In November 2016, the House of Representatives and the Senate were first introduced to the Corporations Amendments (Crowd-sourced Funding) Bill 2016 (Bill). On 20 March 2017, the Bill was passed by the Senate in what marked a significant step forward in the development of Crowd Sourced Funding in Australia (CSF).
Following the introduction of the Bill to the Senate, the proposed 48 hour cooling off period for retail investors was extended to 5 days and accordingly, the Bill returned to the House of Representatives. On 22 March 2017, the House of Representatives approved the Senate’s amendments and the Bill received Royal Assent on 28 March 2017. The Act takes effect from 29 September 2017.
The Bill will provide significant amendments to the Corporations Act 2001 (Cth) to:
- establish a framework to facilitate crowd-sourced equity funding offers by small unlisted public companies;
- provide new public companies that are eligible to crowd fund with temporary relief from reporting and corporate governance requirements that would usually apply; and
- enable the Minister to provide that certain financial market and clearing and settlement facility operators are exempt from specified parts of the Australian Market Licence and clearing and settlement facility licensing regimes.
The Bill also seeks to amend the Australian Securities and Investments Commission Act 2001 (Cth) to make consequential amendments.
The amendments are intended to establish a new CSF regime that covers:
- the eligibility requirements for a company to fundraise via CSF, including disclosure requirements for CSF offers;
- obligations of a CSF intermediary in facilitating CSF offers;
- the process for making CSF offers;
- rules relating to defective disclosure as part of a CSF offer; and
- investor protections provisions.
What is Crowd Sourced Funding?
- CSF is a new concept enabled by the rise of internet and smartphone technology. It allows businesses to obtain capital from a large number of investors through online platforms where each investor can contribute funds in return for an equity stake in the business.
- as it stands, the current regulatory framework imposes burdens and costs that are considered significant impediments to more widespread utilisation of CSF in Australia.
- at a basic level, CSF allows people to invest in unlisted shares issued by a Company without the disclosure and compliance obligations associated with a prospectus.
- the Bill will help alleviate constraints imposed on private companies with respect to raising additional sources of finance.
- Under the new CSF regime, eligible public companies will be able to offer their shares via an intermediary CSF service using an offer document.
- Unlisted public companies with less than $25,000,000 in assets and annual turnover will be eligible to raise funds under the CSF regime. Eligible companies will be able to make offers of ordinary shares to raise up to $5,000,000 in any 12 month period.
- There are obligations and investor protections that apply with respect to the CSF offers. There are also corporate governance concessions for companies undertaking CSF offers, these include:
- an investor cap of $10,000 per annum per company for retail investors;
- the provision of a CSF offer document containing minimum information and a prescribed risk warning; and
- a five day cooling off period.
The Bill and the subsequent amendments to the Act create a unique opportunity for early stage companies to raise capital and utilise CSF technology.
The introduction of the amended Act will also create a new market for CSF service providers.