Equity crowdfunding is a relatively new way for startups to raise funds. It involves issuing company shares to a large number of investors in return for small to medium-sized investments via a licenced platform. Equity crowdfunding can be a great way for a startup to raise capital if large investments by wealthy investors or venture capital funds are not suitable or possible. However, an equity crowdfunding campaign is very different to a traditional capital raise. This article explains how to prepare for and conduct an equity crowdfunding campaign. 

Prepare for Capital Raising

Just like any form of capital raising, a startup looking to raise funds via crowdfunding will need to ensure that it has an: 

  • appropriate business structure (i.e a company that will allow an investor to receive shares in return for their investment); and
  • attractive offering. 

The large majority of startups will operate out of a proprietary limited (i.e private) company. To equity crowdfund, a proprietary limited company must: 

  • have a minimum of two directors; and 
  • be a small to medium-sized unlisted company (having less than $25 million in consolidated assets and $25 million in annual revenue). 

It also goes without saying that in addition to the appropriate corporate structure, you will need a great idea, a strong team and a well-polished business case to attract investors.

Find an Equity Crowdfunding Intermediary

An Australian company can only conduct an equity crowdfunding campaign through an intermediary that holds an appropriate Australian financial services licence. The intermediary will:

  • perform checks on your company to ensure that it complies with the regulations; 
  • advertise your campaign within the rules (advertisements must direct potential investors to general risk warnings and the offer document);
  • ensure that your campaign complies with the regulations; and 
  • operate the platform (including listing the offer, holding the investors funds until the campaign is complete and facilitating the investments). 

You can only use one intermediary for the same offer. 

Legal Documentation

An experienced equity crowdfunding intermediary will be able to assist with some of the necessary documentation, but not all. It is therefore important that you seek the appropriate legal support. To undertake an equity crowdfunding campaign you will need to complete the following steps.

Obtain the Necessary Approvals

Look at your existing constitution and/or shareholders agreement and determine what approvals are necessary to conduct the campaign and issue shares to your investors. Generally this will involve board approval and shareholders waiving their pre-emptive rights, but each company’s circumstances can differ. 

Update Your Company’s Governing Documents

A proprietary company will generally have a constitution and shareholders agreement. A constitution is often a standard form document, which deals with general company processes (i.e holding a meeting). A shareholders agreement is a bespoke document which deals with how the particular company will operate. It may include:

  • who can appoint directors;
  • how decisions are made; and
  • what happens when shares are issued or transferred.

A constitution is adopted and amended by vote of shareholders. A shareholders agreement is entered into and amended by shareholders signing the document. Where a company is taking on a very large number of shareholders, it is not practical to have a shareholders agreement in place that requires hundreds of signatures. Therefore, a company that is going to undertake an equity crowdfunding campaign will need to:

  • update its constitution to be more bespoke to the particular circumstances and needs of the company, by including many things normally contained in shareholders agreement; and
  • terminate its shareholders agreement.

Consider Your Existing Shareholders

If your company has existing shareholders, you may have arrangements in place with them that were contained in the shareholders agreement. 

For example, you may have vesting conditions on founder shares, or special rights for early investors. 

When terminating your shareholders agreement and updating the constitution, it may not be appropriate to put these bespoke conditions into the constitution and you may instead want to establish a side agreement with the relevant shareholders and the company to set out these rights and restrictions. 

Prepare the Offer Document 

An offer of shares to your investors as part of an equity crowdfunding campaign must be made under an offer document that complies with the regulations. Your intermediary may assist you with preparing a compliant offer document and legal advisors can also assist.

Additionally, the Australian Securities & Investments Commission (ASIC) has published a template offer document to help companies ensure that they comply with the regulations when preparing this document. An offer document will contain:

  • information about the company;
  • a risk warning;
  • information about the offer; and 
  • information about the investor rights.

Comply with Post-Campaign Obligations

A company that has raised funds by way of equity crowdfunding will have continuing financial and reporting obligations. These requirements differ depending on whether your company is a proprietary limited or public company. You should ensure you consider your obligations in detail, beyond the key features described below. 

A proprietary company must ensure that it:

  • records certain details about shares issued to crowdfunding investors in its share register; and 
  • notifies ASIC of changes to its share register and share structure (including when it starts to have or ceases to have crowdfunding shareholders). 

It must also have at least two directors at all times. If it has more than two directors, it must ensure that the majority of these directors ordinarily reside in Australia.

Your company will also need to prepare annual financial reports and directors’ reports at the end of each financial year and lodge these with ASIC. These reports must comply with accounting standards and must be readily accessible on your website. You must appoint an auditor to audit your company accounts if:

  • your company is a large proprietary company; or
  • you have raised more than $3 million from equity crowdfunding offers. 

Your company must ensure that it complies with the rules relating to related party transactions (e.g obtain shareholder approval to give a financial benefit to a related party unless an exemption applies).


Finally, you should be aware of circumstances where the exemptions afforded to your company by the crowdfunding regime will cease to apply.

For example, a proprietary limited company that raised funds via equity crowdfunding will be exempt from the 50 shareholder limit until its shares start to trade on a financial market. It will also be exempt from the takeover rules (rules regulating the purchase of shares in a company that impact on the control of the company) until it:

  • has over 50 shareholders but no longer has any shareholders who acquired their shares through equity crowdfunding;
  • is no longer eligible to make an equity crowdfunding offer (i.e because its shares are traded or it has more than $25 million in consolidated assets or revenue); or 
  • converts to a public company. 

Key Takeaways

Equity crowdfunding can be a great way for a startup to raise capital. If you are considering an equity crowdfunding campaign, it is important to understand the very specific rules and regulations that apply to the campaign and your company moving forward. When embarking on an equity crowdfunding journey, ensure you have the necessary support from an intermediary and legal advisors. If you need help with equity crowdfunding, contact LegalVision’s startup lawyers on 1300 544 755 or fill out the form on this page.

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