Key Highlights
Individual cap of $10,000 pa per company via a particular intermediary
Issuer cap of $5 million pa
Public company only
First CSF round must occur within 12 months of registration
CSF must be conducted via a licensed platform
Delayed commencement
After a lengthy period of policy consideration and public consultation, on 3 December 2015 the Federal Government introduced legislation that sets out the framework for a crowd sourced funding regime in Australia for the first time.
Crowd sourced funding (CSF) involves offering securities to the public through internet-based intermediary platforms. This allows small companies to raise funds from a larger pool of investors.
The proposed legislation proposes a number of amendments to the Corporations Act designed to make it more flexible, quicker and easier for small companies to raise capital, with lower compliance costs.
Start-ups, platform providers and investors need to consider the implications.
The following is an overview of some of the key features of the new CSF regime in Australia.
CSF Eligibility - Who can raise funds?
Under the proposed legislation, a CSF company must satisfy each of the following criteria to be eligible to raise funds from the crowd:
The company is a public company limited by shares with its principal place of business in Australia.
A majority of directors must ordinarily reside in Australia.
The company has less than $5 million in consolidated gross assets and less than $5 million consolidated annual revenue.
The company cannot be listed.
The company must not operate an investment business.
Eligibility to raise crowd-sourced equity has not been extended to proprietary companies. This is despite the Government seeking public comment on the matter as part of if its CSF consultation process.
How are CSF raisings to be conducted?
CSF raisings can only be undertaken via intermediaries on an internet based platform. Intermediaries are required to hold an Australian Financial Services License and have a number of obligations, including to:
Conduct a prescribed check on the issuer.
Publish a risk warning.
Provide an application facility.
Obtain a risk acknowledgement from general (retail) investors.
Not publish, or continue to publish, an offer document in certain circumstances.
Provide a communications facility.
Provide cooling off rights.
Disclose fees and interests.
Application money for the CSF offer is to be received and held by the intermediary until the offer closes.
A tailored CSF offer document for the offer is required to be published on the intermediary’s platform. The offer can only be conducted via one intermediary and an eligible company cannot have more than one CSF offer open at a time.
How much can be raised?
An eligible CSF company cannot raise more than $5 million in CSF any 12-month period (Issuer Cap). The Issuer Cap is calculated by taking into account:
The maximum subscription amount sought by the company under the current CSF offer.
Amounts raised under other CSF offers within the past 12 months by the company or its related parties.
All amounts raised within the past 12 months from small scale personal offers and certain offers made via an AFSL holder by the company or its related parties.
Funds raised from a CSF offer cannot be used by issuers to any extent for investing in securities or interests in other entities or schemes.
What are the protections for investors?
There are a number of general (retail) investor protections built into the proposed legislation, including:
An investor cap of $10,000 per company via a particular intermediary in any 12 month period.
The requirement for an intermediary to obtain a risk acknowledgement from the investors prior to accepting a CSF application.
Unconditional investor cooling off rights within 5 business days after an offer application is made.
The CSF company, its related parties, the intermediary and its associates are not permitted to financially assist the investor to acquire the CSF securities.
Compliance - Corporate governance concessions
The proposed legislation includes a number of corporate governance compliance concessions for certain CSF companies under the Corporations Act, including:
Waiving the requirement to hold an AGM each financial year and within 18 months of incorporation.
Waiving the requirement to appoint an auditor or have audited financial accounts until more than $1 million has been raised from CSF offers or other fundraising offers requiring disclosure.
Permitting the company to provide financial reports to its members by publishing on its website.
A CSF company is eligible for these corporate governance concessions for a financial year if:
The company is an ‘eligible CSF company’ at the end of the financial year.
The application for the company’s registration stated that the company will be eligible for these concessions on registration and the company intends to make a CSF offer after registration.
The financial year ends within 5 years of the company’s registration i.e. the company has not been registered for longer than 5 years.
The financial year ends later than 12 months after the company’s registration, the company has successfully completed a CSF offer.
Either the financial year is the first financial year that ended after the company’s registration, or the company has been eligible for these corporate governance concessions in relation to every earlier financial year.
Delayed Commencement
Under the proposed legislation, the commencement of the CSF regime may be delayed for up to six months after Royal Ascent is received.
What to do?
Whether you are a start-up wishing to access CSF, a proposed intermediary or a potential investor, Cowell Clarke can assist you prepare for the implementation of the new CSF regime in Australia.
We have start-up kits, investor ready documents and intermediary licensing packages to enable you to cost effectively take advantage of these new developments.
For more information please contact us.
Corporations Amendment (Crowd-sourced Funding) Bill 2015.
Not counting alternate directors.
And all of its related parties (as that term means in relation to CSF under the proposed amendments to the Corporations Act).
As above.
As above.
And its related parties.
Subsection 708(1) of the Corporations Act.
Subsection 708(10) of the Corporations Act.
Financially assist in this context has the same meaning as in section 260A of the Corporations Act.