Crowd-sourced equity funding (CSEF) has received significant attention since 2010 as an innovative and alternate fundraising solution, allowing businesses to raise funds from a large number of small equity investors.
Under current corporate regulations however, proprietary companies cannot raise funds through public offers and they cannot have more than 50 non-employee shareholders. These characteristics, by their nature, restrict proprietary companies’ ability to access CSEF. Whilst public companies do not face these same restrictions, the additional governance, reporting and disclosure requirements of public companies make them unsuitable vehicles for the type of businesses that would seek fundraising through CSEF.
The Federal Government began a comprehensive consultation process in December 2014 and has last month released a second consultation paper considering proprietary companies’ access to CSEF. Some of the suggested regulatory amendments include:
- increasing the current 50-shareholder limit for all proprietary companies (or, alternatively, for those proprietary companies that utilise CSEF)
- increasing the 20 investor limit and/or the AU$2 million cap of small scale offerings
- requiring that financial statements are audited once a company raises a certain threshold of funds from CSEF
- imposing an annual CSEF fundraising cap (currently proposed at either AU$5 million or AU$1 million per 12 month period)
- reducing administrative compliance costs for proprietary companies in respect of executing documents, completing and lodging forms, and maintaining a share register
The Federal Government aims to introduce CSEF legislation into parliament in the Spring 2015 parliamentary sittings (which will run until December 2015). We eagerly await the outcome of this consultation, which we see as a positive step towards fostering greater levels of investment in innovative Australian companies.