There is exciting news for companies wishing to raise funds via crowdfunding. New legislation passed on 12 September 2018 will now extend crowd sourced funding (CSF) opportunities to proprietary companies, which are one of the most common company structures in Australia.
Traditionally, a company wishing to raise funds via retail CSF had to be structured as a public company (unlisted).
The new legislation allows private companies to not count CSF investors towards the 50-shareholder cap. The exemption will travel with the shares, allowing investors to realise their investment without compromising the structure of the company.
The exemption is not without restrictions, there are additional governance and reporting obligations designed to protect investors and to reflect the broadening of the company’s shareholder base.
These have been updated as follows:
1. Minimum number of directors
A private company must have at least two directors, rather than the usual one, before it can engage in a CSF.
2. Additional reporting obligations
A private company making CSF offers must include additional information in its company register, including the date of each issue of shares as part of a CSF offer, the number of such shares issued and the date on which a shareholder ceases to be a CSF shareholder.
ASIC must also be notified when a private company starts and/or ceases to have CSF shareholders
3. Additional financial reporting obligations
To ensure financial transparency for current and potential CSF investors, a private company engaged in CSF must prepare annual financial and directors’ reports.
Companies that raise in excess of $3 million from CSF must also have their annual financial reports audited.
4. Restrictions on related party transactions
Existing restrictions on related party transactions will be extended to private companies engaged in CSF, to protect public investors against potential fraud and/or transactional bias.
A private company that has CSF shareholders will be exempt from takeover rules in Chapter 6 of the Corporations Act, but noting that additional conditions may be imposed by regulation if required to protect investors.
Raising funds via VentureCrowd
If you are thinking about raising capital for your startup, business or property development project, the team at VentureCrowd have the knowledge, experience and proven track-record to help you.
Since its inception, VentureCrowd has*:
- $23 million raised
- 45 deals funded, across startups, property development and credit, including deals based in Singapore, the US & Israel
- Australia’s first crowd-funded startup exit, generating a gross return of 107% for first round investors
- Australia’s first crowdfunded property development exit, generating gross return of 96% for first round investors
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