Crowdfunding opened to companies up to $25m
Unlisted public companies with less than $25 million in assets and turnover will soon be able to raise capital via crowd-sourced equity funding, thanks to a new bill introduced by the Coalition on Thursday.
The long-awaited bill comes almost a year after the government first tried to introduce the legislation, only for it to be knocked back by the Senate.
The new bill has a few amendments from the original legislation, including expanding the size of the unlisted public companies that can access this type of funding from only those with less than $5 million in assets, to $25 million.
If the legislation is passed, these small businesses will be able to raise up to $5 million in any 12-month period through crowdfunding platforms.
"The legislation will complement the Turnbull government's existing financial sector and innovation policies, including the push for an internationally competitive fintech industry, new tax incentives for angel investors and start-ups and changes to the tax treatment of crypto currencies," Treasurer Scott Morrison said in a statement.
To take advantage of the new laws, small businesses will need to become public companies. If they do this, they'll be exempt for up to five years from certain corporate governance and reporting requirements, making the process less costly and onerous.
But Andy Giles, the co-founder of start-up Veromo.com, which makes it easier for new businesses to register a name, ABN, ACN and more, said even with lower reporting requirements, few start-ups would want to make the transition.
"Currently, the thought of switching to a public company to avail ourselves of a potential wider investor base is unthinkable," he said.
"If the government permits Pty Ltds to transition to a type of public company without the added compulsory reporting and regulation, for instance, then we would start to look at crowdfunding as a viable source of funding – and I believe many others would too."
Retail investors will have an investment cap of $10,000 per company per 12-month period and a cooling off period of 48 hours in which they can withdraw from an investment.
"The proposed new legislation is a fantastic initiative to unlock investment opportunities to mums and dads with the right balance of protection measures," Connexion Media chief executive George Parthimos said.
But Speedlancer founder Adam Stone said start-ups should not waste their time pursuing crowd-sourced equity funding as a means of capital raising.
"Founders of early stage ventures are much better off focusing their time and few resources on growing the business instead of reporting to, and managing relations with, many investors – especially retail investors who may be unsophisticated."
Co-founder of crowdfunding platform Joey Crowd, Kalif Auditore, said the rules were a great start, but he would like to see the $10,000 retail investor and $5 million company capital raising caps raised.
"It's essential that the government make it easier for the platforms like Joey Crowd, so that we can use technology to better connect investors with high growth start-ups in a safe and secure way," he said.
Jonny Wilkinson, the co-founder of online equity crowdfunding platform Equitise which has been involved in the government's consultation process on the new legislation, said these laws were just a start.
"The industry continues to work closely with the government and Treasury to implement the most effective framework for private [proprietary] companies to be able to access capital through equity crowdfunding," he said.
This article originally published at Financial Review. You can read the original article here.