Disclosure Requirements and Crowd-Sourced Equity Funding

Disclosure requirements to raise equity capital in Australia vary depending on your type of company and who you offer to. Below, we set out current rules for companies and offerors as well disclosure requirements under the crowd-sourced equity funding (CSEF) reforms.

What are the Disclosure Requirements for Offerors and Company Types?

As a general rule, public companies offering securities for sale must provide a disclosure document. Offers that don’t require a disclosure document but fall within an exemption set out in Chapter 6D of the Corporations Act require a disclosure document.

There are also different ongoing disclosure requirements for a public company and a private company. Once a company has more than 50 non-employee shareholders, it’s required to become a public company.

The CSEF reforms apply only to public companies. Although, at the time of writing this article, there were requests to extend the reforms to private corporations. The CSEF exemption requires greater disclosure from a private company offering, but less than the ongoing disclosure for public companies.

CSEF Public Company Disclosure Requirements

The CSEF reforms require that a company must be a public company, and consequently regularly disclose to their shareholders. A CSEF public company has comparatively reduced disclosure and governance arrangements for up to five years, including:

• Minimum disclosure about the company, with generic information and investor rights and risk warnings; and
• Publishing an online annual report on the company’s website and available to all investors. The company isn’t required to print the report and send to each shareholder. 

A CSEF public company isn’t required to provide annual audited financial statements for companies that raise up to $1 million. Companies that raise more must provide annual audited financial statements.   

CSEF public company exemptions apply until either: 

• The end of the fifth financial year; or 
• When the company exceeds the assets and turnover tests.

Companies to remain eligible must then undertake a CSEF offer within 12 months establishing themselves as a public company. They must also remain below the CSEF assets and turnover tests ($5 million).

Non-CSEF Public Company Disclosure Requirements

By comparison, for all shareholders a standard public company (not CSEF) must:

• Hold an Annual General Meeting;
• Provide an Annual Report; and
• Provide Annual audited financial statements;

Non-CESF Offer: Disclosure Document/Prospectus Requirements

The general rule is that a person can’t make an offer of securities until lodging a disclosure document for the offer with the Australian Securities Investments Commission (ASIC), or the offer is made under the Chapter 6D exemptions. A prospectus is the most common type of disclosure document and contains between 75-100 pages detailing market, company and financial information. It also attracts a high level of risk as the company, directors and underwriter can all be held liable for misstatements or omissions. 

Non-CESF Exempt Offer Disclosure Requirements

Section 708 of the Corporations Act sets out what offers don’t require a disclosure document under Chapter 6D including:

• Small scale offerings (issuing to no more than 20 investors in 12 months to raise up to $2 million);
• Offers to sophisticated investors; and
• Offers to professional investors.

What Disclosure is Required? 

The level of disclosure for exempt offers considerably varies Market practice is to start with a pitch deck of approximately 10 to 20 slides. Pitch desks are slide presentations which include: 

• What problem your company solves; 
• Your team; 
• The market;
• The current status, 
• How your company will use the investment money; and 
• The opportunity for this product. 
• Investor(s) may also require more details about finances. 

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As a tech startup ourselves, we understand what’s involved in raising capital and producing disclosure documents. If you have any questions or concerns, ask our startup lawyers on 1300 544 755.