In December 2015, the Federal Government introduced the Corporations Amendment (Crowd-Sourced Funding) Bill 2015 (“2015 CSEF Bill”) to set up a regulatory framework to facilitate crowd-sourced equity funding (“CSEF”), however it lapsed in the Senate in April 2016.
On 24 November 2016, the Government introduced a new bill, the Corporations Amendment (Crowd-Sourced Funding) Bill 2016 (“2016 CSEF Bill”),into the House of Representatives for the same purposes.
What is CSEF? (a refresher)
As early-stage companies look for innovative funding solutions to support growth, CSEF presents a flexible and wide-reaching fundraising model for start-ups to raise capital from retail investors. CSEF is the process of raising funds by issuing securities to a large pool of investors in return for financial contributions. Typically CSEF is facilitated through an online platform. CSEF is distinct from other more entrenched crowdfunding models, such as Indiegogo, which, in return for funds contributed, offer rewards (e.g. opportunities to be involved in an experience or purchase a particular product) rather than shares.
While CSEF is an exciting opportunity for start-ups and investors alike, it presents unique regulatory issues as regulators balance the need to encourage growth in start-ups against the need to adequately protect retail investors from speculative and risky investments.
The key change under the 2016 CSEF Bill is that the maximum asset and revenue limit for a company to be eligible for CSEF is raised from $5 million to $25 million. The company must have less than $25 million in gross assets (instead of less than $5 million) and less than $25 million in consolidated annual revenue (instead of less than $5 million).
The following key aspects of the 2015 CSEF Bill remain unchanged:
- a company must be an unlisted public company limited by shares with Australia as its principal place of business;
- a company can only raise $5 million through crowd-sourced equity funding per year;
- an intermediary must hold an AFSL authorising them to provide crowd-sourced equity funding;
- an investor may only invest $10,000 per issuer per year; and
- a company which becomes public to access CSEF will benefit from concessions to certain corporate governance and reporting requirements.
During the introduction of the 2016 CSEF Bill, the Treasurer stated that the Government has instructed Treasury to develop a framework which extends CSEF to proprietary companies in the near future. He noted this would be effected through the introduction of further legislation. It is unclear how any subsequent legislation will interact with the 2016 CSEF Bill, or what the content of this legislation will include. It is a case of watch this space!