On 3 December 2015, the Corporations Amendment (Crowd-sourced
Funding) Bill 2015 was introduced into Parliament. The Bill aims to
promote crowd-sourced funding or CSF for emerging small, unlisted
public companies and provide increased investment opportunities for
small-scale retail investors.
The Bill attempts to achieve this by implementing a two-pronged
approach – removing existing barriers to CSF under the
Corporations Act and promoting investment by increasing investor
Removing existing barriers to CSF
Currently, the Corporations Act restricts the ability of small
businesses and start-ups to raise equity via CSF as section 45A
prohibits proprietary companies from exceeding 50 non-employee
shareholders. Whilst such prescriptive limits are not imposed on
public companies, they are also limited due to strict corporate
governance and reporting requirements. This means that small
emerging businesses often choose to remain proprietary despite the
However, the Bill attempts to remedy this and encourage
businesses to become public by restricting the regulatory burden.
By inserting the new Part 6D.3A—Crowd-sourced
Funding into the existing Chapter 6D, the Bill makes eligible
businesses largely exempt from the disclosure document requirements
under Part 6D.2 and the prohibitions, liabilities and remedies
relating to offers of security as set out in Part 6D.3.
Furthermore, eligible companies will also be exempt from
obligations to hold an Annual General Meeting, may exercise an
option to only provide financial reports to shareholders online and
will not be required to appoint an auditor until more than $1
million has been raised from CSF offers.
Criteria for "eligible CSF companies"
In order to qualify for the exemptions granted under the Bill,
the company must meet all of the following criteria:
the principal place of business must be in Australia;
the majority of the company's directors must originally
reside in Australia;
the consolidated gross assets must not exceed $5 million;
the annual revenue must not exceed $5 million;
it must not be listed; and
it must not be an investment company.
Increasing investor protections
While there are general protections that apply to all investors
which aim to prevent excessive risk and promote informed decision
making, the Bill also introduces additional protection mechanisms
for retail investors. These protections include requirements such
all retail investors are limited to investing $10,000 per
issuer per year;
there is a compulsory and unconditional five day cooling-off
period in which an individual may withdraw their offer;
the issuer company and any related intermediaries are
prohibited from offering financial assistance to an investor;
a CSF application can only be accepted if it is accompanied by
a signed risk acknowledgement statement.
By implementing these protections, the Bill aims to shelter
small retail-investors from the high risks associated with
investing in start-ups whilst also providing businesses with an
alternative means of obtaining affordable finance.
On 3 December 2015, the Bill was referred to the Senate
Economics Legislation Committee for inquiry and review. The
Committee is due to release a report by 22 February 2016.
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