ASIC publishes proposed crowdsourced funding regime guidance
The Australian Securities and Investments Commission (ASIC) has released two consultation papers proposing guidance for public companies and crowdfunding platform operators on how to comply with the new crowdsourced funding (CSF) regime coming into effect on September 29, 2017.
Under the Corporations Amendment (Crowd-sourced Funding) Act 2017, unlisted public companies with less than AU$25 million in assets and annual revenue can make offers of ordinary shares to retail investors through an intermediary's platform using a CSF offer document containing a reduced level of disclosure compared to a prospectus.
The aim of the minimum information requirements is to facilitate "simple and concise disclosure" through a "low-cost and efficient" process, according to ASIC's proposed guide.
ASIC has suggested that the CSF offer documents, to be published on the intermediary's platform, contain information in five key areas: The nature of the company's business, including its business model and strategy; the main risks facing the company's business; the capital structure of the company; the financial information of the company; and the use of funds raised under the CSF offer.
Eligible companies can raise up to AU$5 million in any 12-month period under the new CSF regime.
Additionally, small businesses that decide to become public companies to take advantage of the new crowdsourced funding regime will be granted an exemption from certain corporate governance and reporting obligations for up to five years. Newly public companies will not have to hold an annual general meeting, have their financial reports audited, or distribute electronic or hard copies of their annual reports to shareholders.
The proposed guide for intermediaries states that crowdfunding platform operators must hold an Australian Financial Services (AFS) licence with an authorisation to provide a crowdfunding service. A tailored licence will be created for CSF intermediaries.
Additionally, CSF intermediaries are required to play a "gatekeeper role" to ensure investors are only offered investments in public companies that are eligible to raise funds and are seeking to do so "for legitimate purposes".
In order to sustain investor confidence, intermediaries must ensure that prescribed checks are carried out regarding the identity of the offering company and its eligibility under the new CSF regime, as well as information on the company's directors; important information such as the prescribed general risk warning is published prominently and easily accessible on the crowdfunding platform; and the CSF offer is closed or suspended when appropriate, such as when the offer is fully subscribed.
The proposed guide for intermediaries also states that a communication facility be available for investors to communicate in relation to the CSF offer and make inquiries of the offering company and the CSF intermediary, and that they deal with client money in accordance with the Corporations Act.
The CSF regime additionally contains investor protection measures designed to help promote investor trust and confidence when considering investing in CSF offers. Where previous legislation limited the scope of equity crowdfunding to wholesale or sophisticated investors who earn at least AU$250,000 a year or have AU$2.5 million in assets, under the new CSF regime, retail investors will be able invest up to AU$10,000 per company per year once they have completed a risk acknowledgement, and will have a five-day cooling-off period.
The proposed guidance states that the CSF intermediary is responsible for administering these protection measures.
ASIC also proposed that all CSF intermediaries provide information to ASIC annually about their activities.
The guides for public companies and crowdfunding platforms are not conclusive, with ASIC inviting feedback to be submitted by August 3, 2017.
Following criticism from the public and the Australian Labor Party, the government commenced consultation on May 9 to extend the CSF regime to proprietary companies, improving access to finance for startups and small businesses.
Dr Marina Nehme, senior lecturer at UNSW Faculty of Law, previously noted that making the CSF regime accessible only to public companies excludes "over 99.7 percent of companies" in Australia.
She also identified a number of challenges associated with extending the equity crowdfunding regime to proprietary companies, one being that shareholders might find it difficult to sell their shares as it may require not only finding a buyer, but also getting the board of directors' approval.
Nemhe and CPA Australia proposed a new form of company be established that is subject to a different set of rules.
"Designing such a company form will ensure Australia does not fall behind the rest of the world, and will promote a different type of entrepreneurship. The foundation of such a company can be found to a certain extent in the proposed exempt company put forward by the Bill," Nemhe said, according to a report by the Senate Economics Legislation Committee.
Sunny Yu, COO of crowdfunding platform VentureCrowd, suggested that the CSF regime be broadened to encompass other types of securities beyond ordinary shares, and to contemplate other forms of crowdfunding such as aggregation through managed investment schemes.
"We believe has significant benefits over the proposed regime. VentureCrowd has successfully crowdfunded AU$20 million to date using this model," Yu told ZDNet in February.
"While it's positive to finally see some movement on these laws with the Senate Committee's report and recommendation, we need to be careful that the right approach is being taken and that the laws are effective to help startup businesses and achieve its objective of ultimately unlocking productivity and innovation in Australia."