The Corporations Amendment (Crowd-sourced Funding) Bill 2015 will introduce a new regulatory framework to facilitate crowd-sourced equity funding in Australia.
Crowd-sourced funding ('CSF') is an emerging method of funding, allowing businesses to obtain funding from a large number of individual investors through an online platform.
This Bill establishes a new legislative framework for crowd-sourced funding with reduced disclosure, governance and reporting obligations to reduce costs. It is intended to make it easier for small businesses to obtain funding from the public while also ensuring that investors are protected.
The CSF framework will allow small, public, unlisted companies to fundraise up to $5 million per year. It outlines the eligibility requirements of a company seeking to make a CSF offer, the process of making a CSF offer, the obligations of CSF intermediaries and the prohibitions, liabilities and investor protections applying to CSF offers, which include rules regarding defective disclosure documents and advertising restrictions.
Eligibility of CSF Companies
Companies will be eligible for crowd-sourced equity funding if they:
- have less than $5 million in assets and annual turnover;
- are a public company limited by shares;
- have their principle place of business and majority of directors in Australia;
- are not a listed corporation; and
- do not have a substantial purpose of investing in securities or interests in other entities or managed investment schemes.
Requirements for making a CSF offer
For a CSF offer to be eligible the:
- offer must be for the issue of securities in the company making the offer;
- company making the offer must be an 'eligible CSF company';
- securities must satisfy the eligibility conditions;
- offer must comply with the 'issuer cap'; and
- company must not intend to use the funds to invest in securities or interests in other entities or managed investment schemes.
Role of Intermediaries
CSF intermediaries must hold an Australian Financial Services Licence (AFSL) and will have many new obligations under this new regime including:
- 'gatekeeper' obligations such as conducting checks on offer documents on their platforms;
- providing a communication facility for CSF offers;
- displaying a risk warning, information regarding cooling-off rights, fees charged to and interests in the issuer company on their platform; and
- closing and suspending offers and dealing with application money appropriately.
Retail investors will be limited to investing no more than $10,000 per company each year.
There will also be:
- an unconditional right to withdraw an application in relation to a CSF offer within 5 business days;
- a prohibition on providing financial assistance to enable investments in CSF offers; and
- a requirement to obtain and complete a risk acknowledgement before their CSF application can be accepted.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.