What is crowd-sourced funding?
Crowd-sourced funding (CSF) allows companies to raise funds through an online intermediary, from a large number of investors without the need to comply with capital raising and governance requirements imposed on public companies.
Problem solved by crowd-sourced funding
Crowd-sourced funding laws were developed to assist smaller companies in accessing capital from investors in a more cost effective way.
In the past, private companies had to rely on raising funds from high net worth individuals, venture capitalist and angel investors. There was also capacity to raise funds under a small scale ’20/12/2 rule’ which is limited to $2 million from 20 investors over a 12 month period. This exemption still exist, but before these reforms were in place the situation was different. Back then, if a private company was unable to raise funds under these limited options, it would need to convert to a public company and issue a regulated offer document such as a prospectus. A public company is required to have its financial statements independently audited, hold annual general meetings of shareholders, have its share register open to public inspection and is subject to takeover laws, and restrictions on dealings with directors, amongst other regulatory requirements. This additional regulation can significantly increase a company’s compliance costs to the point where it is not cost effective to convert to a public company for a small capital raising.
CSF offers
CSF offers are essentially a way of raising capital via a licensed CSF intermediary’s online platform. CFS offers can be marketed directly by the company and also to the CFS intermediary’s larger investor network. Generally, CSF intermediaries charge a flat fee for using their platform and also receive a percentage of the funds raised. Usually, this is more cost effective than converting to a public company.
Is my company eligible for crowd-sourced funding?
For a company to be eligible to make a CSF offer, the following criteria must be met:
- be a proprietary company or a public company limited by shares;
- have the company’s principal place of business in Australia;
- have a majority of its directors ordinarily residing in Australia;
- not exceed the assets and annual revenue caps of $25 million;
- not be listed on a financial market in Australia or overseas; and
- not have a substantial purpose of investing in other companies, entities, or schemes.
Is my company eligible to make an offer?
For a company’s CSF offer to be eligible, the following requirements must be satisfied when the CSF offer document is first published on the CSF intermediary’s platform:
- be made by an eligible company;
- must expressly state the offer is made under the CSF regime;
- must be an offer for the issue of fully-paid ordinary shares;
- must not be used to raise funds to invest in other companies, entities or schemes, or loan to related parties; and
- must comply with the issuer cap (offers to raise no more than $5 million in any 12-month period).
How do I make a CSF offer?
To make a CSF offer, the following steps need to be followed:
Step 1: Enter into a hosting agreement with the intermediary for the publication of the CSF offer document. We can help you with finding a CSF platform.
Step 2: Prepare a CSF offer document for the offer. This document must meet certain prescribed disclosure requirements which we can help you with.
Step 3: Obtain consents for publication of the CSF offer document.
Step 4: CSF intermediary publishes the CSF offer document on its platform and opens the offer.
Step 5: CSF intermediary suspends or closes the offer.
Step 6: CSF intermediary declares the offer ‘complete’ or ‘unsuccessful’.
Step 7: Your company issues shares or the CSF intermediary refunds investor money.
Offers must be made via the CSF intermediary’s platform. This ensures investors are not able to apply for shares without receiving the CSF offer document published on the intermediary’s platform, which contains the minimum information required to be provided to investors.
If you require any advice in regard to how you might benefit from crowd funding, please do not hesitate to contact us. (07) 5444 5496 or [email protected]
