Crowd sourced equity funding (CSEF) is receiving increasing attention globally as an alternative form of fundraising for start-up or other small to medium sized businesses. Although it is theoretically available in Australia, it is subject to regulatory barriers including fundraising, licensing and other restrictions under the Corporations Act 2001 (Cth). Consistent with its expressed commitment to improving small businesses’ access to affordable finance, the Federal Government’s discussion paper discusses and seeks public comments on the options available in Australia for CSEF regulation.
In CSEF, a business (the issuer) raises capital by offering small debt or equity interests to large numbers of investors through a crowd funding online platform, which serves as an intermediary between the issuer and the investors.
The Government has released Crowd-sourced Equity Funding Discussion Paper on a potential regulatory framework for CSEF in Australia. The discussion paper seeks public comment on 3 potential CSEF regulatory models:
- the model put forward by the Corporations and Markets Advisory Committee (CAMAC) in a report released in June 2014, namely a separate legislative framework for CSEF to make it easier for CSEF to be used in Australia (see G+T Client Alert on 4 December 2014 for further details of the CAMAC’s model);
- the implementation of the New Zealand model which came into force in April 2014 which, while broadly similar to the CAMAC model, takes a different approach in a number of key areas, including public company compliance costs, companies eligible to use CSEF, investor limits and certain intermediary requirements; and
- not regulating CSEF as a specific form of investment, with no change to the current fundraising, licensing and other regimes applicable under the Corporations Act 2001 (Cth).
The Government has not made a decision on its preferred CSEF framework and is not limiting itself to implementing either the CAMAC or the NZ model in full.
Submissions on the report are due by 6 February 2015.