The Federal Government confirmed in this year’s budget that it would extend its equity crowdfunding regime to proprietary companies. Treasurer Scott Morrison introduced legislation into the Parliament in September 2017 to this effect.
However the Federal Government failed to pass vital amendments to the Equity Crowdfunding regime before the end of this year. Proprietary companies will therefore not be able to access Equity Crowdfunding raising until August next year at the earliest.
What follows is an overview of the implications of the failure to pass the proposed amendments to the Crowdfunding Legislation.
The Federal Government first undertook to consider crowdsourced equity funding regime in Australia in 2015.
However when the Federal Government introduced Equity Crowdfunding Legislation in 2016, there was a requirement for a start-up or larger company to convert to an unlisted public company in order to access equity from the crowd.
This was widely criticised, with claims that the majority of companies seeking equity from the “Crowd” would not qualify as they were not Unlisted Public Companies.
The Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017, was introduced to Parliament and read for the first time on 14 September 2017. The Proposed Amendment removes the requirement to be an Unlisted Public Company to raise equity from the Crowd.
Nevertheless the Proposed Amendments still place a number of new reporting and compliance obligations on a start up or SME looking to raise capital from the crowd, including:
- A minimum of two directors;
- Financial reporting in accordance with accounting standards;
- Audited financial statements once the company raises more than $3 million,; and
- Restrictions on related party transactions.
It is envisaged that the Proposed Amendments will not come into effect for private companies for at least six months following the legislation being passed.
Therefore if Parliament resumes in February 2018, the Proposed Amendments may not take effect until August 2018 at the earliest.
Cash-strapped and early-stage businesses may not have the resources to wait or be in “neutral” for months waiting for the Proposed Amendments to take effect.
Our experienced corporate Solicitors Sydney at Pavuk Legal would be pleased to provide you with extensive advice on your Equity Crowd Funding matters. Feel free to contact our office to speak with one of our friendly Solicitors.
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