Australia: Crowd control: regulating crowd sourced equity funding in Australia, part 2

Clayton Utz Insights
Last Updated: 17 June 2014
Article by Geoff Hoffman and Hugh Brolsma

Most Read Contributor in Australia, November 2017

Key Points:

A new class of company, boilerplate fundraising documents and a new type of financial services intermediary are the main features of a proposed new fundraising regime for private companies.

In April we reported on the CAMAC discussion paper on crowd sourced equity funding (CSEF) and considered how other countries had already undertaken law reform to enable this alternative method of equity funding. We now know CAMAC's proposal for Australia, and it may be the most important capital raising measure for small companies since the 1984 advent (and 1992 demise) of ASX's second board.

If enacted, it would give innovators and entrepreneurs the ability to raise funds from small investors. In return, a wide range of small investors will get access to new investment opportunities.

Early stage ventures are generally a high risk asset class. CAMAC proposes to limit the potential for damage to investors by what is effectively a stop order: there will be limits on both the amount of money that a company can crowd-source and the amount of money that individual investors will be able to invest.

Regardless of how enthusiastic entrepreneurs and investors are, the success of the proposed regime will ultimately depend upon a third party – the financial service intermediaries who will provide the platforms for making offers. Here, CAMAC is proposing some innovative measures.

The big picture

CAMAC has proposed that two types of company should be able to utilise crowd sourced equity funding:

  • public companies; and
  • a new class of company – "exempt public companies".

Exempt public companies would be exempt from various compliance requirements (see below) during their start-up phase. Thereafter, they would automatically become public companies, subject to all existing compliance requirements.

A CSEF fundraising document would follow a detailed boilerplate template prescribed by ASIC. The template would prescribe the information to be contained in the fundraising document, rather than the "all information reasonably required by investors" model for prospectuses. Among other things, it would cover:

  • the offer size;
  • the method of pricing the shares and the company's equity structure;
  • the length of time the offer will be open (no more than three months);
  • what skin the promoter has in the game;
  • a generic risk warning about crowd-sourced equity funding;
  • the potential for investors to be diluted;
  • the company's business plan;
  • any previous crowd-sourced fundraising by the company; and
  • the intended use of the funds.

This standardised disclosure is intended to ensure that potential investors could readily compare offerings.

Financial thresholds

The amount of money that a company could raise through this method would be limited to $2 million per annum. The normal fundraising channels already provided for by the Corporations Act would also be available (eg. full prospectus, offers to sophisticated investors, the 20/12 small scale personal offer exemption, etc). However, CAMAC does not believe that a company should be able to use both the small scale personal offer exemption and crowd-sourced fundraising to raise more than $2 million. This would mean that:

  • a company could not raise more than $2 million through a combination of crowd funding and small-scale personal offers;
  • a company which raised more than $2 million through small-scale personal offers in a year would not be able to use crowd funding in that year.

For their part, investors could be limited to a $2500 investment per annum in any one company, with an annual cap on their investments of $10,000.

What kind of equity?

Under the CAMAC proposal, issuers raising funds through this method will not be limited as to the classes of shares (and rights attaching to those shares), provided that those matters are fully disclosed.

In arriving at this conclusion, CAMAC has tried to balance two competing concerns. The first is that investors are entitled to know what they are buying. The second is that many entrepreneurs and innovators are hesitant about issuing shares because they may lose control of their project. CAMAC's solution is to allow an exempt public company to make offers of shares that are not full voting shares or have limited dividend rights. The company could also issue different classes of shares, both to the crowd and to private investors (including the founder of the company). CAMAC believes the key is disclosure: the offer document would have to fully disclose the company's equity structure.

Limited compliance requirements for exempt public companies

As noted above, limited public companies would not have the same governance and other compliance requirements as public companies. The most significant of these would be exemptions from:

  • continuous disclosure requirements;
  • the requirement to hold an AGM;
  • the Two Strikes Rule;
  • the remuneration report;
  • the requirement to appoint an auditor (but only until the company had raised $1m and had expended $500,000).
  • These exemptions would fall away in four circumstances:
  • the company's capital reaches $5m and remains there for six months;
  • the company's annual turnover reaches $5m;
  • the company has been an exempt public company for three years (although shareholders could vote to defer this by up to two years);
  • the company voluntarily decides to become a public company.


The offer and acceptance process would be run through a platform run by an intermediary (who would require a licence from ASIC (although CAMAC has not outlined precisely what kind of licence this would be)).

The intermediary would be far more than just a web-based facilitator. CAMAC proposes that it would also be required to:

  • conduct limited due diligence checks on issuers;
  • provide a generic risk disclosure statement to CSEF investors;
  • check compliance with investor caps in some instances;
  • provide communication facilities between issuers and investors;
  • disclose the fees they charge.

These due diligence requirements would not be particularly onerous, and it is important to note that the intermediary would only be required to do due diligence on the issuer – not the issuer's business and business plan.

CAMAC has put up for consideration a number of alternative approaches to business diligence. These range from template-based due diligence (which would ensure that all businesses are assessed by reference to the same criteria) to simple disclosure by the intermediary of whether it has done any due diligence on the business (and what that due diligence was). CAMAC appears to lean towards the latter approach (consistent with its "disclosure is key" perspective).


CAMAC's proposals for crowd sourced equity funding in Australia are encouraging. A bespoke regime is more likely to facilitate a new market which was not contemplated when the current fundraising laws were enacted. The regime is clearly designed to carefully balance the competing policy objectives by harnessing the power of the internet to create a new type of fundraising market while managing the heightened equity investment risk for unsophisticated investors.

While some may criticise the proposals for still being heavily reliant on disclosure for investor protection, it should be noted that licensed intermediaries will be inclined to provide an additional layer of "deal vetting" to encourage a continued flow of investor funds to their platforms.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions