Australia looks to unlock crowdfunding
The Australian government is looking to make it easier for startups to obtain crowd-sourced funding by easing up regulation on who can invest in new companies.
Finance Minister Mathias Cormann and Minister for Small Business Bruce Billson on Monday released a discussion paper aimed at developing a framework to reduce the government regulation for crowd-sourced funding.
"We are keen to ensure that any crowd-sourced equity funding model appropriately balances supporting investment, reducing compliance costs (including for small business), and maintaining an appropriate level of investor protection," the ministers said.
"Small business and entrepreneurs are a crucial driver of productivity and economic growth."
The paper (PDF) states that there is a need for change, because there are barriers to crowdfunding today.
"Under current legislation, none of the platforms are able to make its services available to all investors. Instead, they offer their services either only to wholesale investors via a managed investment scheme, or utilise the small-scale personal offer exemption and an ASIC class order that provides relief from regulatory agreements," the paper states.
"While these mechanisms may be suitable for some companies and investors, they do not comprehensively address the barriers to crowd-sourced equity funding in Australia, and, in particular, do not allow offers to be made to the 'crowd'."
The paper outlines three potential options for crowdfunding in Australia.
The first would allow startups seeking crowdfunding to be classified as an "exempt public company" that would not have to meet compliance requirements on reporting, disclosure, and annual meetings for public companies for the first three to five years, unless certain financial thresholds are exceeded.
The company could raise no more than AU$2 million per year, and investors would only be able to invest AU$2,500 in one company in a 12-month period, and AU$10,000 in total for all companies per year.
The paper admits that this new category of public company may make it more difficult for startups to understand their obligations, and that there might be an incentive for companies to structure themselves to become exempt public companies to avoid costs for compliance.
To avoid this, the paper suggests that only companies with simple structures and a cap of AU$10 million be allowed to seek crowdfunding, and the companies would only retain exemption if they had a turnover of AU$5 million or less per year.
The second option would be modelled on the New Zealand crowdfunding model implemented in April this year. This model is similar to the first option, but includes minimum disclosure requirements, and the caps on investment would be voluntary, outside of the AU$2 million cap for the startups.
The paper again states that some larger companies may also use this option to make public equity offers for crowdfunding in order to avoid the associated disclosure requirements under standard public equity offers.
The third option would be to retain the status quo.
The government is accepting submissions on the paper until February 6, 2015. Should there be legislation developed as a result of the consultation, the government said it plans to release a draft of the legislation for further consultation.