The proposed Corporations Amendment (Crowd-Sourced Funding) Bill has been described by the Australian Labor Party as "cosmetic" and "continuing to lock out startups and small businesses", according to a report by the Senate Economics Legislation Committee (ELC).
The proposed amendments have been met with mixed reactions from stakeholders, with many criticising the proposed bill for prohibiting privately-held companies from offering shares to the public via equity crowdfunding. Dr Marina Nehme, senior lecturer at UNSW Faculty of Law, noted that this excludes "over 99.7 percent of companies" in Australia.
"Such a reality defeats the purpose for introducing legislation to facilitate CSF as only a very small minority of companies will be able to raise funds through this mode of finance," she said, according the ELC report.
Under the proposed bill, publicly-held companies are able to raise up to AU$5 million in any 12-month period through local equity crowdfunding platforms such as Equitise and VentureCrowd.
Startups and small businesses that decide to become public companies to take advantage of the new crowdsourced equity funding framework will be granted an exemption from certain corporate governance and reporting obligations for up to five years.
However, many stakeholders consider this to be inadequate, with Labor senators also calling it "self-defeating".
"The failure to review alternate small business friendly models after this length of time is inexplicable," said angel investment group TMeffect, according to the ELC report.
In November, Treasurer Scott Morrison indicated in a statement that the government is discussing the possibility of extending crowdsourced equity funding in 2017 to proprietary companies; however, the incomplete nature of the current proposal poses a problem for startups and small businesses looking to access alternative fundraising opportunities.
According to the 2016 Startup Muster report, 72 percent of Australian startups need funding to continue to operate. 51 percent of startups indicated they would be able to last 12 months or less before they need additional funds, while 22.1 percent indicated they require it now but limited skills and lack of suitable funding options are proving to be hindrances.
Sunny Yu, COO of VentureCrowd, told ZDNet that the public company requirement is "unnecessary and creates significant burden and uncertainty for startup businesses" who could benefit from the equity crowdfunding model.
"The government itself has acknowledged the need to extend the regime to proprietary companies, which make up 99 percent of all registered companies in Australia, but we don't know how long this is going to take and until that happens it is just going to create further uncertainty for businesses," Yu said.
Nehme identified a number of challenges to 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.
She also cautioned that extending crowdsourced equity funding to private companies might actually lead to their death.
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," she said according to the ELC report.
Yu suggested that the the crowdfunding 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 said.
"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."
The new crowdsourced equity funding framework will come into effect six months from the date the Bill receives royal assent.