The Australian Securities and Investments Commission (ASIC) has just released its draft regulatory guide on crowd-source funding (CSF), which allows start-ups to raise money by issuing shares to investors.
The new rules pave the way for start-ups to legally raise seed capital by way of “crowd funding” ie by publicly inviting small investors to participate, and take equity, in the enterprise..
Eligible unlisted public companies with less than $25 million in consolidated assets and annual revenue will be able to raise up to $5 million a year under the new CSF regime, which will be implemented in late September 2017.
But ASIC says there are a number of rules that companies, and other people involved, must comply with, including a prohibition on multiple CSF offers.
Current rules state that start-ups raising money through crowdfunding can issue shares only to “Sophisticated” investors ie wealthy investors, with assets of at least $2.5 million.
The new CSF regime, which passed through the Australian parliament in March, means anyone will be able to invest and receive shares in a company.
There will however be a cap for investors of $10,000 per company each year, and a five-day cooling off period.
Start-ups wanting to raise money through equity crowdfunding will also be forced to register as public companies with ASIC. Unlike public companies listed on the stock market however, start-ups that go public won’t have to host annual shareholder meetings or provide audited financial statements for crowdfunded capital raisings.
They also won’t be subject to the same public disclosure obligations as listed companies.
Many companies using the CSF regime will likely be start-ups or early-stage companies that will not have experience in raising funds from the public.
The new laws will be implemented on September 29, following the release of the final regulatory guide.
It is pleasing to see a major jurisdiction being one of the first to soften the regulatory rules relating to equity participation by 3rd parties in start-up businesses. Will this lead to a flood of investment in Australian startups? Will other jurisdictions follow suit and loosen the rules regarding the marketing/availability of shares in private companies? Time will tell…