Unlisted Companies

Discussion Paper on Crowd Sourced Equity Funding

A discussion paper on Crowd Sourced Equity Funding (CSEF) has been released by the Federal Government's Corporations and Markets Advisory Committee.

CSEF is where a business seeks to raise capital, particularly early-stage funding, by offering small debt or equity interests in itself to large numbers of investors through a crowd funding online platform, which serves as an intermediary between the issuer and the investors.

Internationally, CSEF is receiving increasing attention as an alternative form of corporate fundraising for start-up or other small to medium companies.

Some jurisdictions such as the United States, Italy and New Zealand have enacted legislation dealing with CSEF, although the US and New Zealand legislation on general CSEF is not yet in force. Other jurisdictions such as Canada, France and the United Kingdom are considering this form of fundraising.

The CAMAC discussion paper says CSEF is already theoretically available in Australia, but is subject to compliance by the issuer and the online intermediary with fundraising, licensing and other requirements under the Corporations Act.

The discussion paper looks at the nature of those requirements and raises for consideration whether the Australian provisions should be adjusted in some manner for CSEF. It discusses and takes into account the approaches in other jurisdictions as part of its consideration of possible approaches to CSEF in Australia.

CAMAC notes that equity sourced crowd fundraising has a series of risks for people who provide funds. While risks are present in normal capital raising process, the central role of the internet means that the number of people potentially affected can be significantly greater than for more traditional means of fundraising.

There is also the question of the degree of scrutiny of these offerings, and the information to be provided to investors, compared with traditional prospectus or other disclosure requirements.

Another issue is the obligations that should rest on the online intermediaries.

The CAMAC discussion paper seeks views on these matters, including:

* Whether CSEF should be regulated in any different manner than any other form of corporate fundraising.

* Whether any form of regulatory accommodation for CSEF should be limited to specific situations, such as offers to sophisticated investors, falling well short of general public offers open to all investors, or

* Whether the Australian legislation should ‘cherry pick' CSEF approaches in other jurisdictions but within the context of otherwise maintaining the existing regulatory structure, or
* Whether the Australian legislation should regulate the process of CSEF in the same self-contained manner as, say, under the JOBS Act in the USA, which is intended to exhaustively regulate this form of fundraising in that jurisdiction.

Possible ways forward include no regulatory change; liberalizing the small scale personal offers exemption from the fundraising provisions; confining CSEF exemptions to offers to sophisticated, experienced or professional investors; making targeted amendments to the existing regulatory structure for CSEF open to all investors; and creating a self-contained statutory and compliance structure for CSEF open to all investors.

CAMAC will conduct roundtable consultation with respondents. It invites written submissions by 29 November 2013.

The discussion paper is at http://www.camac.gov.au/camac/camac.nsf/byHeadline/PDFDiscussion+Papers/$file/CSEF_ DP_Sept13.docx

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