Yesterday, the Corporations Amendment (Crowd-sourced Funding) Regulations 2017 (CSF Regulations) which sets out how companies may practically go about seeking crowd-sourced equity funding (CSF) was made law. We have been closely following the process of consultation and implementation of the CSF regime, and have provided a comprehensive summary of the progression, in our previous alert.

In this alert Partner, Michelle Eastwell and Law Graduate, Felicity Dunstone outline the requirements of an “Offer Document” in order to ensure the offer is an eligible CSF offer.

What is an “Offer Document”?

An Offer Document is simply the document used by companies to enable them to seek funding by introducing potential investors to their company and disclosing details of the offer. It is the document that will be posted on a CSF platform when making an offer.

Overview of the CSF Regulations

Companies intending to raise funds under the CSF regime are restricted to only offering fully-paid ordinary shares to investors. The offeror must also ensure that in making a CSF offer it does not intend to use the funds to provide a loan to any related parties of the company.

The CSF Regulations have been introduced to guide eligible companies on how to raise funds under the CSF regime in compliance with the Corporations Act 2001 (Cth) (Corporations Act). The CSF Regulations have been drafted in a practical and user-friendly way for companies, prescribing that the Offer Document includes the following minimum content:

  • Section 1: Risk warnings
  • Section 2: Information about the offering company
  • Section 3: Information about the offer
  • Section 4: Information about investor rights

It is possible to include additional information in an Offer Document. However, an offeror should always ensure that any additional information is not misleading or deceptive.

Section 1: Risk warnings

All Offer Documents must include a warning statement that highlights the risks to investors injecting funds into a growing and not yet fully stable company. The CSF Regulations set out the exact wording that should appear at the start of the Offer Document.

Section 2: Information about the offering company

This section of the Offer Document is intended to introduce the investor to the company and its key individuals in order to allow the investor to better evaluate the company’s prospects and make an informed choice before they decide to invest.

The Company: The Offer Document must set out the basic identifying details of the company including, the name, company type, Australian Company Number, registered office and principal place of residence as well as any convictions or penalties against the company (within the preceding decade) and any undertakings it has provided.

The Key Personnel: The identifying details of the key individuals (directors and senior management) should also be outlined, such as their names, description of skills and experience relevant to the management of the company, any criminal offences or penalties, disqualification, banning orders and matters of insolvency or undertakings provided.

The Company’s Business and Financials: The Company should actively disclose their business and organisational structure, debt and equity capital structure (including options, shareholders agreements and terms of the constitution) and key risks of the company’s business.

A risk, for example, may include the company applying for, and not being granted, a patent. Financial statements for the company’s most recent financial year must also be included. If the company was incorporated in the current financial year, the financial statements must cover as much of the financial year as possible and end one month before the CSF offer is made. All financial statements must be prepared in accordance with accounting standards.

Section 3: The CSF offer

The CSF offer should clearly outline the securities being offered for issue and the rights attaching to them, the minimum and maximum amount of funds sought under the offer and the maximum expected duration of the offer. There must be a clear description of how the offeror intends to use the proceeds from the offer (including in the case where there is an excess of the maximum subscription amount). Disclosure should be made around whether any of those funds will be paid to a current or proposed director or senior manager, a CSF intermediary, anyone promoting or marketing the offer, a holder with 20 per cent or more of the voting rights in the company and any related parties.

Section 4: Investor’s rights

The key rights of investors (to a 5 business day cooling off period and to ask questions using the communication facility) must be outlined in the Offer Document.

Additionally, the Offer Document should outline any corporate governance concessions that may apply to the company, including:

  • exemptions from audited financial accounts for up to five years;
  • the company not being required to hold an Annual General Meeting for up to five years; and
  • the reduced regulatory compliance in respect of annual financial reports, directors’ reports and auditor’s reports for up to five years.

The CSF Regulations will commence at the same time as Schedule 1 to the Corporations Amendment (Crowd-sourced Funding) Act 2017 which is timetabled for September 2017.