New proposed legislation will open up innovative funding options for proprietary companies.
On 14 September 2017, Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017 was introduced into Parliament extending the recently legislated new Crowd-Sourced Equity Funding (CSEF) regime to proprietary companies. The Government has already passed CSEF legislation for public companies commencing 29 September 2017, which is expected to deliver exciting opportunities for investors and businesses seeking alternative sources to raise capital. The amendments, if passed, will allow CSEF to be used by thousands of additional Australian businesses each year.
Crowd-Sourced Funding – What is it?
Perhaps best known through digital platforms such as Kickstarter and Indiegogo, the use of crowd-sourced funding has grown rapidly in recent years. Often enabled via the internet, it allows individuals to invest directly in businesses, ideas and products they feel have merit. Put simply, when they see something they like, they can back it financially – often in a matter of minutes.
Opening the CSEF opportunity to more businesses
Historically, online platforms have seen investors incentivised with the offer of receiving goods or services. In Australia, as a result of amendments first announced in the 2017 Budget, investors have also only recently been able to receive an equity stake in a business through CSEF platforms since 29 September 2017. However, the CSEF regime is currently restricted to only unlisted public companies. This situation ruled out around of 99% of Australian businesses.
What are the changes?
The proposed legislation will amend the Corporations Act 2001 to extend the CSEF regime to proprietary companies that meet certain eligibility requirements. If passed into law, the proposed changes essentially mean that ASIC-licensed CSEF platforms will be able to advertise offers directly from private proprietary companies – rather than these companies having to convert to a more rigid public company entity structure. This will significantly improve access to finance for start-ups and innovative SMEs. It also gives Australian investors the opportunity to invest in a much wider range of businesses. The amendments will take effect the day after the end of the period of six months after Royal Assent. At the date of writing, the Bill is currently before the House of Representatives.
What are your responsibilities?
Used and promoted effectively, a CSEF strategy can be a highly innovative addition to your capital raising efforts. But while CSEF will become more accessible than ever before if the Bill is passed into law, it is important to note private companies still need to satisfy a number of obligations under the CSEF regime. These obligations are designed to protect investors and include compliance with a number of financial reporting and accounting standards. Annual audits will also be required should you raise more than $3 million through your CSEF campaign/s.
If you’re considering a CSEF strategy for your business, or simply want to know more about the opportunities and obligations, please contact the Hill Rogers Tax Team today. Click here to contact Andrew Lam, Director of Tax and click here to contact Winson Liew, Tax Manager.
Click here to see full details of the Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017 (Cth).