David Tink and Dillon Fuzi outline the key features of the new crowd sourced equity funding legislation.
On 22 March 2017, the Corporations Amendment (Crowd-sourced Funding) Bill 2016 (Bill) was passed by both Houses of Parliament. The measures of the Bill will allow eligible unlisted public companies to raise up to $5 million from investors each year through the use of Crowd-Sourced Equity Funding (CSEF).
CSEF is a funding method which allows eligible companies to source small amounts of funds from a large number of different investors through intermediaries who operate a platform for the facilitation of CSEF offers to investors.
The key features of the Bill are set out below.
In order to satisfy the requirement of being an eligible CSEF Company, a company must be an unlisted public company limited by shares, have its principal place of business in Australia, have a majority of the company’s directors ordinarily residing in Australia, not have a substantial purpose of investing in securities or schemes and must have consolidated gross assets and consolidated annual revenue of less than $25 million.
Intermediaries operate platforms, which facilitate CSEF investments. Under the CSEF regime, Intermediaries will be required to hold an Australian Financial Services License and may in some situations also be required to obtain an Australian Market License. Intermediaries have a number of roles under the CSEF regime, including the publication of offer documentation, the provision of communication and application facilities, the provision of gatekeeper services and ensuring systems are in place for investor protection.
In order to be eligible, a CSEF offer must satisfy the following conditions:
While the Bill removes some of the existing regulatory barriers to fundraising, there are a number of protective measures contained in the Bill for the benefit of CSEF investors. These include limiting investment by introducing a $10,000 cap on the amount any CSEF investor can invest in the entity, providing mandatory and unconditional cooling-off rights within 5 days of making CSEF investments, requiring intermediaries to provide risk warnings and to obtain risk acknowledgments from investors before accepting offers and restricting companies from providing financial assistance to CSEF investors.
Following the passage of the Bill through Parliament, Australia’s CSEF framework will take effect on a date to be fixed by proclamation following the Bill obtaining the Royal Assent from the Governor General.