What is crowd sourced funding?
Crowd sourced funding enables companies to raise capital from a large number of investors. This method of raising capital is becoming increasingly popular, as it allows companies to engage and reach a wider number of investors via CSF intermediaries.
CSF intermediaries are Australian Financial Services Licence (AFSL) holders that provide crowd-funding services to companies as ‘gatekeepers’ via an online platform. CSF intermediaries are bound by certain gatekeeper obligations under section 738Q of the Corporations Act and are the link between the company and potential investors.
How do you know if your company is eligible for crowd sourced funding?
In order to be eligible to raise capital via crowd sourced funding, the company must comply with the following requirements of section 738H of the Corporations Act:
Proprietary company with a minimum of two directors
Principal place of business in Australia
A majority of the company’s directors ordinarily residing in Australia
Assets and annual revenue do not exceed cap of $25 million (including the assets and revenue of its related parties)
Not be listed on a financial market in Australia or overseas
Not have a substantial purpose of investing in other entities or schemes (including its related parties)
Limitation on CSF capital raise
Under the crowd sourced funding regime, companies may offer shares to investors, with an issuer cap of $5 million within any 12-month period. Although retail investors are also able to reap the benefits, the issuer cap applicable to them is $10,000 within any 12-month period.
Your company can raise up to $3 million by offering shares in the company without any need for financial statement disclosures.
Unlike a standard capital raise of a private company, which is bound by a limit of 50 non-employee shareholders, under the CSF regime the limit of 50 shareholders does not apply. This means that the company can have more than 50 CSF shareholders on the condition that the company does not exceed its limit of 50 non-CSF shareholders.
Company’s obligations to raise capital via crowd sourced funding
Private companies wishing to use the CSF regime to raise capital have certain legal obligations, which include:
Record details of the shares issued under the CSF offers and CSF shareholders in its share register
Sections 178A, 178C, 254X and 254Y
Notify ASIC of changes to its share register and share structure, including issue of shares under a CSF offer
Minimum of two directors with a majority of the directors ordinarily residing in Australia
Sections 292, 296(1A), 298(3) and 319
Prepare an annual financial report and directors’ report in accordance with accounting standards and lodging these reports with ASIC
Copy of its annual financial report, directors’ report and auditor’s report (if applicable) or a concise report readily accessible on its website
Chapter 2E and section 738ZK
Shareholders’ approval before giving financial benefits to related parties, including directors and their spouses, children or parents
Want to get started with crowd sourced funding?
If you think your company would be suited to raise capital by way of a crowd sourced funding offering, or you would like more information on your legal obligations and strategies available to your business, Ivy Law Group’s highly experienced team of Commercial and Business Lawyers are here to assist.
For a confidential discussion, please call us on (02) 9262 4003 or submit an online enquiry.
The content of this article is intended as a general guide to the subject matter. For specific legal advice about your individual circumstances, please contact our experienced lawyers.
Geeti is an integral member of the Ivy Law Commercial and Estate Planning team, acting on a broad range of matters including business sales and company acquisitions, capital raising, contract law, family provisions and estate planning.
Geeti is passionate about helping her clients achieve optimal outcomes and is highly regarded for both her empathetic nature and strong commercial acumen.