The government has decided that only unlisted public companies will be able to raise capital from the “crowd” utilising the crowdfunding methodology. This will mean that many proprietary limited companies will be interested in converting their current companies into an unlisted public company.
The Federal Treasurer has announced that the government intends to introduce legislation to the Parliament which would enable propriety limited companies to be able to utilise crowd sourced funding to be able to raise equity.
The legislation has not been introduced to Parliament as at 29 November 2017.
Based on the implementation time frame that was allowed for the first stage of Crowd Sourced Funding Equity Raising and Early Stage Innovation Companies, it is not expected that Crowd Sourced Funding Equity Raising for propriety limited companies would be available until August/September 2018 at the earliest.
The material incorporated within this product package relates to the law which requires a propriety limited company to be converted to an unlisted public company if the company’s directors wish to raise capital as a Crowd Sourced Funding Company.
An eligible unlisted public company, which is able to raise capital utilising crowd sourced funding, will have a group turnover under $25 million per annum and gross group assets valued at under $25 million.
If the company passes these tests, it will then be able to raise up to $5 million every 12 months from the “crowd”.
The legislation has introduced a series of exemptions from the more onerous requirements for a public company which will apply for up to 5 years from the date that a proprietary limited company has converted to an unlisted public company.
These exemptions relate to:
- Holding annual general meetings.
- Audit of accounts.
- Providing “paper” annual reports.
The audit exemption will expire if the company raises more than an aggregate of $1 million in capital.
The legislation introduces some new titles to corporate law relating to the “gatekeepers” who are referred to as “CSF Intermediaries”. The Intermediaries are businesses with financial services licenses which are expressly authorised by a further license to provide a crowd funding service. In this role the Intermediary will check the CSF Offer Document and the other documentation required to be produced and will then list the company’s Offer Document onto the Intermediary’s website where it can remain for up to 3 months or such lesser time that has been stipulated in the Offer Document.
The legislation includes a restriction on the amount of money that a “retail investor” can invest in a company raising capital by Crowd-Sourced Funding to $10,000 every 12 months. The legislation does not identify any minimum investment amount.
There is no restriction on the amount of investment from a “sophisticated investor” (defined in Section 708(8) of the Corporations Act).
Companies will be able to raise capital by utilising a mixture of crowdfunding and raising capital utilising section 708 of the Corporations Act, if they wish.
Obviously the benefit from this legislation for small/medium enterprises, entrepreneurs and inventors is that there is an opportunity to raise money for business expansion without having to utilise personal funds, second mortgages on houses, credit cards or borrowings from relatives etc.
However companies will need to be able to produce adequate documents which will form part of the CSF Offer Document to convince firstly the CSF Intermediary and then the “crowd” that the company is in an “investment ready state” and that the company’s directors and management team understand modern corporate practice and the immense responsibility of using other people’s money in their business activities. Some of these companies will grow into very large corporations which will have significant benefits for their founders and investors.
However this “fairy tale” ending will not be achieved unless there has been strong discipline shown in the preparation of the documentation that is going to be required to be submitted to the “gatekeeper”.
The “Crowd Sourced Funding Equity Raising Package” will assist your accountancy/business advisory business to advise your clients adequately to understand the various components of the Crowd Sourced Funding opportunity and will place you in an ideal position to work with your clients in the preparation of the various documents required for the Crowd Sourced Funding Offer Document.
Equity Crowdfunding Forecast to Grow Tenfold in Just 5 Years
Enable Funding (formerly ASSOB – Australian Small Scale Offer Board) has forecast that the new crowd sourced funding capital raising market will soar from $119 million in 2016 (primarily S708 capital raising and some early-stage innovation company capital raising) to $1.5 billion in 2021, which would result in a tenfold increase. (Click here)
Other articles on crowd sourced funding:
- Accountants – You Need to Identify Clients for Crowd Sourced Funding (Click here)
- Crowd Sourced Funding Presents Opportunities to Create “New Income Streams” (Click here)
- Accountants and Business Advisers are you Preparing for Crowd Sourced Funding? (Click here)
