16 February 17
Crowd-sourced equity funding bill to pass Senate
"Retail investors will soon be able to buy up to $10,000 of equity in their favourite business ideas, with "crowd-sourced funding" legislation set to pass the Senate with Greens support.
The legislation will allow unlisted public companies with annual turnover or gross assets of up to $25 million to advertise their business plans on licensed crowdfunding portals, and raise up to $5 million a year to carry them out. Investors can put up to $10,000 a year each into an unlimited number of ideas, with a 48-hour cooling off period applying.
"Crowd-sourced equity funding will offer a new funding option for small businesses," said Treasurer Scott Morrison while introducing the Bill to the Lower House.
"It complements other forms of crowdfunding already available, such as rewards-based crowdfunding and peer-to-peer lending, to offer start-ups greater choice in how they fund and finance their operations.
"It will serve as both a complement and a source of competition to more traditional funding options for small businesses, including bank debt products."
However, entrepreneurs are divided over whether businesses will want to use the legislation, given it excludes proprietary companies, a structure used by around 99 per cent of Australian businesses, and would compel them to become unlisted public companies.
Crowdfunding portals like VentureCrowd and Equitise have previously been available only to "sophisticated investors" with more than $2.5 million of assets outside the family home or income above $250,000 a year.
Retail investors were restricted to opportunities from matching services like The Australian Small Scale Offerings Board (ASSOB), operating under Section 708 of the Corporations Act, which allowed up to 20 investors at any one time raise a maximum of $2 million a year.
"We just have to turn down the $5000-$10,000 investors in that environment," said ASSOB chief executive Will Leitch, who welcomed the new legislation as something that would "get the early-stage economy working".
The Greens' Treasury spokesperson, Peter Whish-Wilson, said his party would support the crowd-sourced funding bill, enough for it to pass the Senate without Labor Party support.
The Labor Party will put forward an amendment to extend the cooling-off period to five days, for which Opposition innovation spokesman Ed Husic claimed he had Greens and Nick Xenophon Team support. Mr Husic was also considering an amendment that "the compulsion to convert to an unlisted public company is dropped and the government...allow for a wider range of start-ups and small businesses to access the equity crowdfunding regime".
Mr Husic has previously said his feedback from businesses is that flipping to public status is a costly distraction, that few will undertake.
"Without liberalisation, this bill will be ScoMo's dodo," he said, referring to the Treasurer.
The bill does grant five-year holidays for newly converted public companies from continuous disclosure, holding annual general meetings, auditing accounts and providing paper annual reports.
That's not enough for Troy Douglas, co-founder of sugar-free soft drinks maker Nexba, which is raising $1 million from sophisticated investors through VentureCrowd. Mr Douglas said he would be unwilling to convert to public company status, even if it meant widening his pool of potential investors.
"It's just an unnecessary administrative burden," he said, pointing to the potential information his competitors could get from the quarterly updates required.
However ASSOB's Mr Leitch already compels businesses raising through his platform to be public, even though he doesn't have to under Section 708 of the Corporations Act.
"If you're raising $1 million, you should be willing to face your shareholders," he said.
It was "a myth" that converting to a public company was onerous, he added.
"It costs about $700, you need a quarterly disclosure statement saying you're spending the money the way you said you would and that you're not insolvent, and you need to appoint three directors - which should be a helpful thing anyway," he said.
The government has promised to include proprietary companies in crowd-sourced equity funding in future, but for now Mr Leitch said this bill was a "huge improvement" on the previous regime.
Small Business Minister and Nationals MP Michael McCormack said the bill would be a boon for regional businesses in particular, located as they are away from traditional angel investor networks in the cities.
The Senate was delayed on Thursday debating parliamentary entitlements legislation, so the Corporations Amendment (Crowd-sourced Funding) Bill may not now be debated until Parliament returns on March 20, although with Greens support its passage is assured.
The Senate Economics Committee recommended on Monday that the Upper House pass the bill, with a review after two years. The laws will come into effect six months from royal assent."
Australian Financial Review, Michael Bailey, 16 February 2017
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