Relief for crowd-sourced equity funding for start-ups

Small businesses and start-ups seeking to raise funds through crowd-sourced funding (CSF’) from a large number of retail investors may be able to take advantage of exemptions from the licensing and disclosure burdens associated with the public fundraising regime under the Corporations Act.

Under the Corporations Amendment (Crowd-sourced Funding) Act 2017 (‘CSF Amendments’), passed on 22 March 2017, funding methods previously only available to source wholesale investors in Australia will be extended to a company that makes a CSF offer of shares via an eligible intermediary to a crowd of retail investors (such as venture capital funds) without the need to issue a prescribed disclosure document.

The new regulatory relief

Under the new CSF Amendments, a CSF offer is exempt from prescribed disclosure requirements if:

  • it is made by an ‘Eligible CSF Company’ that:

(i)    is an unlisted public company limited by shares;

(ii)   has its principal place of business in Australia;

(iii)  has an annual turnover or gross assets of up to $25 million;

(iv)   is an intermediary that holds an AFS Licence authorising it to provide crowd-sourced equity funding;

and

  • the CSF offer:

(i)     is capped to only raise $5 million through crowd-sourced equity funding per year; and

(ii)    limits an investment by a retail investor to $10,000 per fund per year.

An Eligible CSF Company may also benefit from concessions affecting certain corporate governance and reporting requirements.

Authorisation as a Crowd-Sourced Funding intermediary

To benefit from the new legislative exemptions available to an Eligible CSF Company, you must obtain an AFS licence with specific CSF authorisations and set up the crowd funding platform, which comply with the CSF Amendments.

From 28 September 2017, AFS licence applications can be submitted to ASIC to apply for appropriate licence authorisation to provide CSF services from this date.

To be eligible for certain corporate governance exemptions under the new CSF regime, applications must be made by a public company and may involve converting an existing proprietary company to operate as a public company.

If you require assistance in obtaining an appropriate AFS licence for CSF or if you have specific questions regarding the establishment of a crowd funding platform, which complies with the CSF Amendments, please do not hesitate to contact the financial services specialist team at Meridian: Michael Bracken, Principal or Levina Chim, Senior Associate.

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