The Government hopes to strike the right balance between consumer protection and financial innovation with its new crowd-sourced equity funding (CSF) regime, which kicks off on September 29.
While the new scheme frees small companies from a number of compliance requirements that would usually apply to companies raising funds from investors, it also includes a number of important investor protections.
The new regime is part of the Government’s National Innovation and Science Agenda and is designed to facilitate funding for start-ups and small businesses.
Will Leitch, the chief executive of the small business capital raising platform ASSOB, says: “Most people’s investments are weighted towards the old economy. They need to get into the new economy and this regime enables that.”
Unlisted public companies can make offers of shares under the scheme and will be exempt for up to five years from certain reporting, audit and corporate governance requirements that usually apply to public companies.
They will not have to hold annual general meetings, have their financial reports audited or distribute hard copies or electronic copies of their annual reports to shareholders.
Investor protections in what will be a high-risk market include a 48-hour cooling-off period, a prohibition on providing financial assistance to enable investments in CSF offers, and a requirement to obtain a risk acknowledgment prior to accepting an application.
Investors are limited to a maximum investment of $10,000 a year in a company.
Advertising is restricted. Anything that would encourage an investor to invest on the basis of the statements in the ad rather than the CSF offer document is prohibited.
Eligible companies can raise up to $5 million a year using crowd-sourced funding, by issuing ordinary shares, but they must have less than $25 million in assets and annual revenue.
Companies must use an online crowd-sourced funding platform to make their investment offers.
Platforms can only be operated by licensed intermediaries that have specific authorisation to provide a crowdfunding service. Platform providers must act as “gatekeepers” – checking company details and investment information before placing the offer on the platform.
CSF intermediaries have an obligation to help ensure that investors are only offered investments in eligible public companies.
From September 29 ASIC Connect’s Professional Register will provide details of platform operators with financial services licences that allow them to provide crowd-sourced funding services.
Platform providers will have to operate a “portal”, so that investors can make inquiries of the offering company and the intermediary, to help make investment decisions.