the zip file. Otherwise, it will not be possible to electronically submit the required documents to Division WA 34 via the MVP Portal. Users must check the status of their submission under the “View journal” menu item within the MVP Portal. In the event of an error, the transmission is denied.

To ensure that BaFin can process the submission quickly, the prospectus must include a detailed cover letter clearly stating the contact person’s business address and phone number as well as the recipient of the fee notice. In addition, the issuer must complete and submit both the blind pool checklist and a cross-reference checklist that indicates where exactly the minimum information is located in the prospectus. Issuers domiciled outside Germany must notify BaFin of an authorised representative domiciled in Germany who can receive notifications and deliveries.

3. Conclusion

a) Approval and publication

BaFin examines whether the capital investment prospectus is complete, includes all legally required information and is worded in a comprehensible and consistent manner. If the prospectus meets the legal requirements, the offeror has a legal right to approval. The notice of approval does not represent a blanket approval – in particular, it does not release the issuer from authorisation requirements arising from other laws (e.g. the KAGB, the German Banking Act (Kreditwesengesetz - KWG) or the German Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz – ZAG)). BaFin informs the issuer of this fact during the approval process.

BaFin cannot give any general statement about the length of the approval process. The processing time depends on the individual circumstances, such as the complexity of the information and the quality of the submitted draft prospectus. BaFin must inform the offeror of its decision within 20 working days of receipt of the prospectus. If the prospectus is incomplete or requires supplementary information, a new examination period of 20 working days begins as soon as the relevant information is submitted. The final version of the prospectus, which has to be submitted before the approval, must be identical to the prospectus published by the offeror.

A prospectus is valid for 12 months following approval for offers to the public, provided that the required supplements are submitted in accordance with section 11 of the VermAnlG.

The prospectus must be published at least one working day before the public offer is made. It may either be published on the website of the offeror and in the electronic Federal Gazette or be published on the website of the offeror and made available, free of charge, at the paying agents stated in the prospectus; in the latter case, the availability at paying agents must be announced in the electronic Federal Gazette. If investment products are offered via an electronic system for the dissemination of information, the prospectus must be published there as well.

Once the prospectus has been published, the issuer must immediately notify BaFin of the publication via the MVP Portal. Non-compliance with these publication requirements constitutes an administrative offence for which an administrative fine may be imposed. The approved prospectus must be made available to the public until the capital investment has been repaid in full.

b) Approval refused

If, even after (repeated) hearings, a prospectus still has deficiencies that preclude its approval and the offeror cannot or does not want to remedy these deficiencies within a reasonable period of time, approval must ultimately be refused. Publication of the prospectus is prohibited if the offeror, in breach of section 14 (1) sentence 2 of the VermAnlG in conjunction with section 13 (1) of the VermAnlG, fails to submit a capital investment information sheet to BaFin.

c) Withdrawal

The prospectus approval process can also be terminated if the offeror withdraws their application for approval. This may result in a reduction of the fee to be levied.

d) Conclusion under section 8 (4) of the VermAnlG

If the description of the capital investment in the prospectus, or other information, gives rise to investor protection concerns in relation to section 15 of the WpHG, the prospectus approval process will be suspended until the product intervention procedure under section 15 of the WpHG has concluded. The offeror will be notified of the suspension and date of suspension. BaFin will deny approval if the product intervention procedure results in a prohibition. If no decision is reached under section 15 of the WpHG within 12 months of receipt of the application for approval of the prospectus, the prospectus approval process is considered to have concluded.

III. Fees

The individual rates of fees are determined based on the German Fees Regulation in respect of Financial Services Supervision (Finanzdienstleistungsaufsichtsgebührenverordnung – FinDAGebV).

IV. Next steps

The VermAnlG sets out further obligations for offerors and issuers after the approval process has concluded.

1. Supplement

If, following approval of the prospectus and during the public offer, significant new circumstances arise or material inaccuracies relating to the information in the prospectus are found which could affect the assessment of the capital investment or the issuer, this new information must be published in a supplement to the prospectus. The supplement must be drawn up without undue delay and, like the prospectus itself, submitted to BaFin for approval before it is published. The offeror is subject to the supplement requirement until the public offer of the capital investment has ended.

Significant new circumstances include, in particular,

• any newly disclosed annual financial statements and management reports of the issuer,
• ny newly disclosed consolidated financial statements of the issuer,
• any new report from the person monitoring the application of funds indicating that the funds raised in the offer have been used for purposes other than those stated in the prospectus, and,
• any circumstance which significantly affects the business prospects of the issuer for at least the current year and has the potential to jeopardise the ability of the issuer to fulfil its obligations to investors.

In addition to the approved prospectus, the offeror must publish a version of the prospectus containing all the supplements (consolidated version) and make this version available on its website following the approval. Each circumstance triggering a supplement should be added and clearly labelled at the location in the text where the prospectus was changed. The consolidated version is not subject to examination by BaFin. Like the approved prospectus, the individual supplements must be made available to the public until the capital investment has been repaid in full.

2. Statutory follow-up requirements

Offerors and issuers of capital investments also have obligations under the VermAnlG after the public offer has ended.

a) Notification of the end of the public offer

Offerors of capital investments are required to electronically notify BaFin without undue delay when a public offer has ended by stating the relevant date, the exact name of the capital investment and the issuer. If the offeror fails to send the notification, the public offer is considered to have ended once the prospectus is no longer valid.

b) Notification of repayment

In addition, offerors of capital investments must electronically notify BaFin without undue delay when a public offer has been repaid in full by stating the relevant date, the exact name of the capital investment and the issuer. The capital investment is deemed to have been repaid in full once the principal claim and all ancillary claims have been paid. The decisive claims for repayment are determined by the underlying contractual relationship. Once the capital investment is repaid in full, the issuer’s status as such in relation to the investment also ends. If the issuer has made multiple offers of capital investments to the public, its status as an issuer ends once the final capital investment has been repaid in full.

Once every six months, BaFin transmits the dates of full repayment of capital investments as stated in these notifications to the Register Keeping Authority of the Company Register (publisher of the Federal Gazette). If an issuer’s capital investments have all been repaid in full, the stricter disclosure requirements under section 23 et seq. of the VermAnlG will no longer apply to the issuer’s annual financial statements starting in the financial year following the year of repayment.

c) Ad hoc disclosure obligation under section 11a of the VermAnlG

From the end of the public offer of a capital investment until full repayment of the investment, the issuer is required to publish without undue delay any fact directly related to itself or the capital investments it issues which is not known to the public, provided that this information could have a significant adverse effect on the ability of the issuer to fulfil its obligations to investors.

The German Capital Investment Publication and Notification Requirement Regulation (Vermögensanlagen-Veröffentlichungs- und Mitteilungspflichtenverordnung – VermVerMiV) sets out the minimum information, language, scope and form of the publication and notifications.

Please note:

• If the information to be published pertains to multiple issuers of capital investments, a separate notification must be published for each issuer.
• The publication must specifically name all relevant capital investments.
• If the publication applies to multiple prospectuses for the same capital investment because the capital investment was offered to the public for longer than one year, it must include the publication data of those prospectuses referenced by the current publication.
• If the party subject to the publication requirement has a website, they must ensure that the notification under section 11a of the VermAnlG is made available for at least six months. The website’s homepage must include a clearly marked link to the page containing information for investors, and the publication must be easy to find there.

aa) Advance notification to BaFin before sharing the information to be published with the media*

Before sharing the information to be published with the media, the issuer is required to notify BaFin exclusively via the following fax number +49 (0)228-4108-7962. BaFin will notify the issuer or appointed representative whether the notification was properly received by the third working day after receipt of the notification at the latest. The information will be published on the BaFin website by the third day after proper receipt at the latest.

bb) Sharing the information to be published with the media

The issuer is required to share the information in question with the media without undue delay following proper receipt by BaFin.

cc) Notification to BaFin after sharing the information to be published with the media

The issuer must notify BaFin when the notification is published by sharing the text sent to the media and the exact time it was sent to the media.

*Media: This term should be understood to describe media that can be assumed to spread information as quickly and simultaneously as possible within Germany so that the information is immediately available at any time, such as the Federal Gazette.

d) Shorter disclosure deadline for issuers of capital investments

From the start of the public offer in Germany until full repayment of the capital investment, issuers of capital investments must comply with the shorter disclosure deadline for annual financial statements under section 23 and section 26 of the VermAnlG. In this regard, issuers of capital investments must publish their annual financial statements in the company register already after six months instead of twelve months. This obligation also applies to issuers domiciled outside Germany. In particular, the content and structure of the annual financial statements must adhere to the rules under section 24 of the VermAnlG. Any disciplinary fine proceedings resulting from a delayed disclosure will be conducted by the German Federal Office of Justice (Bundesamt für Justiz). In this regard, issuers should note the rules set out in section 31 of the VermAnlG.