Last month the Coalition introduced the
Corporations Amendment (Crowd-sourced Funding) Bill 2016 to
Parliament. This long-awaited piece of crowd-source funding
('CSF') legislation is based upon the somewhat
2015 Bill, which was passed by the House of Representatives in
February this year but later quietly lapsed at the dissolution of
Parliament before the July election.
The Government's aim is to establish a regulatory framework
for CSF which will allow businesses to obtain funding from a large
number of individual investors through an online platform.
One of the main criticisms of the 2015 Bill was that companies
were only eligible to use the scheme if they had less than $5
million in gross assets and less than $5 million in consolidated
annual revenue. The most significant change made under this new
2016 Bill is that this maximum limit on assets and annual turnover
has been increased from $5 million to $25 million, allowing more
businesses in the middle market to source alternative finance under
this scheme. Another key change under the new Bill is that the
period of cooling-off rights given to investors has decreased from
5 business days to a period of 48 hours, in the hope that this will
provide issuers with greater certainty about the amount raised
while still giving investors enough time to withdraw.
Here are some key aspects of the CSF regime which have remained
Only unlisted public companies limited by shares with their
principle place of business in Australia are eligible.
Companies can fundraise up to $5 million per year through
Investors may invest no more than $10,000 per issuer per
Intermediaries must hold an AFSL expressly authorising them to
provide a crowd-funding service.
Another criticism of the 2015 Bill was that it did not do enough
to make this source of funding accessible to small start-ups.
Although it reduced some disclosure, governance and reporting
obligations, the requirement that start-ups become public companies
in order to access the scheme seemed too complex and costly for it
to be a viable option. The Government has yet to make changes to
address this concern. Under the Bill, proprietary companies can
consider converting to a public company if they wish to raise funds
through CSF and will receive some exemptions from governance and
reporting requirements for 5 years.
However, this CSF regime is expected to evolve quickly and the
Government has acknowledged that there may be need for adjustments.
When introducing the Bill to the House of Representatives, the
Treasurer stated that the Government is continuing to consult on
extending the regime to proprietary companies, and suggested that
this would be introduced through subsequent legislation. The
Government has also indicated that only fully-paid ordinary shares
will be subject to crowd-funding under the regime, but that the
type of securities eligible for crowd-funding may be adjusted in
If this Bill is passed, it will come into effect 6 months from
the date it receives royal assent.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Personal Property Securities Act 2009 is one of the most significant commercial law reforms in recent times.
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