Government Introduces Bill Containing New Framework For Crowd-Sourced Equity Funding

Thursday 10 December 2015 @ 1.11 p.m. | Corporate & Regulatory

Last week the Federal Government introduced the Corporations Amendment (Crowd-sourced Funding) Bill 2015 into the House of Representatives.  The Bill will allow unlisted public companies with less than $5 million in assets or turnover to raise up to $5 million from crowd-sourced equity funding (CSF), while gaining concessions from some reporting obligations.  Investors in such schemes will be limited to investing an amount of $10,000 per year.  The Bill is part of the Government's innovation package.

Introducing the Bill into Parliament, the Assistant Minister to the Treasurer, Mr Hawke, said:

“Crowd-sourced equity funding is a relatively new and innovative concept. It allows businesses to obtain capital from a large number of investors through an online platform, where each investor typically contributes a small amount of money in return for an equity stake in the business…

It is not the government's role to pick winners, but creating the right economic conditions for small businesses and start-ups to grow and thrive and taking steps to remove unnecessary regulatory barriers are. The framework set out in this bill will enable Australia's innovative early-stage businesses to obtain the capital they need to turn good ideas into commercial successes.”

The Bill follows a 2014 review into the current crowd-sourced equity funding landscape in Australia, undertaken by the Corporations and Markets Advisory Committee.  In his second reading speech, Mr Hawke noted that the review found that attempting to use the current system “is costly and impractical for businesses, largely due to regulatory impediments in the Corporations Act that imposed an excessive compliance cost for start-ups and other small businesses.”  The Bill attempts to address this by setting out an alternate legislative framework specifically for this type of funding.

The Bill inserts a new Part into Chapter 6D of the Corporations Act 2001 (Cth).  The Explanatory Memorandum summarises the included chapters as dealing with:

 • eligibility requirements for a company to fundraise via CSF, including disclosure requirements for CSF offers (Chapter 2);

• obligations of a CSF intermediary in facilitating CSF offers (Chapter 3);

• the process for making CSF offers (Chapter 4);

• rules relating to defective disclosure as part of a CSF offer (Chapter 5); and

• investor protection provisions (Chapter 6).

The Australian Securities and Investment Commission will be given the responsibility to oversee the new framework.

However, critics told The Australian that the crowd-funding laws were still too complex and impractical.  The co-founder of software start-up Proxima, Dan Nolan, told the paper that:

"As a small, growing start-up there’s no way we’d consider equity crowd-funding in the current format proposed by government… The government’s proposal seems to take something that’s currently illegal and makes it hideously impractical. There is a huge amount of overhead involved that small companies cannot afford, for very, very little in the way of gain."

TimeBase is an independent, privately owned Australian legal publisher specialising in the online delivery of accurate, comprehensive and innovative legislation research tools including LawOne and unique Point-in-Time Products.

Sources:

Corporations Amendment (Crowd-sourced Funding) Bill 2015, Explanatory Memorandum and Second Reading Speech

Crowd-funding laws fail to impress (Supratim Adhikari & David Swan, The Australian, 3/12/2015)

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