At long last the Australian parliament has passed the legislation that will enable companies to raise capital from the public. This is a great decision for small/medium enterprises, entrepreneurs and members of the public who wish to invest into a new type of company!
The legislation indicates that the only entities which can raise money using the crowd sourced funding equity method will be an unlisted public company. The legislation enables a proprietary limited company to be able to be converted to an unlisted public company to enable the company to then be able to raise money from the “crowd”.
Unlisted public companies will be able to:
- raise up to $5 million every 12 months
- do this the company must have group turnover of less than $25 million and have group assets of less than $25 million
Retail investors will be able to invest up to $10,000 every 12 months into a company. The “cooling off period” for retail investors is five days.
Sophisticated investors are not subject to any investment limit and there is no “cooling off period” for them.
The legislation introduces “gatekeepers”. Their role is to ensure that a company, which wishes to avail itself of the crowdfunding equity raising rules, has prepared all of the information that is required and the gatekeeper would then place details of the company and its capital raising requirements, business plan etc., and the investment warnings onto their website. Members of the public could invest for the period stated in the documentation up to a maximum of three months.
Gatekeepers will be required to hold an Australian Financial Services Licence and their responsibilities will include receiving the investors’ funds and at the end of the agreed period or three months preparing a report on the capital raising for the directors of the company and if the targeted sum has been raised transferring the net amount after deducting their agreed fee to the company’s bank account and supplying a list of the investors i.e. the company’s new shareholders to the company. If the capital raising did not achieve the targeted sum, the gatekeeper is responsible for returning the amount contributed to the potential investors.
Companies converting from a “proprietory limited company” to an “unlisted public company” have been given a five year exemption from some of the more onerous requirements of being a unlisted public company including:
- continuous disclosure requirements
- holding an annual general meeting
- providing paper annual reports
- if the company has raised less than $1 million in capital raising from the “crowd” not having to appoint an auditor
This legislation offers significant “revenue streams” for accountant/business advisors.
A few years ago Deloitte issued a report relating to “digital disruption” in which they recommended that accountants/advisors develop strategies to create “new revenue streams”.
This legislation enables accountants/advisors to develop a number of new revenue streams including:
- corporate governance advice relative to directors’ roles in an unlisted public company
- advice on structures for unlisted companies
- advice on protection of intellectual property, discussions with patented attorneys, market review reports, marketing plans et cetera
- preparation of a business plan
- preparation of budgets and cashflow forecasts
- preparation of information memorandum in accordance with the requirements of the corporations code
Accountants could also supply the following services:
- auditors – whilst the legislation indicates that if the company raises less than $1 million the company does not have to appoint an auditor in the first five years, many boards of directors will decide that, for sound corporate governance reasons and accountability, they would like to appoint an auditor.
- company director appointments – many companies will be seeking persons with financial experience such as accountants to be appointed to their Board of Directors.
The legislation commences operation in September 2017. I would urge you not to wait until that time to commence your planning on the services that you wish to provide.
Now is the time to start preparing your team to be able to offer this expanded range of new services to your clients and prospects.
In December 2015 when the Prime Minister announced the government’s innovation package he indicated that 4,500 companies had not been able to raise capital in 2015. A few people contacted me after that statement was made and enquired where the figure of 4,500 came from. I made some enquiries and discovered that this was the number of enquiries that AusIndustry reported to the government from people who complained to them that they’d been unable to raise capital. I doubt whether everyone that had difficulty in raising capital in 2015 would have told AusIndustry so there is a reasonable chance that the 4,500 figure is quite conservative. There could be many thousands of companies trying to take advantage of the new legislation.
The source of enquiries relative to crowdfunding equity raising will primarily be from small/medium enterprises and small entrepreneurs. These people are traditionally the clients of “small to medium-size accountancy businesses” in Australia. The challenge for small to medium-size accountancy businesses is being able to deliver a product package that will assist these people who are the “traditional clients of small/medium-size accountancy businesses” to get started on this journey rather than encouraging them to go to larger accountancy firms because of a perceived lack of interest from small/medium-size accountancy businesses. The ball is in your court and I would urge you to get involved in the game!
ESS BIZTOOLS/ESS BASIP will be releasing our Crowdfunding Equity Raising Product Package in a webinar on 20 April 2017. This package will be similar to that which we have produced for the Early Stage Innovation Company Package and the other product packages contained within ESS BIZTOOLS/ESS BASIP.
We look forward to being able to supply this range of services to you. If you have any questions relative to this new product package and the crowdfunding equity raising legislation in general please do not hesitate to send me an email email@example.com
Peter Towers | Managing Director | ESS BIZTOOLS