The Corporations Amendment (Crowd sourced Funding) Bill 2016 has been introduced into the House of Representatives to establish a regulatory framework to facilitate Crowd sourced Funding (CSF) by small, unlisted public companies. It would provide crowd funding regulation relief from current Corporations Act restrictions on operators of online platforms offering investment in Australian start-ups and small businesses
Facilitating CSF would also provide additional investment opportunities to retail investors, who are generally unable to gain direct access to early-stage financing activities.
The CSF regime
The amendments establish a new CSF regime by inserting a new Part into Chapter 6D of the Corporations Act, which deals with:
– eligibility requirements for a company that wants to make an offer under the CSF regime;
– the process to make a CSF offer, including the role and obligations of the CSF intermediary; and
– the prohibitions, liabilities and investor protections applying to CSF offers, including rules relating to defective disclosure documents and advertising restrictions.
The first condition is that the offer must be for the issue, not the sale, of securities; that is, a CSF offer can only cover primary issuances.
Secondly, the company must satisfy the gross assets and turnover caps: the value of the consolidated gross assets of the issuer and any related parties must be less than $25 million at the time the company is determining its eligibility to crowd fund. The turnover cap is based on the consolidated annual revenue for the 12-month period immediately prior to the time when determining eligibility to crowd fund. New companies that have not been operating for a full 12 months will still be able to crowd fund as long as their consolidated annual review for the period is under the $25 million cap.
Neither the company, nor its related parties, can have a substantial purpose of investing in securities or interests in other entities or managed investment schemes.
The amendments cap the maximum amount of funds that an issuer company (and any related parties) can raise under the CSF regime at $5 million in any 12-month period with a regulation-making power to adjust the cap in the future in light of the experience with CSF.
The protections that apply to retail clients are:
• an investor cap of $10,000 per issuer via a particular intermediary within a 12-month period;
• unconditional cooling-off rights;
• a prohibition on providing financial assistance to enable investments in CSF offers; and
• the requirement to obtain a risk acknowledgment prior to accepting a CSF application.
Corporate governance and reporting relief
The amendments set out temporary concessions from certain public company corporate governance and reporting requirements which are available to a new public company limited by shares (including a proprietary company that converts) that is eligible to make a CSF offer and satisfies certain eligibility criteria.
The corporate governance and reporting concessions apply for a maximum of five years from the date of registration as, or conversion to, a public company limited by shares. The concessions are:
• an exemption from needing to hold an Annual General Meeting (AGM) under the usual rules;
• the option to only provide financial reports to shareholders online; and
• the company not being required to appoint an auditor or have audited financial reports until more than $1 million has been raised from CSF offers.
The Act will commence within 6 months of the Bill passing and receiving Royal assent.
