The Government seeks to reform the law, to help private companies raise capital by crowd-sourced equity funding (CSEF). As part of the 2015 Budget. A discussion paper was released on 4 August 2015.

The Government has made good progress, but more reform is needed!

Key reforms proposed in the August 2015 Discussion Paper

The key reforms in the crowd-sourced equity funding (CSEF) reforms, and my comments are as follow:

  • Companies can raise up to $10,000 from each investor (ie members of the public) each year

This is a step in the right direction, but why is there an arbitrary $10,000 cap? I agree that there are considerable risks in investing in a private company or a small public company. However, there are other risky investments that retail investors can invest in, in excess of $10,000, that the Government does not regulate by a cap.

  • Each investor has a $25,000 cap on investing in companies under the CSEF reforms, each year.

Again, why is there an arbitrary cap? The usual method for Government regulation around investments is to increase disclosure and/or advice. Increased disclosure would work better than an arbitrary cap.

  • A maximum of five (5) million dollars can be raised, in any twelve (12) month period can be raised through CSEF.

This is a significant increase from the current $2 million cap, in the current small-scale offering exemption. This cap does not apply to funds raised through the other exemptions e.g. sophisticated and professional investor exemptions.

  • The shares must be one class of fully paid ordinary shares per round of CSEF with equal price, terms and conditions.

This may work fine for companies, but angel investors are likely to seek preference shares. Angel investors and other sophisticated and professional investors can invest through other exemptions.

  • There will be a tailored disclosure package that applies specifically to CSEF.

This clarity is useful, as there is currently a wide range of disclosures used by private and unlisted public companies seeking investment.

Summary

The reforms are a step in the right direction, but further reforms are needed to assist unlisted public and proprietary companies to raise funds from everyday investors. I would like to see less focus on caps and more focus on clarity on the initial and ongoing disclosure.

Conclusion

Are you looking to finance your business by raising more capital? It is critical that you are across all exemptions currently available for private companies and unlisted public companies to issues securities. It is crucial that your documentation remains compliant with the law, which includes your offering document.

On top of this, you may need a shareholders agreement, a subscription agreement for the investors, and a vesting agreement if shares will vest over time.

LegalVision can help you. LegalVision provides businesses and individuals with tailored online legal advice, including drafting online legal documents for capital raisings. We have lawyers with local and international capital raising experience to assist you. Call LegalVision on 1300 544 755. Our lawyers are ready to assist!

Ursula Hogben

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