Recent Federal Government measures have made it easier for start-ups and small businesses to raise capital through Crowd Sourced Equity Funding (“CSEF”). CSEF platforms such as Indigogo and Kickstarter, allow investors to make small financial ‘investments’ in emerging companies in exchange for equity in the business.
Are you eligible for CSEF?
From 27 September 2017, unlisted public companies with less than $25 million in assets and annual turnover can use CSEF to raise capital. Small companies that become public companies in order to access CSEF will be provided concessions from onerous reporting requirements and corporate governance usually required from public companies for up to five years.
Private companies and large public companies remain ineligible for CSEF, yet there is hope for proprietary companies.
What is the catch?
Eligible companies may only raise up to $5 million in any 12-month period. Retail or ‘mum and dad’ investors are restricted to an investment cap of $10,000 per company, per 12 month period. Investors also have access to a five-day cooling-off period to reconsider their funding, after making a commitment.
Companies interested in engaging in CSEF must do so through licensed crowd-funding platforms. Those platforms will be required to play a gatekeeping and oversight role including: providing checks on companies wanting to list themselves on the platform, providing warnings to investors and providing communication facilities. Intermediaries can also operate under a preferred fee structure and invest in business opportunities using their platform. These investments however, must be disclosed.
Are proprietary companies left out?
The Federal Government has recently released draft legislation to extend CSEF to proprietary companies. It is estimated proprietary companies will be able to access CSEF from around March 2018. Key provisions of the draft bill include:
- A proprietary company must have a minimum of two directors (a majority of whom must live in Australia) to access CSEF;
- CSEF investors will not be counted as part of the shareholder cap of 50 non-employee shareholders for classification as a proprietary company; and
- Proprietary companies undertaking CSEF will have additional regulatory burdens including: additional company reporting requirements with ASIC, the preparation of annual financial statements and director’s reports, and companies with CSEF investments exceeding $1 million will be required to have their annual financial reports audited.
CSEF provides considerable opportunities to build businesses quickly and reach a new generation of investors. If you want to discuss potential CSEF opportunities for your business, contact BAL Lawyers.