Last year, it was announced that the Federal Government
would introduce new legislation to facilitate "Mum and Dad
investors" in start-up. Changes include a 5 day cooling off
period and an increase in the allowable cap on funds to be raised,
and assets to be held, to $5 million.
The Corporations Amendment (Crowd-sourced Funding) Bill
2015 seeks to enable equity crowdfunding against a regulatory
background that has traditionally resisted it. The amendments to
the Corporations Act 2001 seek to provide recourse for a large
number of shareholders to provide but some start-up advocates have
articulated resistance to the scheme for being too cumbersome.
As a form of consumer protection the Australian legislation now
requires that investors must go through appropriately licenced
crowdfunding procedures, and those procedures require a
considerably high level of due diligence on the proposal to avoid
misleading or deceptive conduct. Moreover, consumers are strongly
encouraged to seek their own advice on the potential investment and
make their own decisions by the risk acknowledgement statement
required to be signed as part of the investment process.
It is interesting to note that the Prime Minister, Malcolm
Turnbull, has previously said (before assuming office) that he
preferred the model adopted by New Zealand in the middle of
That model includes a $2 million cap within a 12 month period;
however, the number of potential investors is uncapped and not
limited to 20, and private companies are included in the
arrangement. Accordingly, this provides a significant number of
investors to purchase smaller amount of shares in any incorporated
company in New Zealand, without the need to issue a prospectus or
deal with costly scrutiny from authorities. It has now been some
time since the model was adopted in New Zealand and 21 New Zealand
companies have successfully raised $12.4 million, with an average
commitment per investor of approximately $4,100.00.
The new Australian model, limiting its reference to small public
companies, prescribes key elements of operation and compliance to
participants. A limit at $5 million, however, is a larger
crowdfunding threshold than both New Zealand and the US. If
crowdfunding is as successful in Australia as it has been in New
Zealand, there are considerable advantages for Australian start ups
and investors. We will have to wait and see what happens over the
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