Australia has one of the highest rates of new entrepreneurial businesses in the world, however unlike the UK, Canada, US and New Zealand, it does not have laws in place that easily allows these new companies to raise equity through direct ‘crowd’ funding.
What are Australian companies barriers for Crowdsourced Funding?
Currently, Australian companies are faced with the following barriers to use of crowdsourced funding:
- for proprietary companies – a shareholder cap of 50 non-employee shareholders and, except for in limited circumstances, a prohibition on public offers of equity; and
- for public companies – high compliance requirements and fundraising disclosure requirements that are cost prohibitive to smaller operations.
In the wake of a recent report by the Corporations and Markets Advisory Committee (CAMAC) and the comments of Small Business Minister Kelly O’Dwyer, it is expected that a bill will be introduced to parliament to overhaul Australian law with respect to crowd funding.
The new legislation has not yet been introduced to parliament, or released to the public, but it is expected the reforms will include:
- Public companies with $5 million or less of assets or turnover will be able to raise up to $5 million of crowdsourced equity funding in any year.
- Investors will be granted a five day cooling off period on their investment.
If the new legislation requires participants to establish a public company which must comply with the existing regulatory environment, the proposal is unlikely to be of any use to start ups and small business unless they are seeking to raise in excess of $10 million. This is due to the costs associated with operating a public company.
The legislation is expected to be put before Parliament next month.
If you have any questions regarding crowdsourced funding or any capital raising issues, please contact our team today. Our team will be happy to assist you with any questions.
The information provided in this article is for general information and educative purposes in summary form on legal topics which is current at the time it is published. The content does not constitute legal advice or recommendations and should not be relied upon as such. Whilst every care has been taken in the preparation of this article, FC Lawyers cannot accept responsibility for any errors, including those caused by negligence, in the material. We make no representations, statements or warranties about the accuracy or completeness of the information and you should not rely on it. You are advised to make your own independent inquiries regarding the accuracy of any information provided on this website. FC Lawyers does not guarantee, and accepts no legal responsibility whatsoever arising from or in connection to the accuracy, reliability, currency, correctness or completeness of any material contained in this article. Links to third party websites or articles does not constitute any endorsement or approval of those sites or the owners of those sites. Nothing in this article should be construed as granting any licence or right for you to use that content. You should consult the third party’s terms and conditions of use in relation to any third-party content. FC Lawyers disclaims all responsibility and all liability (including liability for negligence) for all expenses, losses, damages and costs you might incur as a result of the information being inaccurate or incomplete in any way. Appropriate legal advice should always be obtained in actual situations.