Crowd-sourced funding – opportunity or threat?

Crowd-sourced funding (CSF) allows start-ups and small businesses to access funds, generally from a large number of investors which invest small amounts of money.

There are different types of crowd-sourced funding including donation, reward and equity-based. This article focuses on equity-based CSF which generally involves a company offering investors an opportunity to invest in its shares for a relatively small investment.

The legislative framework[1] aims to facilitate flexible low cost access to capital for small and medium sized eligible entities by reducing the regulatory requirements to make public offers for shares whilst balancing the need for adequate protection for retail investors.

Eligible entities are able to raise up to $5 million from investors in any 12-month period. Retail investors have an investment cap of $10,000 per company in any 12 month period and additional obligations apply, including a cooling off period.

Companies offer their shares through an intermediary who holds an Australian Financial Service Licence with an authorisation to provide a CSF service. The intermediary performs checks on the offering company, operates the online platform and performs checks on investors.

CSF offer documents have minimum information requirements, however there are consequences if the disclosure document is defective, which can include suspending the CSF offer. The CSF offer document must not contain information which is misleading or deceptive or omit information which is required to be included.

Companies that have completed a successful CSF offer must comply with certain financial reporting and corporate governance obligations.

Australian Securities and Investment Commission (ASIC) has published regulatory guides for companies and intermediaries to assist entities understand their obligations and requirements.[2]

DMAW Lawyers has capability to:

• assist businesses considering CSF, including assisting you to determine if you are eligible to make offers under the CSF regime, help ensure your CSF offer document complies with the minimum requirements, and help you understand your reporting, audit and corporate governance obligations; and
• assist intermediaries who provides CSF as a service, to understand your role and obligations as a CSF intermediary, which can include an audit of your gatekeeper obligations, risk acknowledgement obligations and annual data reporting obligations to ASIC.

For more information or assistance, please contact Mario Pegoli at DMAW Lawyers on (08) 8210 2222.

[1] Corporations Act 2001 (Cth) Pt 6D.3A.

[2] Australian Securities and Investment Commission (ASIC), ASIC Regulatory Guide 261 Crowd-sourced funding: Guide for companies, and ASIC Regulatory Guide 262 Crowd-sourced funding: Guide for intermediaries.

Author: Mario Pegoli

Position: Corporate adviser and associate

Practice: Corporate

This article provides general commentary only. It is not legal advice. Before acting on the basis of any material contained in this article, seek professional advice.