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The Australian regulatory landscape for equity crowdfunding

Historically Equity Crowdfunding in Australia was regulated under the general capital raising provisions of the Corporations Act, however, these provisions were quickly found to be wholly unsatisfactory for a range of reasons. After several years’ lobbying from a range of parties, specific legislation enabling Equity Crowdfunding - The Corporations Amendment (Crowd-sourced Funding) Act 2017 - received Royal Assent on 28 March 2017 and takes effect from 29 September 2017. Broadly, the legislation allows public companies to make Crowd Sourced Equity Funding (CSF) offers using a defined disclosure document with reduced regulatory requirements while maintaining appropriate investor protections.


Key aspects of the legislation include;


• eligible public companies are able to make offers of their shares, via an intermediary CSF service, using an offer document;

• unlisted public companies with less than $25 million in assets and annual turnover are eligible to raise funds under the CSF regime.

• eligible companies will be able to make offers of ordinary shares to raise up to $5 million in any 12-month period;

• public companies making CSF offers will not have to comply with certain reporting, audit and AGM obligations that would usually apply to public companies, for up to five years.

Investor Protections

The legislation contains a number of important CSF investor protections;

• an investor cap of $10,000 per annum per company for retail investors;

• the provision of a CSF offer document containing minimum information and a prescribed risk warning;

• a five-day cooling-off period.


Obligations of CSF intermediaries

Under the CSF regime, intermediaries are required to hold an Australian Financial Services (AFS) license with an authorisation to provide a CSF service.

The AFS licence obligations under the Corporations Act will apply, including;

•the obligation to act efficiently, honestly and fairly, and comply with the conditions of the licence and the financial services laws;

• an obligation to notify significant breaches;

• an obligation to lodge annual financial statements and an auditor's report;

• conflicts of interest – having in place adequate arrangements to manage conflicts of interest;

• resource requirements – having adequate financial, human and technological resources;

• organisational competence – maintaining the competence to provide the financial services;

• risk management – having adequate risk management systems;

• having adequate compensation arrangements, and

• dispute resolution – having an appropriate internal and external dispute resolution system.


Additional measures

The original legislation has been criticised for limiting CSF offers to unlisted Public companies. However, the Australian 2017/18 Budget, announced on 9th May 2017, proposed an extension of the Crowd Sourced Equity Funding legislation to allow Proprietary companies to access CSF, and the relaxation of the maximum number of shareholders allowed by Proprietary companies by allowing an unlimited number of CSF shareholders. These additional measures have yet to be passed.


In summary

The Crowdsourced Funding Act provides a clear and workable framework to conduct Equity Crowdfunding campaigns in Australia. The proposed extension of the legislation to Proprietary companies significantly increases its scope and application. With the legislation due to take effect from September 2017, we anticipate that Equity Crowdfunding will see strong growth and take up as an attractive alternative equity funding source now that much of the regulatory uncertainty has been removed.


We’ve provided a summary only of the Early Stage Tax Incentives above. Please obtain professional advice if you intend to take advantage of these incentives.

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