An important new source of funding for small Australian companies will come into effect on 29 September 2017.
Crowd sourced equity funding enables companies to raise funding by offering to a large number of small investors a share of the company on the basis of small financial investment. Crowd sourced equity funding allows a company to offer equity to the public without be listed on the stock exchange.
Key aspects of the initial crowd sourced equity funding regime commencing 29 September 2017 are as follows:
- Only unlisted public companies may seek crowd sourced equity funding;
- To be eligible the company must have less than $25 million of gross assets and less than $25 million in annual turnover;
- A company can raise a maximum of $5 million via crowd sourced equity funding in any 12 month period;
- An individual investor can invest a maximum of $10,000 per company via crowd sourced equity funding in any 12 month period;
- Crowd sourced equity funding offers must be made via a licensed crowd sourced equity funding intermediary.
The legislation that amends the Corporations Act 2001 to create the crowd sourced equity funding regime has been criticised due to its limited application to small publically listed companies. In response the Federal Government has released draft legislation for public consultation that will extend the crowd sourced equity funding regime to proprietary companies. Such an extension will extend the crowd sourced equity funding option to a substantially greater number of Australian companies. Although it is unclear when the changes will come into affect, they are being progressed as part of the 2017-2018 Federal Government Budget.
As investors arguably have less protection under a crowd sourced equity funding regime than they do when currently investing in shares listed on the stock exchange, a key aspect of the Governments consultation process will be the consideration of investor protection requirements for proprietary company crowd sourced equity funding.
What does this mean?
Crowd sourced equity funding has the potential to significantly change the way small companies are funded in the future. It will be available to small Australian public companies from 29 September 2017, and is likely to be extended to proprietary companies in 2018-2019.