The Australian government on Thursday released its Corporations Amendment Crowd-sourced Funding Act legislation that details how non-listed public companies, including startups, can access crowdsourced equity funding from external investors.
The Bill [PDF] sets out amendments to the Corporations Act 2001, with consequential amendments to the Australian Securities and Investments Commission Act 2001 to facilitate crowdsourced equity funding in Australia.
In presenting the amendment Bill to parliament on Thursday, Assistant Minister to the Treasurer Alex Hawke said that crowdsourced equity funding was a relatively new and innovative concept, with the online platforms on which such transactions occur far ahead of the original act from 2001.
The crowdsourced funding legislation will now allow eligible unlisted public companies to raise up to AU$5 million in funds in a 12-month period from retail investors. Companies will be required to meet turnover and assets tests, however.
To be registered or remain registered as a proprietary company, a company must have no more than 50 non-employee shareholders. If a company breaches this requirement the Australian Securities and Investments Commission (ASIC) can direct the company to convert to a public company.
Recognising that converting to a public company imposes additional governance, reporting, and disclosure requirements, such as the need to prepare audited financial statements, Hawke said under the new legislation, the government is providing converted companies with a "holiday" whereby a newly publicly registered company has a five-year exemption from standard rules so that they can access crowdsourced funds.
The catch, however, is that within 12 months of registering as a public, non-ASX company, the business must have completed a crowdsourced funding round of less than AU$1 million.
There is also a retail investor cap of AU$10,000 per issuer, per 12-month period.
Under the legislation, crowdsourced equity funding intermediaries such as Australian online crowdfunding platform VentureCrowd will be required to hold an Australian financial services licence that expressly authorises the licensee to provide a crowd funding service.
Hawke said that in 2014, the Corporations and Markets Advisory Committee (CAMAC) completed a review into the crowdsourced equity funding and found the previous form of fundraising was costly and impractical for businesses, which was blamed largely on the regulatory impediments in the corporations act which Hawke said imposed an excessive compliance cost for startups and other small businesses.
The assistant minister said the amendments published on Thursday took CAMAC's findings on board and addressed the regulatory barriers the committee identified.
"The framework the government is introducing will enable public companies that are issuing equity through crowdsourcing to do so with reduced disclosure than what is required under a full public equity fundraising," Hawke said. "It provides for newly registered public companies that meet the assets and turnovers test concessions from some corporate governance and reporting obligations."
In August, the government issued a consultation paper that outlined the draft crowdsourcing legislative framework and discussed the issues that would arise in any crowdfunding model for proprietary companies, and the potential democratisation of the venture capital model.
Hawke said the 50-plus public comment submissions that were received from the consultation paper, as well as those from previous consultation papers, were used in conjunction with CAMAC's findings to form the government's framework amendment.
Hawke said the amendment also took into consideration its counterpart in New Zealand, with crowdfunding legislation implemented in the country since 2014, which the Australian government highlighted previously as a model to follow.
In preparing the legislation, however, the Turnbull government opted for a hybrid of the two, Hawke said.
The crowdsourced equity funding initiative was originally announced as part of the federal government's 2015-16 budget. Over the next four years, ASIC will receive AU$7.8 million to implement and monitor a regulatory framework to facilitate the use of crowdfunding.