Since our last update, proposed crowd-funding legislation has been passed, creating a new regulatory regime for public companies to obtain equity-based crowd-sourced funding. The Corporations Amendment (Crowd-sourced Funding) Act 2017 (Cth) (2017 Act), will commence on 29 September this year.
Readers will know that crowd-sourced funding or ‘crowdfunding’ (CSF) typically involves the practice of raising funds through the pooling of small contributions from a large number of investors to finance an enterprise, investment or specific objective, often using a website or other electronic facility.
The 2017 Act will allow eligible CSF companies to do this through engaging a single online intermediary to make its CSF offers.
|Who can crowd-fund?||An eligible CSF company can crowd-fund, being a company that:
|What is the ‘gross assets test’?||The value of the consolidated gross assets of the CSF company and any related parties must be less than $25 million at the time the company is determining its eligibility to crowd-fund.|
|What is the ‘turnover test’?||The company and any related parties must have consolidated annual revenue of less than $25 million during the 12 month period immediately prior to determining eligibility to crowd-fund.|
|What type of securities can be the subject of a CSF offer?||At this time, only fully paid ordinary shares may be issued.|
|How much money can I raise?||The ‘issuer cap’ is the maximum amount of funds that a CSF company can raise under the CSF regime. It is currently set at $5 million in any rolling 12 month period.
This is calculated by having regard to:
Funds raised from offers to wholesale investors do not count towards the issuer cap.
|If a company registers as or converts to a public company, will it receive any concessions?||Yes. A company is eligible to receive temporary reporting and corporate governance concessions for five years if it:
These concessions will grant temporary relief from holding an Annual General Meeting, appointing and auditing its financial reports, and distributing copies of its annual reports to shareholders.
|How much can I invest?||Retail (individual) investors will be limited to investing up to $10,000 annually in a single company, and have a five day cooling-off period after making an application.|
|What are the offer document requirements?||The offer document must address all of the following topics specifically:
Each retail investor must also sign a pro forma risk statement when they make an application to buy shares.
|Who is a CSF intermediary?||An AFS licensee whose licence expressly authorises the licensee to provide a crowd-funding service on its own platform (website or other electronic facility used to host a CSF offer).|
|What is their role?||A CSF intermediary plays a significant role under the CSF regime, operating the platform through which investors invest and companies offer their shares.
They manage some of the risk that may arise by:
Extending the CSF Regime to Proprietary Companies
The Federal Government is also contemplating extending this CSF regime to proprietary companies (who have two or more directors). While this creates opportunities, it also means eligible proprietary companies would face certain corporate governance obligations that currently apply only to public companies.
The Federal Government’s published exposure draft proposes the following:
|Proposed new law||Current position|
|Shareholder caps||The shareholder cap of 50 non-employee shareholders would not include CSF shareholders (unless subsequent transfers were made).||Proprietary companies are limited to 50 non-employee shareholders.|
|Reporting||The company must prepare annual financial and directors’ reports in accordance with accounting standards.||Small proprietary companies are usually exempt unless directed.|
|Auditing||If $1 million or more is raised from CSF offers, the company must have its financial statements audited until the company stops having CSF shareholders.||Small proprietary companies are usually exempt unless directed.|
|Related-party rules||The company will be subject to the related party transaction rules and penalties in Chapter 2E, by being required to obtain member approval for giving financial benefits that could endanger members’ interests.||Proprietary companies are not subject to the related party transaction rules.|
|Takeover rules||The company will not be in breach of the takeovers rules if its constitution contains appropriate CSF exit arrangements – that is, if someone acquires more than 40 percent of the voting shares in the company, they must offer to purchase all other shares in the company on the same terms within 31 days.||Companies with more than 50 shareholders are subject to the takeovers rules.|
Should the draft legislation be successful, the temporary concessions granted under the CSF regime previously would also be removed.