28 Nov Let the crowd follow you – the future of crowd sourced equity funding.
Let the crowd follow you – the future of crowd sourced equity funding (CSEF) in Australia
Are you looking for new pathways to raise funds for your business?
After much anticipation, regulations have been implemented to facilitate crowd-sourced equity funding (known as ‘CSEF’) in Australia.
What is crowd funding?
CSEF is an innovative approach to fundraising that allows entrepreneurs to raise funds, using an online platform, from a large number of investors in return for equity in their company. The Corporations Amendment (Crowd-sourced Funding) Act 2017 implements this fundraising method and gives entrepreneurs the ability to access sources of finance that were previously difficult to attain.
How does crowd-sourced funding help businesses?
The amendments are designed to foster innovation, productivity and economic growth in the Australian business market. It will allow entrepreneurs to raise up to $5 million in any 12-month period from retail investors in return for equity in their company. It is anticipated that the new online crowd funding platforms will provide investors with exposure to more investment opportunities and thereby create better deal flow.
Is your company eligible for crowd-sourced funding?
To be eligible to make offers under the CSEF regime you must meet the following criteria:
- Be a public company limited by shares;
- Have a principal place of business in Australia;
- Have a majority of its directors ordinarily residing in Australia;
- Not exceed the assets and annual revenue cap of $25 million;
- Not be a listed company; and
- Not have a substantial purpose of investing in other companies, entities or schemes.
How can my company participate in the CSEF regime?
If your company is eligible for the CSEF regime, it will need to engage a CSF intermediary to assist with the capital raising and prepare a CSEF offer documents.
How do I prepare a CSEF offer document?
ASIC has provided a template for companies wishing to utilize the CSEF platform. CSEF offer documents must contain certain prescribed disclosure which the company and its directors will be responsible for preparing.
Changing to a public company.
The Corporations Act already contains mechanisms to convert a proprietary company to a public company. Shareholder approval is required, and the process could take up to three months.
Public companies that participate in the scheme are granted certain concessions on normal corporate governance and reporting requirements which usually apply to public companies.
These concessions are available to companies that convert to an unlisted public company after the commencement of the CSEF regime and are available for up to five years after registration or conversion to a public company. This includes exemptions from the obligation to hold an AGM each year or to appoint an auditor to audit annual financial reports (provide not more than $1 million is raised under all CSF offers) and the obligation to distribute financial reports to members. These concessions expire after 5 years or earlier if the company ceases to meet the CSF eligibility requirements.
What if I want to invest in CSEF eligible companies?
As a retail investor, you can invest in companies using a crowd-sourced funding platform. You can invest a maximum of $10,000 per company through the same CSEF platform in a 12-month period.
There is statutory cooling off periods in place that allow investors 5 days after making an application to withdraw their application if they decide they do not want to invest.
The future for proprietary companies?
A Bill enabling proprietary companies to access the CSEF regime is currently being considered by Parliament. We will keep a close eye on this space.
How do I get involved?
The CSF platform became available in September 2017. This new initiative gives entrepreneurs and investors the opportunity to access new business and markets and to achieve greater success and innovation in their endeavours.
ASIC has already granted a limited number of CSEF intermediaries licenses to operate these platforms. Before committing to a platform, you should ensure that they are appropriately licensed by ASIC.
If you require any advice in regard to how you or your business can benefit from crowd funding, please do not hesitate to contact us. p: (07) 5444 5496 e:[email protected]