Crowd-sourced funding for start-ups and SMEs – offering shares to retail investors

From 29 September 2017, public companies may offer ordinary shares to retail investors under the equity-based crowd-sourced funding regime through a licensed CSF intermediary’s platform.

The CSF amendment will allow small to medium-sized businesses and start-ups to raise capital by issuing shares to retail investors without the regulatory burden of traditional fundraising provided that the offer of shares meets the new CSF regulatory requirements.

In order to take advantage of the relaxed regulatory requirements, an eligible CSF company must:

(i) make an eligible CSF Offer

(ii) ensure that the CSF intermediary operating an investment platform to initiate a CSF Offer, holds an AFS Licence with necessary CSF authorisations; and

(iii) issue a CSF Offer document containing prescribed content.

 

Eligible CSF company        

Only a CSF company can make a CSF Offer. An eligible CSF company:

(i)is an unlisted public company limited by shares (and not an investment company);

(ii) does not have consolidated gross assets and annual revenue exceeding $25 million in; and

(iii) has its principal place of business and majority of directors in Australia.

CSF Offer

An offer is eligible to be a CSF Offer if:

(i) it is made by a CSF company

(ii) it is made to retail investors

(iii) it is subject to a condition that each investor may only invest up to $10,000 in the eligible CSF company in any 12-month period

(iv) up to a maximum amount of capital of $5 million is raised in any 12-month period

(v)the CSF Offer Document contains prescribed information when provided to retail investors

(vii) the CSF Offer is published on a platform of a CSF intermediary that holds an AFS Licence specifically authorised to provide crowd sourced funding.

CSF Offer Document

A CSF Offer Document must be issued to all retail investors for each CSF Offer and must set out the following prescribed minimum information:

(i) prescribed risk warnings about CSF

(ii) information about the CSF company including information about directors and senior managers and details of certain convictions or administrative actions against the company and its directors or senior managers

(iii) information about the CSF Offer including the rights associated with the shares on offer, offer period and how the funds raised will be used; and

(iv) information about retail investors rights including five day cooling off period and the effect of the communication facility on the CSF intermediary’s platform.

ASIC guidance

On 21 September 2017, ASIC issued RG 261 for public companies and RG 262 for CSF intermediaries which each explain how a company may be eligible to make a CSF Offer and the associated CSF Offer and disclosure obligations.

Temporary concessions may be available to public companies making a CSF Offer providing relief from some reporting, audit and corporate governance requirements that would otherwise apply to those public companies.

To be eligible for corporate governance exemptions under the new CSF regime, applications must be made by a public company. The new CSF regime is yet to be extended to proprietary companies.

Applications to provide CSF services

From 29 September 2017, ASIC will start to accept applications:

(a) for intermediaries to obtain an AFS Licence with authorisation to provide CSF services after this date; and

(b) to register a new public company to be eligible for the corporate governance exemptions under the CSF regime.

In connection with the introduction of the CSF Regime, ASIC is also proposing a two tiered market licence regime, in respect of which crowd funding operators and over-the-counter derivative operators are likely to be classified as constituting a ‘tier 2’ market.

Meridian is able to assist a public company in making a CSF Offer or a CSF intermediary in obtaining an AFS Licence and to advise on the establishment of a CSF platform for compliance with the new CSF Regime.

If you have any questions relating to issues raised in this article, please contact Michael Bracken, Principal.

This article was published in Financial Services insights, October 2017.


Disclaimer: This information is current as of October 2017. This article does not constitute legal advice and does not give rise to any solicitor/client relationship between Meridian Lawyers and the reader. Professional legal advice should be sought before acting or relying upon the content of this article.

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