Reading time: 3 minutes

The Federal Government recently unveiled proposed spending of $1.1 billion over the next four years to promote business-based research, development and innovation. While the package includes significant tax incentives for high-net-wealth investors and professional investors, we need legal reform to boost small scale investment, including by friends and family. Parliament is currently considering draft legislation for Crowdsourced Equity Funding (CSEF).

In the interim, non-equity crowdfunding is alive and well. Non-equity crowdfunding means supporting a business by typically pre-purchasing a good or service to help bring to life the business’ product or service.

What Should a Potential Crowdfunding Supporter Consider?

If you are considering investing in a startup through crowdfunding in 2016, ensure that you take some time and research the following:

  • What are your rights as a funder? You should check the platform’s terms and conditions and understand what you are paying for and whether your money is returned if the project is cancelled. 
  • What’s the risk? Be mindful that experimental prototypes primarily make up crowdfunded projects. The prototype may not be viable and may never launch to the general market.
  • Is the company trustworthy? The crowdfunding platform does not vouch for the business’ reliability seeking funding, and you will need to spend time researching this yourself.
  • What law applies? In Australia, general laws can protect you including the Australian Consumer Law that covers consumer purchases of products and services, and laws prohibiting misleading and deceptive conduct.

What Should a Business Seeking Crowdfunding Consider?

Australian companies should know that it is not yet legal to raise capital by issuing shares through crowdfunding to a large number of public investors. Australia’s proposed crowdfunding framework aims to facilitate equity crowdfunding and to mitigate against losing projects to countries that permit equity crowdfunding, such as the United States and New Zealand.

Under Chapter 6D of the Corporations Act, private companies can, however, raise equity investment from up to 20 retail investors, investing up to $2 million in total, in a 12 month period.

Non-equity crowdfunding platforms permit companies to raise funds by offering a good or service, including a pre-order. A recent example involved two NSW based founders seeking to crowdfund a brand of Australian-made organic vodka, using the platform Pozible. Depending on how much an individual invested, the pair offered bottles of vodka, an invite to the launch party, and an Australian spirit tasting and cocktail making master class.  They reached their funding target.

Businesses also need to research the crowdfunding platform’s rules. Recently, Kickstarter froze the Anonabox privacy router project because Anonabox did not comply with Kickstarter’s rules. Crowdfunding in Australia presents an exciting new playing field for investors and businesses alike. But both parties need to ensure that they put aside some time to read and understand the rules of this rapidly changing game.

Changes to crowdfunding in Australia presents an exciting new playing field for investors and businesses alike. But both parties need to ensure that they put aside some time to read and understand the rules of this rapidly evolving game.

Questions? Get in touch on 1300 544 755.

Webinars

Preventing Modern Slavery: Your Business’ Legal Obligations

Thursday 9 September | 11:00 - 11:45am

Online
Are you an Australian business with $100m+ annual consolidated revenue? Learn how to determine if you are a modern slavery reporting entity and your obligations under the legislation with this free webinar.
Register Now

How to Expand Your Online Business Globally

Wednesday 15 September | 11:00 - 11:45am

Online
Understand your legal risk when expanding your online business overseas with our free webinar.
Register Now

Negative Online Reviews: What are the Legal Options?

Wednesday 22 September | 11:00 - 11:45am

Online
Negative or false online reviews of your business can be disheartening and damaging. Understand your legal rights and options with this free webinar.
Register Now

Australia’s Global Talent Visa: How to Attract Top Talent

Thursday 7 October | 11:00 - 11:45am

Online
Understand how to navigate Australia’s complex migration system to attract top overseas talent with our free webinar.
Register Now

5 Essential Contracts for your Online Business

Thursday 14 October | 11:00 - 11:45am

Online
Learn which key contracts will best protect your online business with our free webinar.
Register Now

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

The majority of our clients are LVConnect members. By becoming a member, you can stay ahead of legal issues while staying on top of costs. From just $119 per week, get all your contracts sorted, trade marks registered and questions answered by experienced business lawyers.

Learn more about LVConnect

Need Legal Help? Get a Free Fixed-Fee Quote

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

Our Awards

  • 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Winner – Australasian Lawyer
  • 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year - Australasian Law Awards
  • 2019 Most Innovative Firm - Australasian Lawyer