Crowd-Sourced Equity Funding Laws

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The new equity crowd-sourced funding laws in Australia set to take effect by September 2017, have been enacted on 28 March 2017. These regulations hold significance for accountants in Sydney and will shape the fundraising landscape for businesses.

Crowd-sourced equity funding was seen as a way to open up early-stage capital markets for a business to raise capital and invest in early-stage Australian start-ups.

However, it is not as simple as that!

The fundraising provisions of the Corporations Act have been amended to allow unlisted Australian public companies with consolidated gross assets and gross revenue of less than $25 million to raise capital via crowd-sourced equity funding (CSF). Here are the rules around these provisions:

  • Only eligible CSF companies can access the CSF regime
  • All CSF offers must be made through a “CSF intermediary” (which must hold an Australian Financial Services Licence (AFSL))
  • The company must publish a CSF offer document with one CSF intermediary only, which includes risk warnings, information and rights.
  • The money raised must be handled by the CSF intermediary, who will charge a commission, and offers must be closed within 3 months.
  • There is a cap of $5 million that a company can raise in any 12-month period (including the previous 12 months under the 20/12 exemption – 20 investors/12 months – but excluding sophisticated & professional investors).
  • There is a cap of $10,000 per retail investor.
  • The CSF regime can’t raise money for “blind pools” (unknown purposes) or invest in other entities or managed investment schemes.
  • The CSF intermediary and the company are subject to potential civil and criminal liability for defective CSF offer documents.
  • New public companies that intend to raise funds from CSF will have relief from specific corporate governance requirements for up to 5 years, including AGM exemptions, online provision of financial reports to shareholders, and exemption from audit (until raised more than $1 million).
  • The CSF Act does not extend to proprietary companies – the preferred structure of choice for small businesses. However, the treasurer has stated, “that work is already underway to extend the laws to proprietary companies” and “will be introduced through subsequent legislation shortly.” (Editor: the CSF laws have taken years to be legislated so far, so don’t hold your breath waiting for them to apply to proprietary companies).
  • The legislation enables a proprietary company to be converted to an unlisted public company to qualify for the CSF regime.

If you have any questions concerning the CSF regime, don’t hesitate to contact your client manager.

Kreston Stanley Williamson Team

*Correct as of July 2017

Disclaimer – Kreston Stanley Williamson has produced this article to serve its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.

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