The Turnbull Government has introduced a Bill to facilitate the use of crowd-sourced equity funding by Australian small businesses and start-ups.
Through Crowdfunding platforms such as Kickstarter and Pozible people can donate or pledge money to a business or project in exchange for a benefit if the fundraising campaign meets its target.
Until now, these benefits have been mainly limited to products or experiences due to restrictions on companies raising equity from the public.
This is the second time the Turnbull Government has introduced legislation of this nature. The first attempt was rejected by the Senate and was met with wide criticism from business due to its limited access and regulatory burden. The new Bill addresses some of the initial concerns.
The Corporations Amendment (Crowd-sourced Funding) Bill 2016 enables unlisted public companies with less than $25 million in assets and less than $25 million in annual turnover to facilitate crowd sourced equity funding. The previous Bill limited access to companies with less than $5 million in assets.
Eligible companies will be able to raise up to $5 million in any 12-month period through crowdfunding platforms.
Legislation currently limits the scope of equity crowdfunding to wholesale or sophisticated investors who earn at least $250,000 a year or have $2.5 million in assets. The proposed Bill enables retail ‘mum and dad investors’ to invest up to $10,000 per company per year, with a 48-hour cooling-off period.
There have already been calls to increase the $10,000 per company cap and $5 million annual raising cap.
Small companies that become public companies to take advantage of the crowd-sourced equity funding framework will be given a transition period of up to five years during which time they will be eligible for exemptions from certain corporate governance and reporting requirements.
The Bill prohibits private companies from raising funds from the public. This contrasts with crowd funding regulations in the UK and the US which permit private companies to raise funds using crowd-sourced equity funding. Federal Treasurer Scott Morrison indicated in a statement that the government is discussing the possibility of extending crowdsourced equity funding to proprietary companies in 2017.
“The legislation will complement the Turnbull Government’s existing financial sector and innovation policies including: the push for an internationally competitive FinTech industry, new tax incentives for angel investors and start-ups and changes to the tax treatment of crypto currencies,” the statement said.
Crowdfunding platforms will be required to be licenced by the Federal Government, and will be obligated to conduct background checks on companies before they start raising funds.
If passed by Parliament, the new framework will take effect six months from the date the Bill receives royal assent.
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