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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.
 

Blockchain and Smart Contracts

Last year saw some major developments in blockchain technology. If these trends continue throughout 2017 and beyond, many commentators predict that blockchain technologies will revolutionise business in all sectors and industries.
So – what are these?  At a fundamental level, blockchain technologies provide a means of permanently recording transactions on a tamper-proof digital ledger that is available to the world.
Each “block”, which contains data about a transaction or transactions, must be verified by multiple “nodes” before the block is included on the blockchain ledger. This distributed verification process is intended to make blockchains highly resistant to unauthorised attempts to manipulate the blockchain ledger (such as by trying to process an artificial block with false transaction data). 
For this reason, blockchain technology is often touted by supporters as perhaps the most significant advancement for the Internet since the World Wide Web.   Big call, we know.
Advocates claim that blockchains provide a transparent and secure means for making transactions without requiring a central authority or trusted third party. This apparent ability of blockchains to provide the “trust” required in a transaction has led to predictions that the technology will completely overhaul the way information and assets are stored, tracked and traded across all industries.
Some businesses seem to have recognised this potentially new ground for experimentation and have begun to explore the opportunities. One exciting area is the emergence of “smart contracts” in commercial relationships.
In simple terms, unlike traditional contractual agreements, smart contracts are written in source code and recorded on a blockchain. When a given event occurs (e.g. X transfers money to Y), the smart contract automatically executes and processes the transaction on the blockchain ledger (e.g. title to Y’s shares and other given assets are transferred to X).
In this way, the smart contract is automatically enforced without either party having to trust that the other party will perform their obligations (or having to rely on a central authority or escrow).
That said, it is still now sure how these blockchains (at least for now) can completely replace traditional contractual agreements.  That is because commercial agreements are far broader in scope than the simple processing of transactions, and are carefully drafted to address many more aspects and uncertainties inherent in commercial dealings.
We have a lot of clients in the technology space, and we love talking to them about how technology will affect not only businesses in general, but the ‘business’ of law.

Watch this space and get in touch with us to talk more.
 

The team at Motus Legal