Australia: Equity crowd source funding: Part 2 - Regulatory update

Last Updated: 19 April 2018
Article by Michael Phillips and Nicholas Mark

Australia's equity crowd source funding regime (CSF Regime) came into effect in Australia on 29 September 2017. The relevant provisions now sit within Part 6D.3A of the Corporations Act 2001 (the Act) and of the Corporations Regulations (2001) (the Regulations).

The CSF Regime offers an opportunity for start-ups and small businesses to raise funds from retail investors without a detailed and extensive disclosure document or by relying on the so-called "20/12 rule" or "small scale offering" exemption.1 Similar regimes operate in the UK, New Zealand, Canada and USA.

Our previous article covered the topics including the eligibility criteria to be satisfied by a company seeking to raise equity capital via the CSF Regime.

This article digs a little deeper now that the Regulations have been promulgated and the government intends to change one of the eligibility criteria. ASIC has also published two Regulatory Guides (261 and 262). These will need to be updated once the change outlined below comes into force.


Following extensive public consultation, the government altered its position on the requirement that a company seeking to raise funds under the CSF Regime must be a public company.

As noted in our previous article, a public company is subject to a raft of stringent corporate governance and reporting requirements that do not apply to proprietary companies. At present, it is necessary for a company wishing to access the CSF Regime to convert to a public company. Although the government grants a few temporary concessions, it is considered that the time and costs associated with complying with these public company requirements are an anathema to the stated objective of reducing regulatory barriers and compliance costs for start-ups and SME businesses looking to raise capital.

Proposed amendments to the legislation are currently before the Senate, with the aim to extend the CSF Regime to proprietary companies but with a few additional requirements. The additional requirements that will need to be complied with by proprietary companies to access the CSF Regime, as compared with the requirements of proprietary companies in general, are set out below:

Proprietary Company Proprietary Company accessing the CSF Regime
Minimum of 1 director Minimum of 2 directors
Generally no requirement to prepare and lodge annual financial reports with ASIC (there are certain exceptions) Must prepare and lodge financial statements with ASIC
Generally no requirement to have financial statements audited Must have financial statements audited, but only when CSF company has raised $3 million or more under the CSF Regime
Related party transaction rules under Chapter 2E of the Corporations Act do not apply Chapter 2E applies
Company must not have more than 50 shareholders (excluding employee shareholders) The 50 shareholder limit still applies. However, for the purpose of calculating the number of shareholders, you can exclude employee shareholders and shareholders to whom shares are issued under the CSF Regime
Proprietary companies with more than 50 shareholders are subject to the takeover rules Proprietary companies that have CSF shareholders are exempt from the takeover rules
Not applicable A proprietary company that makes a CSF offer is required to include additional information as part of its company register. This includes dates of issue, number of shares issued etc.

It is hoped that the amendments will be approved by the Senate and receive Royal Assent before the end of 2018.


Whilst the forthcoming concessions to be made by the government to the public company requirement are welcome, the duties and obligations of the CSF intermediary remain unaltered and are extensive and numerous.

In effect, the CSF intermediary is akin to a gate keeper. Its obligations include:

  • undertaking fairly rigorous diligence inquiries on the company, its business and officers;
  • ensuring that the infrastructure of the online platform under which CSF offers are made support a host of features prescribed by the legislation. This entails an intermediary having in place policies, systems and procedures to ensure that it complies with its gatekeeper obligations;
  • complying with detailed procedures for making the CSF offer, such as when the offer may open, when it may be closed and when the offer may be regarded as complete. In addition, the intermediary must have a communication facility in place to allow potential investors, the issuer and intermediary to communicate with each other about a particular CSF offer; ;
  • dealing with subscription funds and when to refund those monies;
  • ensuring that it does not publish or continue to publish on its online platform an offer document that is defective (misleading, deceptive, containing omissions).

Given that a breach of many of the obligations to which a CSF intermediary is subject may result in criminal liability, a CSF intermediary will need to undertake a thorough verification exercise prior to publishing a CSF offer document on its CSF platform and then closely monitor the platform while the offer remains open. With the ability of the company to communicate directly with prospective investors, via the online platform, CSF intermediaries will need to ensure that these communications are vetted in order to avoid the company carelessly (or worse) disseminating false or misleading information.

To date, as far as we are aware, seven companies have been issued with Australian Financial Services (AFS) licence authorisations to act as intermediaries to provide a crowd-sourced funding service. These are Big Start, Billfolda, Birchal Financial Services, Equitise, Global Funding Partners, IQX Investment Services and On-Market Bookbuilds.


The jury is still out on the effectiveness of the current CSF Regime and the impact which the proposed amendment will have on the regime. The compliance requirements remain extensive for CSF intermediaries and the extent to which investors will embrace the CSF Regime is yet to be seen.


1See section 708 of the Corporations Act 2001. This compliance-light form of capital raising is known as the '20/12' rule because the ambit of a 'small scale offering' is limited to capital raisings of no more than $2,000,000, from a maximum of 20 investors, during a 12 month period. This kind of private offering is usually made via an informal Information Memorandum. Offers cannot be made available to the public – they must be personal offers. Sophisticated investors or officers of the company are excluded from the 20 investor cap, as are those people investing $500,000 or more.

For further information please contact:

Michael Phillips, Partner
Phone: +61 2 9233 5544

Nicholas Mark, Solicitor

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.

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.

Similar Articles
Relevancy Powered by MondaqAI
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”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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