New Australian Equity Crowdfunding Bill
After a false start in December 2016, the Corporations Amendment (Crowd-Sourced Funding) Bill 2016 has been re-introduced to the Australian Parliament by Scott Morrison MP and passed through the House of Representatives. Currently, there is no specific legislation addressing crowdfunding in Australia. The bill legalises and regulates equity crowdfunding, providing opportunities for the financing of innovative business ideas and retail investors.
What is crowdfunding?
Broadly, crowdfunding describes the process of fundraising from a large number of people, usually using the Internet. There are four main types of crowdfunding:
- Reward-based crowdfunding – This involves individuals making contributions to a cause, product or business. Often, people will receive rewards (e.g. copy of the published book, tickets to an event) for different donation amounts.
- Donation-based crowdfunding – This involves contributions being made to a charity or charitable cause.
- Lending-based crowdfunding – Individuals lend money, and are repaid for their contributions.
- Equity crowdfunding – This involves investors contributing an amount to receive a stake in the company. This form of crowdfunding is not currently legal in Australia, but is the subject of the proposed bill.
Often, crowdfunding will be facilitated by websites such as Indiegogo, Kickstarter and GoFundMe.
The Proposed Legislation
The new bill would provide regulatory relief from some reporting and corporate governance requirements that could hamper the equity crowdfunding process. According to Assistant Treasurer Kelly O’Dwyer, the intent of the bill is to “assist start-ups and other small businesses that may have difficulty accessing equity funding due to the costs of disclosure and other requirements, while protecting mum and dad investors.” The government is supporting this legislation in an attempt to provide greater access to capital for small businesses. The bill also provides opportunities for retail investors.
Some of the details of the proposed legislation are as follows:
- Initially, only fully paid ordinary shares would be applicable for crowdfunding.
- A company may raise up to $5 million in any 12 month period.
- The offer can be advertised and promoted, in accordance with the prescribed rules.
- Intermediaries must hold an Australian Financial Services Licence (and possibly an Australian Market License).
- Unlisted public companies with less than $25 million in assets in turnover will be able to raise capital via crowdfunding.
- Companies accessing crowdfunding will need to become unlisted public companies to be eligible for the bill’s concessions for a five year period. These concessions include ‘holidays’ from continuous disclosure, holding annual general meetings, auditing accounts and providing paper annual reports.
- The current draft legislation makes it difficult for proprietary limited companies to engage in crowdfunding. The government has promised to include proprietary companies in future amendments to the legislation.
- Retail investors will have an investment cap of $10,000 per company over a 12 month period.
As the Senate was delayed on 16 February 2016, the bill cannot be debated until Parliament returns on 20 March. As noted in the Australian Financial Review, it is highly likely that the bill will pass through the Senate.