CSF extended to private companies

The Government has passed the Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017 (Cth), extending the application of the existing crowd-sourced equity funding (CSF) framework to proprietary limited (Pty Ltd) companies. The legislation will take effect next month. Prior to this, CSF was only available to qualifying unlisted public companies, which made the framework largely ineffectual (as summarised in our previous update here).

Additional obligations for private companies

In summary, under the new framework, Pty Ltd companies will be able to make CSF offers via issuing a CSF offer document (which involves reduced disclosure requirements compared to the normal fundraising disclosure requirements under Chapter 6D of the Corporations Act). The framework will relax the shareholder limit rules, allowing Pty Ltd companies to raise funds from potentially hundreds of investors.

However, Pty Ltd companies will be subject to some additional obligations and exceptions, including:

  • two directors: the company must have at least 2 directors, a majority of whom ordinarily reside in Australia, to ensure greater transparency;
  • financial statements: the company must prepare financial and directors' reports in accordance with accounting standards;
  • audit requirements: if the company raises more than $3 million from CSF offers, its financial reports have to be audited;
  • related party rules: the company has to comply with the ‘related party transaction’ rules under Chapter 2E of the Corporations Act;
  • shareholder limit: the company is limited to the standard 50 non-employee shareholders, but shareholders who hold shares issued as part of a CSF offer do not count towards this shareholder cap; and
  • takeovers laws: the company is exempt from the takeovers rules only as long as it is eligible to make a CSF offer.

Where to from here?

Now that Pty Ltd companies are free to access CSF, we are likely to see a large number of CSF campaigns launched in the coming months, and it will be interesting to see the impact of this on the Australian start-up landscape.