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crowdfunding

Equity crowdfunding rules live - September 2017

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.

Keep moving.

The team at Motus Legal
 

Equity crowdfunding - new rules introduced

The Federal Government's recently introduced draft legislation, the Corporations Amendment (Crowd-Sourced Funding For Proprietary Companies) Bill 2017 (Bill), may at last make equity crowdfunding available to private companies.
 
You may recall that the Government already passed equity crowdfunding legislation in March (which is to come into effect this September).  However, a major point of contention in that legislation was the inability of private companies (which make up the vast majority of corporations in Australia) to access the regime.
 
The compliance costs of trading as a public company mean that relatively few private companies will go public in order to raise capital from the crowd under the current regime.  The recently introduced Bill is intended to address this by allowing companies to remain private.
 
If the Bill is passed by the Government, crowd-sourced investors will not be counted towards the fifty-shareholder limit that applies to private companies (although it is not yet clear what happens when these investors transfer their shares).
 
Crowdfunded private companies will also be exempt from takeover provisions under Chapter 6 of the Corporations Act; provided that the company amends its constitution to require a person who acquires more than 40% of the voting shares in the company to offer to purchase all other securities in the company on the same terms within 31 days.  The amended constitution must be lodged with ASIC if a crowdfunded company intends to rely on this exemption.
 
While allowing private companies to access the crowdfunding regime has been broadly welcomed, some commentators are questioning whether the obligations in the new Bill nonetheless require crowdfunded private companies to act as public companies in disguise.
 
The additional obligations that crowdfunded private companies must comply with under the Bill include:
•    having at least two Australian-based directors;
•    lodging annual financial and directors’ reports, which must be audited if the offer is over $1million;
•    complying with certain 'related party' provisions of the Corporations Act; and
•    maintaining a more comprehensive company register.
 
This said, the new Bill has been recognised as an important step towards making equity crowdfunding available to private companies and this is certainly an area to watch.
 
Get in touch with us at Motus Legal to talk more.