The Australian government has issued a consultation paper that outlines its draft crowdsourced equity funding (CSEF) legislative framework for public companies.
The consultation paper (PDF) titled Facilitating crowd-sourced equity funding and reducing compliance costs for small businesses discusses extending the framework to include proprietary companies in its forthcoming legislation.
"A strong theme in the stakeholder feedback from the earlier CSEF consultation process was a preference for proprietary companies to be able to use CSEF," the consultation paper states.
"This was on the basis that many companies that might otherwise consider using CSEF would wish to retain their proprietary company status, including to benefit from the lower compliance costs and to maintain flexibility for future funding rounds, such as from angel or venture capital investors.
"The Government is open to considering allowing proprietary companies to access CSEF but wishes to gain the views of a wider range of stakeholders to understand the potential regulatory implications."
The report discusses particular issues that would arise in any crowdfunding model for proprietary companies, such as the Australian Securities and Investments Commission (ASIC) controlled rule of a company having no more than 50 non-employee shareholders.
"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 ASIC can direct the company to convert to a public company. Non-compliance with ASIC's direction is an offence," the paper said.
"Converting to a public company imposes significant additional governance, reporting and disclosure requirements such as the need to prepare audited financial statements."
The paper said that raising the shareholder limit would enable proprietary companies to raise funds from a larger base. However, without additional changes to the law, the types of investors that a proprietary company can raise funds from would remain limited by the requirements to issue disclosure documents.
"Consequently, a question arises as to whether the complexity of enabling proprietary companies using CSEF to access a temporary increase in the shareholder limit would outweigh the benefits," it said.
Under the draft crowdfunding framework, public companies would be able to raise of up to $5 million in any 12-month period.
The CSEF 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.
The consultation paper will be open for public comment for four weeks, with submissions due by Monday, 31 August 2015.