By Peter Reeves and Georgina Willcock
Following consultation earlier this year, and consistent with its expressed commitments, the Federal Government is now consulting on its proposed crowd sourced equity funding framework for public companies as well as ways to reduce compliance costs for, and facilitate capital raising by, proprietary companies.
Consistent with the Government’s commitments as part of its Growing Jobs and Small Business reform package announced in the 2016-16 Budget and previous consultation (see G+T Alerts on 4 December 2014 and 16 March 2015), Treasury has released a new Consultation Paper (Paper) which:
- outlines key elements of the Government's crowd-sourced equity funding (CSEF) framework for public companies; and
- seeks feedback on ways to reduce compliance costs and make capital raising more flexible for small proprietary companies and whether the CSEF framework should be extended to proprietary companies.
Proposed legislative CSEF framework for public companies
Key elements of the proposed CSEF framework for public companies include:
- issuers must be incorporated as an Australian public company and must not have raised funds under existing public offer arrangements;
- intermediaries (being the organisations providing the crowdfunding website or platform) must hold an AFSL;
- intermediaries will be permitted to invest in issuers using their platforms provided that details of any such investments are disclosed;
- investment caps for retail investors of $10,000 per offer per 12 month period and an aggregate cap of $25,000 in a 12 month period (these caps will be self-assessed by investors and intermediaries will be responsible for monitoring cap compliance for investments made via their platforms);
- investors must provide statements prior to investment acknowledging that investment in early stage companies is risky, that they may not be able to sell their shares, that the value of their investment may be diluted over time and that they have complied with the investment caps;
- investors will have an unconditional right to withdraw for 5 days after acceptance of an offer and will also have additional rights in relation to material adverse changes during the offer period;
- relief from certain public company compliance costs (eg an exemption from holding an AGM and annual reports to be only provided online) for newly registered or converted public companies will be available for 5 years (subject to annual turnover and gross assets thresholds);
- fundraising cap of $5 million in any 12 month period (excluding funds raised under existing exemptions for wholesale investors);
- intermediaries must undertake checks on issuers and provide generic risk warnings to investors;
- all securities offered under an offer must be one class of fully paid ordinary shares with the same price, terms and conditions;
- there will be no restrictions on fee structures of intermediaries (however fees paid by an issuer must be disclosed) and intermediaries will be prohibited from providing investment advice or lending to investors; and
- reduced disclosure requirements, including a tailored CSEF disclosure document which must contain facts about the company and its structure (including financial statements) and the CSEF raising and mandatory risks warnings.
Potential reforms for proprietary companies
The Paper seeks views on ways to increase flexibility in capital raising for proprietary companies, including whether:
- some of the existing regulatory barriers to capital raising by small proprietary companies (ie the 50 non-employee shareholder limit and small scale offerings disclosure exception (20 investors in 12 months and/or $2 million cap in 12 months)) should be raised; and
- proprietary companies should be permitted to access the CSEF framework (and in this regard, the Paper proposes a model which is a tailored version of the model for public companies outlined above).
The Paper also seeks views on ways of reducing compliance costs for small proprietary companies to enable them to direct more of their time and resources into growing their businesses, including:
- removal or modification of the requirement to make an annual solvency declaration;
- removal of the requirements to maintain a share register;
- facilitating the execution of documents; and
- streamlining the completion and lodgment of ASIC forms.
The Government has indicated that regardless of whether it proceeds with CSEF for proprietary companies, it remains committed to facilitating CSEF for public companies. Draft CSEF legislation is intended to be released for public comment before being introduced into Parliament in the 2015 Spring sittings.
Submissions on the Paper are due by 31 August 2015.
See media release dated 4 August 2015.
The Australian Taxation Office has also released guidance setting out its current view of the tax implications for crowdfunding arrangements. Broadly, if you earn or receive any money through crowdfunding, some or all of it may be assessable income which needs to be declared on your tax return and some of the costs related to gaining or producing that income may be allowable deductions.
The ATO is planning on updating this guidance in relation to CSEF once the consultation is concluded.
See ATO guidance dated 7 August 2015.