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Crowdfunding is an innovative, internet-based method to raise money to finance various projects. The necessary funding is contributed mostly in small amounts and by a large number of people.

European Crowdfunding Regulation defines crowdfunding as the "matching of business funding interests of investors and project owners through the use of a crowdfunding platform".

Crowdfunding can be divided into two broad categories:

• the facilitation of granting of loans (a.k.a. loan-based crowdfunding);
• the placing, without a firm commitment basis, of transferable securities and admitted instruments for crowdfunding purposes issued by project owners or special purpose vehicles (a.k.a. equity crowdfunding).

A secured loan is the safest and, thus, the least-yielding type of capital. The loan is secured against collateral, which is usually a mortgage on the assets of the company or some other type of collateral. Secured loans are always repaid as the first priority.

An unsecured loan is a layer of capital between equity and secured loans. They are riskier than secured loans but also more profitable. Unsecured loans are repaid to the owner of the capital after all secured debts have been repaid.

A Mezzanine is a hybrid capital (subordinated loan or preferred equity) that lies between equity and secured loan. It has a lower risk than equity – mezzanine financing is repaid before equity but after all loan obligations have been fulfilled. In addition to the usual interest, bonuses that depend on the profitability of the project may be added to the mezzanine capital.

Equity is the capital placed in the company by its owners. The owners are paid the last after all other liabilities have been redeemed.

A capital loss is an accounting measure that describes the difference between the acquisition cost of an investment and the principal value of the investment.

A capital loss arises when an investment is acquired on the secondary market at a price higher than the residual value of the principal of the investment.

An ultimate beneficial owner is a natural person who, taking advantage of their influence, makes a transaction, act, action, operation, or step or otherwise exercises control over a transaction, act, action, operation, or step or over another person and in whose interests or favour or on whose account a transaction or act, action, operation, or step is made.

In the case of companies, an ultimate beneficial owner is a natural person who ultimately owns or controls a legal person through direct or indirect ownership of a sufficient percentage of the shares or voting rights or ownership interest in that legal person, including through bearer shareholdings, or through control via other means.

Direct ownership is a manner of exercising control where a natural person holds a shareholding of 25 per cent plus one share or ownership interest of more than 25 per cent in a company.

Indirect ownership is a manner of exercising control where a company which is under the control of a natural person holds or multiple companies which are under the control of the same natural person hold a shareholding of 25 per cent plus one share or an ownership interest of more than 25 per cent in a company.

In the case of a trust, civil law partnership, community, or legal arrangement, the ultimate beneficial owner is the natural person who ultimately controls the association via direct or indirect ownership or otherwise and is such associations’:

• settlor or person who has transferred the property to the asset pool;
• trustee or manager or possessor of the property;
• person ensuring and controlling the preservation of property, where such person has been appointed, or
• the beneficiary, or where the beneficiary or beneficiaries have yet to be determined, the class of persons in whose main interest such association is set up or operates.

Local politically exposed person means a person specified above who is or who has been entrusted with prominent public functions in Estonia, another contracting state of the European Economic Area, or an institution of the European Union.

Family member means the spouse, or a person considered equivalent to a spouse of a politically exposed person or local politically exposed person; a child and their spouse, or a person considered equivalent to a spouse of a politically exposed person or local politically exposed person; a parent of a politically exposed person or local politically exposed person.