As a business owner seeking to raise capital, crowdsource funding (CSF) can allow you to raise money from many investors in a way that is not ordinarily possible for private companies. However, once you have taken on CSF shareholders, your company becomes classified as a CSF Company, meaning you will now have to prepare certain annual reports that you might not have had to have prepared otherwise. This article will set out what goes into the annual financial and directors’ reports that you must prepare once you become a CSF Company.
Annual Financial Report
Before becoming a CSF Company, you might have enjoyed the lower financial reporting required of small private companies. As a CSF Company, you will now need to produce an annual financial report which consists of the following elements.
| Element | Explanation |
| Financial Statements for the Year | These are financial statements concerning the company compiled per the Australian Accounting Standards. It is common to have your accountant compile these statements. |
| Notes to the Finacial Statements | Under the Australian Accounting Standards, you may experience circumstances requiring you to provide additional information connected to your financial statements. Again, your accountant should prepare these notes. |
| Directors Declaration | Your director’s declaration is a declaration that, in your fair and reasonable opinion, there are reasonable grounds to believe that the company is solvent, and the financial statement and notes comply with the Corporations Act. Your declaration must be made per a resolution of the directors, specify the date on which the declaration is made, and be signed by a director. |
Directors’ Report
The second report you must produce is your annual directors’ report. A directors’ report is designed to give your shareholders a picture of your company’s operational and strategic achievements and goals. In your directors’ report, you must include:
- a review of your business operations during the year and the results of your business operations;
- a statement of your company’s principal activities and any significant changes to those activities;
- details of any significant changes in your company’s state of affairs;
- the details of any situation that has arisen that significantly affects the past, present and future operational and financial position of your business; and
- any potential future developments in your company’s operations and their predicted impact.
Your directors’ report must also include the following details concerning the previous financial year:
- the name of each person who at any stage was a director or officeholder of your company;
- any dividends that have been declared, whether paid or unpaid; and
- shares or options that granted that were granted in certain circumstances.
This Board Reporting Toolkit can help you meet your compliance needs, by explaining your obligations as a director and providing you with a series of tools and templates to ensure you can correctly undertake your key obligations.
Providing Reports to Shareholders and ASIC
As a CSF Company, you must provide your shareholders with all the reports you must prepare. Alternatively, you can provide your shareholders with:
- a concise financial report for the year that does not include the complete accounting disclosures; and
- the director’s report for the year.
A concise financial report contains all the information in an ordinary financial report, excluding the notes and cross-references to the notes in the financial statements. If you provide a concise report to your shareholders, it must contain a clear statement clarifying that the report is concise. Additionally, you must provide your reports to your shareholders within four months from the end of the financial year.
Updating ASIC When You Issue CSF Shares
Whenever you issue shares and alter your company’s share structure, you must notify ASIC by lodging certain ASIC forms. This applies equally to any CSF raises you to undertake. Within 28 days of issuing CSF shares, you must provide ASIC with a:
- Form 484, which notifies ASIC as to the change of the company’s share structure and can be lodged using ASIC’s online portal; and
- CSF Notification form when you start or cease to have one or more CSF shareholders.
Key Takeaways
CSF can be a fantastic way to conduct equity crowdfunding and spread the word about your product and company. If you have undertaken a CSF raise, it is critical that you comply with your financial and reporting obligations to your shareholders and lodge all necessary reports and forms with ASIC.
If you are considering undergoing a CSF raise or are an existing CSF Company wanting to understand your reporting obligations, our experienced capital raising lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
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