Changes to the Crowd Source Funding Legislation – what do they mean for you?

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.

5.     Takeovers

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

For a confidential chat, contact us today: raise@venturecrowd.com.au

 

 

*VentureCrowd, past performance is not a reliable indicator of future performance. Return figures represent gross returns on invested capital on exit.

The information presented is of a general nature only and has not taken into account any individual’s objectives, financial situation or needs. You should seek independent advice before committing yourself to a CSF investment or other financial products.

Crowd‑sourced funding is risky. Issuers using this facility include new or rapidly growing ventures. Investment in these types of ventures is speculative and carries high risks. You may lose your entire investment, and you should be in a position to bear this risk without undue hardship. Even if the company is successful, the value of your investment and any return on the investment could be reduced if the company issues more shares. Your investment is unlikely to be liquid. This means you are unlikely to be able to sell your investment quickly or at all if you need the money or decide that this investment is not right for you. Even though you have remedies for misleading statements in the offer document or misconduct by the company, you may have difficulty recovering your money. There are rules for handling your money. However, if your money is handled inappropriately or the person operating the platform on which this offer is published becomes insolvent, you may have difficulty recovering your money. Ask questions, read all information given carefully, and seek independent financial advice before committing yourself to any investment.