Crowd Sourced Funding

A new opportunity for small/medium enterprises, inventors and entrepreneurs has emerged with the passing by the Australian Senate of the Australian government’s Crowd Sourced Funding Amendments to the Corporations Act to enable a small proprietary company to raise capital from the public.

SMEs and others now have three distinct opportunities where they can raise capital from the public without producing a prospectus. These opportunities for capital raising are:

The opportunity to raise capital utilising Crowd Sourced Funding has been a dream for many SMEs, inventors and entrepreneurs over recent years. Thousands of small/medium enterprises, inventors and entrepreneurs are expected to avail themselves of the opportunity to raise capital in this unique fashion. Australian now joins Europe, USA and New Zealand where SMEs have enjoyed this opportunity for the last six years.

Most of the entities seeking to raise capital using the Crowd Sourced Funding process are expected to be small/medium size businesses. These types of businesses are traditionally the clients of small to medium-sized accountancy businesses all around Australia. Small/medium sized accountants who gear up for the opportunity of being able to service this new emerging market will be able to create a significant “new income stream”.

An eligible 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.

ASIC announced the first group of businesses licenced as Crowd Sourced Funding Intermediaries in January 2018. Seven businesses were appointed as Intermediaries. The Intermediaries are based in:

Companies that have raised more than $3 million in capital are required to appoint an Auditor.

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 three 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 twelve 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 extensive 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 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 document required for the Crowd Sourced Funding Offer Document.

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 s709 capital raising and some Early Stage Innovation Company capital Raising) to $1.5 billion in 2021, which would result in a tenfold increased. (click here).

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