September 2018

Crowd-Sourced Funding in Australia … now for private companies

Under the Australian Crowd-Sourced Funding (CSF) regime, an eligible company can raise up to $5 million in any 12-month period without having to make full disclosure. This was previously restricted to public companies that met certain criteria.

Taking effect from 10 October 2018, private companies (i.e. proprietary companies limited by shares or a ‘Pty Ltd’) will now have access to the CSF regime. This bulletin aims at identifying issues specific to private companies looking to raise funds through CSF. More details about the CSF regime and how CSF offers are made can be found in our bulletins, Crowd-Sourced Funding in Australia and Crowd-Sourced Funding Intermediaries.

Criteria for private companies

For a private company to raise funds under the CSF regime:

1. the company will need at least two directors, and if the company has:

a) only two directors, at least one director must reside in Australia; or

b) more than two directors, a majority of those directors must reside in Australia.

2. the company’s principal place of business must be in Australia; an

3. the company and its related parties (i.e. parent companies, sister companies, subsidiaries etc):

(a) must not be investment companies; and
(b) must collectively satisfy:

(i) the gross asset cap (i.e. have consolidated gross assets of less than $25 million); and
(ii) the gross turnover cap (i.e. have consolidated gross turnover of less than $25 million in the previous 12-month period).

Issues to consider

Assuming you meet the criteria, there are a few things which you should consider before diving headfirst and raising funds through CSF:

1. Private company shareholder caps

The shareholder cap (of 50 shareholders) for private companies continues to apply. CSF shareholders (and employee shareholders under an employee share scheme) however are not counted towards this shareholder cap. The company will need to maintain details of any CSF offers in its share registry.

2. Financial and director reports

Companies that have raised funds through the CSF regime are required to prepare financial and directors’ reports in accordance with accounting standards.

Additionally, companies that have raised more than $3 million through the CSF regime will need to appoint an auditor to audit their financial reports.

Financial reports however can simply be made available online but must be lodged with ASIC.

3. Related Party Transactions

After raising funds under the CSF regime, the company is required to comply with related party transaction rules. In brief, this involves obtaining shareholder approvals for transactions where related parties are to financially benefit.

The take out

The changes to the CSF regime present an excellent opportunity for smaller companies to tap into a larger pool of funds. Before making any decisions on whether to raise funds through CSF or any other means, you should always consult your legal and financial advisors.

 

Authors: Oliver Shtein and Eric Kwan