Australia has one of the highest rates of new entrepreneurial businesses in the world, however unlike the UK, Canada, US and New Zealand, it does not have laws in place that easily allows these new companies to raise equity through direct ‘crowd’ funding.
What are Australian companies barriers for Crowdsourced Funding?
Currently, Australian companies are faced with the following barriers to use of crowdsourced funding:
- for proprietary companies – a shareholder cap of 50 non-employee shareholders and, except for in limited circumstances, a prohibition on public offers of equity; and
- for public companies – high compliance requirements and fundraising disclosure requirements that are cost prohibitive to smaller operations.
In the wake of a recent report by the Corporations and Markets Advisory Committee (CAMAC) and the comments of Small Business Minister Kelly O’Dwyer, it is expected that a bill will be introduced to parliament to overhaul Australian law with respect to crowd funding.
The new legislation has not yet been introduced to parliament, or released to the public, but it is expected the reforms will include:
- Public companies with $5 million or less of assets or turnover will be able to raise up to $5 million of crowdsourced equity funding in any year.
- Investors will be granted a five day cooling off period on their investment.
If the new legislation requires participants to establish a public company which must comply with the existing regulatory environment, the proposal is unlikely to be of any use to start ups and small business unless they are seeking to raise in excess of $10 million. This is due to the costs associated with operating a public company.
The legislation is expected to be put before Parliament next month.