Legislation allowing public companies to raise equity-based funds from the crowd is set to commence on 29 September 2017. Under these new rules, compliant public companies will be able to raise capital from a large number of investors, each making a relatively small investment in exchange for shares in the company.
To be eligible, the public company must:
• Be an unlisted public company limited by shares;
• Have consolidated gross assets of less than $25 million (including any of the company’s related parties);
• Have consolidated annual revenue of less than $25 million (including any of the company’s related parties);
• Have its principal place of business and majority of directors ordinarily residing in Australia;
• Not have a substantial purpose of investing in security interests in other entities or in managed investment schemes.
Currently, only fully paid ordinary shares may be offered under the regime, and the maximum that may be raised in any rolling 12-month period is $5 million. Investors will be limited to investing up to $10,000 annually per company.
While the new laws commencing in September relate only to public companies, the rules do allow some lee-way to private companies wishing to convert to a public company in order to access to equity crowdfunding regime.
Private companies are eligible to receive temporary reporting and corporate governance concessions for five years if the private company:
• converts to a public company after 29 September 2017; and
• completes an equity crowdfunding capital raise within 12 months.
If the concessions apply, then the converted company will be granted temporary relief from requirements relating to Annual General Meetings, appointing and auditing financial reports, and distributing annual reports to shareholders.
This said, and as we have discussed in previous posts, the Federal Government is currently considering extending the equity crowdfunding regime to private companies (subject to numerous compliance requirements). Some commentators are suggesting that private companies wishing to obtain equity-based crowdfunding may be well advised to hold-off on converting to a public company until these new laws are either enacted or taken off the table. Watch this space.
At Motus Legal, we have helped many of our clients successfully undertake capital raising to fund their enterprises. Get in touch with us if you are considering making use of the new equity crowdfunding regime for your own business.
The team at Motus Legal