Following on from our last update, the Federal Government has now moved closer to putting legislation in place to remove regulatory barriers to crowd-sourced funding, or ‘crowd funding’.
While the commencement date remains to be set, the Corporations Amendment (Crowd-Sourced Funding) Bill 2015 (Bill) is in the process of becoming law and, when it does, it will introduce a new regime governing crowd sourced equity funding into the Corporations Act 2001.
Consultation on crowd-sourced debt funding remains ongoing.
The Senate Economics Legislation Committee Report on the Bill (Report), published 1 March 2016, reveals key information as to the shape the crowd sourced equity funding legislative regime will take.
Our last update highlighted the current issues facing crowd funding in Australia and prefaced the likely approach the Federal Government would take to improve this.
The Report confirms the legislation will facilitate crowd funding along the following lines.
|Who can crowd fund?||Public companies who meet the $5 million assets and turnover test, and certain other eligibility requirements|
|How can offers be made?||Offers can be made through intermediaries in the form of operators of crowd funding platforms, who are required to hold an Australian Financial Services Licence (AFSL)|
|How much can be raised?||Up to $5 million can be raised in any 12 month period. Amounts raised from certain offers that are exempt from disclosure (for example, amounts raised from sophisticated investors) are excluded from the issuer cap.|
|How much can be invested?||Individual investors will be limited to investing up to $10,000 annually in any single company, with an overall annual cap of $25,000|
|What are the disclosure requirements?||Companies must disclose key facts about the company, its structure and the fundraising but with lower disclosure than currently required for proprietary companies who become public|
Issuer eligibility requirements
To be eligible for equity crowd funding, a company must:
- be a public company limited by shares
- have its principal place of business in Australia
- have a majority of its directors ordinarily residing in Australia (excepting alternate directors)
- comply with the $5 million asset and turnover test
- not be a listed corporation (also applies to any related party of the company)
- not have a substantial purpose of investing in securities or interests in other entities or schemes (also applies to any related party of the company).
$5 million asset and turnover test
As the regime is intended to help grow small business and start-ups, there are restrictions on the size of companies that are able to access it.
To be eligible, a company (including any related parties) must have consolidated gross assets valued at under $5 million, as at the time of determining eligibility.
The company and its related parties must also have consolidated annual revenue under $5 million.
Concessions for newly registered public companies
Newly registered public companies who have restructured from proprietary companies will be granted a number of concessions.
So long as the company engages in crowd funding within 12 months of registration, it will be exempt from the following obligations for up to five years:
- holding annual general meetings
- auditing annual reports where it has raised less than $1 million through crowd funding
- providing its annual reports to investors (other than through publication on its website).
Intermediaries or platform operators
An intermediary operating a crowd finding platform must hold an AFSL, and may also be required to obtain an Australian Market Licence. The obligations of an intermediary include:
- ‘gatekeeper’ obligations – the intermediary must conduct prescribed checks prior to publishing an offer document on its platform
- prominently displaying risk warnings and information on the five day cooling-off period, fees charged to and interests in the issuer company on their platform
- ensure compliance by retail clients with the prohibition on providing financial assistance
- closing and suspending offers as required and appropriate handling of application money.