Financial instruments, which are not tradable on the aftermarkets because for example they constitute contractual relationships and therefore cannot be transferred without the consent of the contract partner or they need notarial authentication in order to be transferred (GmbH shares) are not considered securities by the German capital market law. Instead they are considered investment products and regulated as such. Further examples for investment products are non-tradable participating rights, profit participating loans, subordinated loans, trust assets or direct investments. When making a direct investment the investor acquires a physical object (for example a container or a ship) in order to lease it back to the provider so that he can make a profit off of it and in return hand part of the profit back to the investor through the lease payments. When the duration of the investment ends, the provider buys the object back from the investor and thereby returns the original investment. Companies wanting to procure funds through those means have to create a prospectus in accordance to sec. 8 of the Federal Financial Products Sales Prospectus Act (VermAnlG) which has to be approved by Bafin.
The creation of a prospectus for the public offering of investment products is a highly complex project. Not only does the prospectus have to include detailed information regarding the current and expected financial and profit situation of the emitter, the managers of the issuer, any conflict of interest concerning the shareholders or the directors of the issuer, it also has to give detailed information regarding the risks associated with the investment, as well as information concerning the contracts of the issuer being relevant for the investment and information about a possible integration of the emitter into a corporate group. The compilation of the information that is necessary for the prospectus demands the highest level of diligence from the issuer. FIN LAW supports emitters of investment products with the legal design of the product as well as with the drafting of the prospectus. In addition to the investment product prospectus the issuer of an investment product also has to compile and create an investment information sheet (VIB). This sheet is a neatly arranged summary (maximum of 3 pages) of the prospectus which gives the would-be investor a quick overview of the fundamental characteristics of the investment product. The information sheet also has to be approved by BaFin. As soon as the prospectus and the information sheet are completed the approval can be applied for with Bafin. FIN LAW represents its clients throughout the entirety of the approval process vis-à-vis BaFin.
The decisive advantage of investment assets in contrast to securities is that they can also be brokered by non-BaFin approved financial investment agents who are licensed in accordance to sec. 34f of the Federal Trade and Industrial Code (GewO). A permission in accordance to sec. 34f of the Federal Trade and Industrial Code (GewO) is in contrast to a BaFin permission relatively easy to obtain. As a result of that there is large number of financial investment agents currently operating in Germany with a unique network of investors that is readily available and reachable for the issuers of investment assets. As a general rule it is safe to say that investment assets in Germany are primarily used by wealthy individuals (so called High net worth individuals) rather than by institutional investors. This is because of the fact that they are non-tradable mid to long term investments. The transfer of the approved investment asset prospectus into another country of the EU in order to issue the investment asset there is not possible. If the emitter wants to issue his product internationally he should either, choose a security or he has to go through the approval process in the target country according to its statues and regulations again.
Attorney Lutz Auffenberg, LL.M.
T. +49 (0) 69 50 50 64 490
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