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.