The Australian ‘equity based’ crowd-sourced-funding (CSF) regime will come into effect by the end of September 2017. It introduces a new funding regime for small companies who have largely been restricted to the ‘kiddie pool’.
Welcome to the big pool
Eligible companies will be able to raise up to $5 million annually from the public by making offers of securities using platforms run by CSF-intermediaries. Investors will be limited to investing $10,000 in any one company annually and will have the benefit of a 5 day cooling off period to withdraw their application under a CSF offer.
Slow down – you’re going to need your floaties!
To be eligible to undertake a CSF offer, the company must be a public company limited by shares, and must have consolidated gross assets and consolidated annual revenue less than $25 million.
Being a public company means (amongst other things) that:
- the company will need to have at least 3 directors;
- there are stricter rules in relation to material personal interests of directors and giving financial benefits to related parties; and
- there are additional corporate governance requirements, including the requirement to produce a directors’ report and financial report each year.
But the news isn’t all bad; newly created public companies (including those that convert from a proprietary company after the regime commences) will not be required to hold an annual general meeting for five years and will only have to audit its annual financial report prior to this time if it has raised more than $1 million from CSF offers.
In order to undertake a CSF offer, eligible companies must prepare an offer document containing prescribed information. Sanctions will apply if the offer document contains misleading or deceptive statements or omits any prescribed information.
Bring in the lifeguards
CSF intermediaries have been labelled the ‘gatekeepers’ of the regime and must conduct certain checks on the eligible company and its directors before publishing the CSF offer. They must ensure that prescribed risk warnings are prominently displayed on their platform and deal with all application money. Only Australian financial services licensees whose licence expressly authorises the licensee to provide a crowd funding service will be able to be a CSF intermediary.
The new regime has received a fair amount of criticism; primarily because it is not available to proprietary companies. However, the ability to raise capital from the public should never be unrestricted. Only time will tell whether the regime is fully embraced.