In September 2017, Australia joins the UK, Canada, USA and New Zealand by supporting crowd-sourced equity funding. This means unlisted public companies can access the new crowd-sourced equity funding regulatory framework.
The regime enables unlisted public companies to source funding from a large number of individuals – who make small financial investments, in exchange for equity.
This is exciting news for small cap and start up entities!
The new regime improves access to finance for early-stage growth. Previously, there were significant disclosure and compliance requirements for companies who wish to raise money by a public offer. Now, there is an alternative from the traditional reporting and corporate governance requirements of public fundraising.
In any 12-month period, eligible entities can raise a maximum of $5 million from investors via the publication of a tailored offer document on an intermediary platform.
Who is eligible for crowd-source equity funding?
Currently, only unlisted public companies can access the crowd-sourced equity funding regime.
The Federal Government’s May 2017 Budget proposed to extend the regime to private companies through the introduction of the Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017. However, at this stage, it remains draft legislation.
In order to access the crowd-sourced equity funding regulatory framework in September 2017, private companies may consider changing their company type to ‘public’. For further information on changing company type see ASIC Information Sheet 18.
Directors need to consider the implications of becoming a public company. These include:
• having at least three directors and a company secretary
• maintaining a share registry
• preparing financial reports, in accordance with corporations’ law
• facing a higher level of scrutiny from both regulators and shareholders in general.
It is important to note that eligible public unlisted companies will be afforded temporary relief from some reporting and corporate governance requirements for a period of up to five years.
Examples of these concessions include:
• no requirement to hold an annual general meeting
• if less than $1 million is raised, there will be no obligation to have financial reports audited.
The ASIC has released a consultation paper, Consultation Paper 288, which details the compliance expectations for public companies wishing to make use of the new regime.
Crowd-sourced equity funding may be the opportunity for growth your company has been waiting for.
Intermediary platforms act as ‘gatekeepers’. These make sure that companies using their platform are eligible to crowd fund. Offer documents must be compliant with the prescriptive requirements of the regulatory framework.
If you want to access these intermediary platforms you must instill strong governance and transparent business practices in your company. Your accounting practices, operations and even your company’s constitution must be diligently assessed to ensure compliance with the relevant regulatory and legal standards.
We advise careful consideration and to seek the right advice.
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