Crowd-funding has been a pretty hot topic of late. Crowd-Sourced Funding (“CSF”) involves asking the wider community to contribute funds to a specific project - either as a donation or gift; or in return for shares or securities.
ASIC has recently established a new regime governing the process and methodology for equity-based CSF. Specifically, the new CSF regime aims to facilitate flexible and low-cost access to capital for small to medium institutions, especially in the fintech and startup sector, whilst ensuring adequate protections still exist for retail investors.
There are a number of key aspects relating to a company who is seeking to raise funds in this manner.
In order to participate, an entity must be an unlisted public company with less than $25 million in consolidated assets and annual revenue. Further, the company must have a majority of its directors domiciled in Australia as well as having its principal place of business in Australia.
The CSF Offer
In order to make a CSF Offer, an eligible company must enter into a hosting arrangement with another entity (“the CSF Intermediary”) for the publication of the offer document and to host the offer on its online platform. The CSF Intermediary must in turn, hold an AFS Licence with the required authorisations to provide a crowd-funding service.
The CSF Intermediary is required to undertake prescribed checks on the company making the offer, its officeholders and the offer itself, before making the offer public. It is then required to manage the process of receiving funds from potential investors, as well as refunding application monies should the offer be defective in any way.
It is important to note the following in regard to the CSF Offer:
- A company may only have one CSF Offer at any one time.
- No investor may receive financial assistance to participate in the CSF Offer.
- All advertising must include appropriate risk warnings and not be misleading or deceptive in any way.
- Personal advice is prohibited from being provided.
- Retail investors cannot invest more than $10,000 through a company’s CSF Offers in any 12 month period.
- Retail investors have a 5 business day cooling-off period.
- Retail investors must acknowledge the risk warning associated with the issue.
The CSF Offer Document
There are three main requirements for a CSF Offer Document to satisfy the legislative and regulatory obligations:
- It must include minimum information as required.
- It must be worded and presented in a clear, concise and effective manner.
- It must not be misleading or deceptive.
If a document does not meet these requirements, it may be defective. A defective CSF Offer document means that shares may no longer be offered through the CSF Offer and the CSF Intermediary’s platform must cease hosting the offer immediately.
The CSF Offer Document must also include:
- Corporate details, including capital structure and details about officeholders and senior management.
- Financial statements.
- Details of legal actions against the company.
- Description of key risks.
- Terms and conditions of the shares pertaining to the subscription.
- Rights associated with the shares.
- Description as to how the funds will be utilised.
- Description of any concessions the company is relying on.
Under the CSF regime, eligible companies are able to rely on certain concessions which are normally mandatory to unlisted public companies. These concessions apply for a maximum of five years, or until the company is no longer bound by the CSF regime. The concessions state that:
- The company does not need to hold an AGM.
- The company is not obligated to appoint an auditor.
- The company can make its financial statements available (for example, on its website), rather than distributing hard or soft copies to its shareholders.
For further details, refer to ASIC Regulatory Guide 261 by clicking here.
Should you have any queries about ASIC or other issues involving the CSF regime, compliance, licensing, or corporate governance, please contact Jeremy Danon, director of Ariel & Associates Pty Ltd on (02) 8223 3355 or at firstname.lastname@example.org.