Capital barriers removed
Numerous reviews and policies documents have identified Crowd Sourced Funding (‘CSF’) as a way to improving innovation and increasing productivity. One of these documents, the Australian Government’s Industry and Innovation and Competitiveness Agenda, released October 2014, included CSF as part of the list of initiatives to achieve the Government’s economic vision. Currently, there are numerous regulatory barriers for businesses seeking to raise capital in this way and for smaller businesses it was impractical to attempt to do so. When enacted, CSF will provide investors with an opportunity to take an equity stake in the business entitling them to a potential return should that business succeed.
What will be amended?
The Bill inserts a new Part into Chapter 6D of the Corporations Act 2001 (Cth) (relating to fundraising) to establish Part 6D.3A. Importantly this removes much of the disclosure requirements that previously hampered businesses such as raising capital through to publication of an ‘offer document’.
The exposure draft for CSF Regulations states that financial accounts do not need to be audited for up to 5 years, the company is not required to hold an AGM for up to 5 years and company reports only need to be published on the company website for up to 5 years. These reforms illustrate show how the Bill approaches the balancing of assisting with providing security for potential investors to feel confident to invest.
Reform benefits co-operatives?
Co-operatives have – in theory – numerous ways of raising capital, but in reality raising that capital is challenging. This was a reason why Co-operative Capital Units (CCUs) were introduced, but if they are offered to non-members the reporting obligations and the challenges of issuing the CCUs exclude all but the largest co-operatives as they must satisfy Corporations Act 2001 (Cth) requirements. Importantly, we believe that the Co-operatives National Law is able to accommodate the CSF reforms, opening the way for co-operatives to access capital from fresh sources, in that compromising the traditional strengths of co-operatives for corporate ownership, governance and asset protection.
Next week we will outline how CSF can include co-operatives without jeopardising the most attractive aspects of the co-operative structure, focussing in particular on the Murray Darling basin communities.
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