After being shelved by the Australian government earlier in the year, the Corporations Amendment (Crowd-Sourced Funding) Bill was reintroduced into Parliament last Thursday. The amended Bill represents another attempt to regulate the relatively new phenomenon of crowdfunding which allows companies to raise funds from a large pool of investors through an online portal. Led by crowdfunding start-ups like Equitise and VentureCrowd, this new form of funding in Australia has become one of the fastest growing segments of alternative finance.
Introduced in early 2016, the initial amendment to the Corporations Bill designed to regulate the phenomenon was scuppered by a lack of substantial support for start-ups. Although the new amended Bill fails to address this element, with private companies still prohibited from raising public funds via crowd-sourced equity, the new Bill is expected to provide public unlisted companies an opportunity to raise alternative capital.
Listed below are the key features of the amended Bill:
- Unlisted companies with less than $25 million in gross assets and annual turnover will be capable of raising capital of up to $5 million in any 12 month period via local crowdsourced equity funding platforms.
- While previous legislation limited the scope of equity crowdfunding to wholesale or sophisticated investors who earn at least $250,000 a year or have $2.5 million in assets, the new proposed bill enables retail investors to invest up to $10,000 per company per year with a 48 hour cooling off period.
- The size of the unlisted public companies that can access this type of funding expanded from only those with less than $5 million assets to $25 million.
- Small businesses that decide to become public companies will be granted exemption from certain corporate governance and reporting obligations for up to five years. Instead, licensed crowdfunding intermediaries will be required to conduct checks on the companies they list on their platforms.
Although private companies remain prohibited from raising public funds, the government will consider the possibility of extending crowdsourced equity funding in 2017 to proprietary companies. However, doing so could increase the cost of running a private company, as the business may no longer meet the needs of people who are currently running closely held companies which form the bulk of private companies.
Assuming the Bill is approved, the legislation will complement Turnbull government’s existing financial sector and innovation policies. These include a push for an internationally competitive fintech industry, new tax incentives for angel investors and startups and changes to tax treatment of crypto currencies. Although Australia’s crowdfunding approach remains cautious, the new legislation will enable people to gain equity in high-growth ventures. It will also make raising capital easier, driving innovation, growth and employment in Australia.
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