Crowd-sourced funding for proprietary companies: Differences between exposure draft and bill

The Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017 (Bill) has now been introduced into Parliament.

The Bill "sets out amendments to the Corporations Act 2001 (Corporations Act) to enable proprietary companies in Australia to access crowd-sourced equity funding".¹

Prior to the introduction of the Bill into Parliament, the Government released draft legislation for public consultation (Exposure Draft).

For more information on the Exposure Draft please access our article here that discusses what crowd-sourced funding (CSF) is, the current limitation and the proposed extension to include proprietary companies as eligible CSF companies.

The consultation occurred between 9 May and 6 June 2017 and received submissions that were generally supportive of the extension of the CSF framework to proprietary companies.²

There are numerous changes to the draft legislation as the Treasury further redefined the legislation through targeted consultation.³ The changes include:

1. the removal of the "appropriate CSF exit arrangements" that provided a trigger for a person to offer to buy out other shareholders if their voting power in the company was 40% or more;
2. an increase to the CSF audit threshold from $1 million to $3 million, unless the amount is changed by regulations; and
3. the inclusion of new provisions that propose to make changes to existing legislation relating to eligible public companies that access the CSF regime, including:
   1. an amendment to the meaning of an eligible CSF company to clarify that the "company cannot be listed on a financial market overseas in addition to not being listed on a financial market in Australia";⁴
   2. a reduction in the cooling-off period from one month to 14 days;⁵ and
   3. an increase to the audit threshold for public companies eligible for corporate governance concessions that now provides that they will only be required to have their financial statements audited and appoint an auditor after raising $3 million or more from CSF.⁶ The current threshold is $1 million.

The House of Representatives moved the second reading of the Bill on 14 September 2017.

Restructuring

Small businesses wishing to access crowd-sourced funding may need to restructure prior to participating in any equity raisings. For example, a business operated via a family trust would need to be restructured into a proprietary company, which would raise a variety of commercial and tax law issues.

Footnotes

¹ Commonwealth, Parliamentary Debates, House of Representatives, 14 September 2017, 1 (Scott Morrison).

² Explanatory Memorandum, Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017 2.63.

³ Ibid 2.65.

⁴ Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017 sch 1 pt 2 item 52.

⁵ Ibid sch 1 pt 2 item 51; Explanatory Memorandum, Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017 1.67.

⁶ Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017 sch 1 pt 2 items 47, 48, 49; Explanatory Memorandum, Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017 1.69.