The Federal Treasurer has reintroduced the Corporations Amendment (Crowd-sourced Funding) Bill 2016 (Cth) (Bill) into the Lower House. This Bill is an amendment to a previous bill that was not passed by the Senate in 2015 and seeks to develop a regulatory framework to facilitate Crowd-sourced Funding (CSF) for small, unlisted public companies.
CSF is a fundraising model whereby individuals or organisations source financial contributions from members of the public, mainly through the internet, in order to finance their ideas, innovations, cause, products or services. CSF allows a large number of individual "investors" to make small financial contributions in a way that disrupts traditional fundraising.
It has been identified that there is a range of regulatory impediments under the Corporations Act 2001 (Cth) and existing legal framework to the use of CSF. The Bill seeks to establish a new CSF regime to regulate CSF whilst still encourage the financing of innovation in Australia.
Summary of the proposed law
The Bill contains the following key features:
- The CSF regime only applies to unlisted public companies limited by shares. Small businesses and start-ups may be excluded from the regime;
- A CSF offer must only be made for the issue (not sale) of securities in an "eligible CSF company" which is an unlisted public company limited by shares with gross assets of less than $25 million at the time of offer and annual revenue of under $25 million.
- The CSF company cannot have a substantial purpose of investing in other securities or interests in another entity or managed investment schemes (MIS). An MIS cannot raise capital through the proposed CSF regime;
- A CSF issuer may raise up to $5 million in any 12 month period;
- A new financial service type called "crowd-funding service" will be created;
- A person or organisation intending to operate a intermediary crowd-funding platform (Intermediaries) will be required to hold an Australian financial services licence and may also be required to obtain an Australian Market Licence (AML). Although Intermediaries are considered as market operators, the Bill will grant the Treasurer powers to exempt Intermediaries from some AML requirements. Intermediaries will have a number of obligations under the CSF regime;
- There is now a requirement for a CSF offer document to be prepared for CSF offers. The Bill sets out the process and rules for making CSF offers;
- Additional protections for all investors, especially retail investors. Retail investors can only invest up to $10,000 per CSF issuer through each Intermediary within a 12 month period, and a 48 hour cooling-off period will be established;
- In addition to powers to exempt Intermediaries from some AML requirements, the Treasurer will also have powers to grant exemptions to particular clearing and settlement facilities from specified regulatory and licencing requirements; and
- Corporate governance and reporting concessions are available to companies that are registered as, or converts to, a public company limited by shares after the commencement of the CSF regime.
What this means for our clients?
The increasing popularity of CSF, especially through the internet, as an alternative form of fundraising will potentially impact Baker & McKenzie's clients.
Whether you are a company looking to take advantage of CSF to raise funds or if you operate under more traditional fundraising models, we recommend that you keep abreast of the developments of this Bill in order to assist you with preparing and planning for the anticipated reforms in this area.