KickStartup Series: 4 Changes to Crowd-Sourced Equity Funding (CSEF)

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Table of Contents

• Key Takeaways
• What is Crowd-Sourced Equity Funding (CSEF)?
• What Will Be The Impact of the CSEF Changes?
• CSF Intermediaries
• Implementation 

Key Takeaways

• The crowd-sourced equity funding (CSEF) scheme will allow entrepreneurs and innovative companies to raise up to $5 million per year from individuals in return for equity.
• Companies that become a public company will be exempt for five years from reporting and disclosure requirements such as holding AGMs and providing audited reporting statements.
• The scheme will be available to public companies with a turnover and gross assets of less than $5 million.

What is Crowd-Sourced Equity Funding (CSEF)?

Crowd-sourced equity funding (CSEF) is a fundraising approach for startups, entrepreneurs and innovative companies looking to raise funds and capital via online channels. As part of the Federal Government’s ‘ideas boom’ agenda announced in December 2015, there will be several changes to improve access to crowd-sourced equity funding. Currently, startups seeking access to CSEF face a number of barriers preventing its widespread use. The new legislative changes will ensure that startups and innovative companies will have access to a more diverse range of funding options and be more competitive in the international market.

What Will Be The Impact of the CSEF Changes?

The changes to CSEF will allow entrepreneurs the ability to raise up to $5 million per year online from a large number of public individuals in return for equity in the startup. It will be available to any unlisted Australian public company with a turnover and recorded gross assets of less than $5 million. Significantly, this means the CSEF will be out of reach for proprietary companies (Pty. Ltd.). Most startups are registered as proprietary companies and would not be able to access crowdfunding.

However, startups that incorporate later as public companies to access the CSEF scheme will receive up to a five-year exemption from corporate governance requirements. This would include holding Annual General Meetings, producing audited financial statements and providing annual reports to shareholders.

For individual investors, the upcoming changes will allow investment of up to $10,000 per company, per year. Significantly, an individual investor can contribute across multiple companies. Without this cap limit, companies will have far greater access to funding compared to regimes overseas. There will also be a five day cooling off period for investors to withdraw their application under a CSF offer.

CSF Intermediaries

Companies participating in the CSEF scheme to raise funds will need to make offers of securities by using a CSF intermediary platform. Each intermediary will determine when an offer is made, open, closed, suspended and complete. 

Moreover, each intermediary platform will be required to hold an Australian Financial Services Licence. CSF offer documents must also set out the offer of certain types of securities. These disclosure documents will be less onerous than the current requirements under Part 6D.2 of the Corporations Act. In some cases, CSF intermediaries must also hold an Australian Market Licence (AML).

Implementation 

The legislative changes were introduced into Parliament on 3 December 2015. Within six months of the CSEF legislation receiving Royal Assent, the CSEF scheme changes will commence. The changes to the CSEF scheme will bring Australia into line with similar crowdfunding regimes in the United States and the United Kingdom.

Questions about crowdfunding or crowd sourced equity funding? Call us on 1300 544 755.