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 controversial 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 the same:

  • 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 CSF.
  • Investors may invest no more than $10,000 per issuer per year.
  • 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 the future.

If this Bill is passed, it will come into effect 6 months from the date it receives royal assent.

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