CAMAC has published its review of the regulation of crowd sourced equity funding.
CAMAC defines “crowd sourced equity funding” as follows:
CSEF (alternatively described as ‘equity crowdfunding’ or ‘investment-based crowdfunding’) is a new and still evolving concept of corporate capital raising. Broadly, it contemplates a company (the issuer) seeking funds, particularly initial (‘seed’) or early-stage capital, by offering its equity to internet users (the crowd) in return for cash. Issuers would publish their equity offers through a website (sometimes referred to as an ‘online portal’ or a ‘funding portal’), the operator of which would serve as the intermediary between the crowd investors and the issuer, for the purpose of the equity transactions.
CAMAC is of the view that the current law presents fundamental difficulties for the use of CSEF by proprietary or public companies. Changes would have to be made to the Corporations Act if CSEF is to be facilitated in Australia.
Assuming that that CSEF should be facilitated in Australia the CAMAC report also sets out a detailed regulatory blueprint for the stimulation of the innovative start-up and other small-scale enterprise sector of the Australian economy through internet-based funding.
The Commonwealth government is expected to respond to the review later this year.
The report focuses on the regulatory questions that would arise in facilitating CSEF where:
- an issuer that is registered as a company under the Corporations Act wishes to offer its equity through
- an online intermediary that would come within the jurisdiction of the Australian Securities and Investments Commission (ASIC), with the equity offer to be made on the intermediary’s website to
- crowd investors, whether resident in Australia or elsewhere.
It is proposed that an eligible issuer may seek funds from the crowd by offering its equity through a licensed online intermediary, provided:
• the offer does not exceed the issuer cap of $2 million in any 12 month period
• the offer disclosure requirements are complied with
• the controls on advertising are complied with
• the issuer does not lend to crowd investors to acquire its shares
• any material adverse change concerning the issuer is notified.
In regard to the offer disclosure requirements, CAMAC proposes a standard issuer disclosure template be developed, specifically tailored for this form of corporate fundraising.
CAMAC proposes limitations on investments by internet users, including risk warnings.
They include:
- any person of legal capacity can be a crowd investor
- a crowd investor be limited to investing $2,500 per issuer, and $10,000 for all issuers, in any 12 month period
- crowd investors must acknowledge the risk disclosure statement before investing
- crowd investors have cooling-off and other withdrawal rights
- share resale restrictions apply only to persons associated with the issuer.
The CSEF report is CAMAC’s last; CAMAC was abolished in the 2014 Budget and Treasury will complete CAMAC’s unfinished references on annual meetings and managed investment schemes.
