With Crowd-Sourced Funding Equity Raising officially able to commence from 29th September 2017, it’s an appropriate time to visit the significant equity raising opportunities that are now available for small/medium enterprises and to summarise the significant assistance that most companies that aspire to raise equity capital are going to require from accountants/business advisers.
This process commenced approximately 25 years ago when the equivalent of Section 708 of the Companies Act was introduced to enable private companies to be able to raise capital.
Over the years that section became Section 708 of the Corporations Act and that section now enables a proprietary limited company to raise up to $2M from no more than 20 investors every 12 months.
Whilst Section 708 is very beneficial, private companies that aspired to raise capital but did not satisfy all of the market requirements were unable to raise capital and this encouraged the Federal government to announce two new types of corporations that could raise capital from the public.
These two new types of corporate entities were:
- Early Stage Innovation Companies
- Crowd-Sourced Funding Equity Raising Companies
The government’s intention was that the legislation for both of these new types of companies would be passed around the same time. Unfortunately this did not occur. This resulted in Early Stage Innovation Companies being able to raise capital since July 2016, whilst Crowd-Sourced Funding Equity Raising Companies will be able to commence capital raising from 29th September 2017.
In the 2017/18 Budget the Federal Treasurer announced that the government was releasing an explanatory memorandum which discussed the concept of enabling proprietary limited companies to use Crowd-Sourced Funding to raise capital for their businesses without having to become unlisted public companies.
Therefore in the last 30 years, there have been significant changes to enable Australian small/medium enterprises to be able to raise capital from the public.
Crowd-Sourced Funding Equity Raising has proved to be very popular in some other countries that have already embarked on this form of capital raising and there is no reason to believe that the Australian experience will be any different.
There are tremendous opportunities for accountants who are committed to offering a wider range of commercial services than the traditional annual accounts and taxation returns by being involved as a key corporate adviser to assist companies to prepare themselves for the capital raising process.
In the first instance, the company directors need to understand the difference between the various methods of raising equity capital and to understand the director’s responsibilities relating to the raising of capital and then the operations of the companies that have been beneficiaries of the capital raising process.
The Early Stage Innovation Companies’ legislation is basically targeted at young companies (under 3 years old, but in some cases can be up to 6 years old) that have been involved in the development of a new product, process or service. These companies can raise up to $5M every 12 months and offer significant taxation benefits to investors. The initial investors who assist the company to obtain the Early Stage Innovation Company status will be able to claim a 20% tax offset on the value of their investment up to a maximum of $10,000 for a retail investor and $200,000 for a sophisticated investor.
These investors will also be entitled to a capital gains tax exemption if they hold the shares for longer than one year and less than ten years.
Crowd-Sourced Funding Equity Raising Companies can be any age and operate in any type of business. Retail investors can invest up to $10,000 per company every twelve months, whilst there is no limit on the amount of investment that a sophisticated investor can make. The maximum capital raising for a Crowd-Sourced Funding Company is $5M every twelve months.
To be successful in capital raising, companies will need to produce detailed responses to the direct questions asked in the legislation that is appropriate for the capital raising process that they are undertaking, as well as additional documentation that every company is going to require if they are going to be successful in raising capital.
These documents include:
- Market Research
- Marketing Plan
- Intellectual Property Summary
- Corporate Chart
- Business Plan
- Budgets and Cashflow Forecasts
- Company Valuation
- Calculation of Share Price
- Information Memorandum
There are also opportunities for accountants to negotiate for post capital raising services including:
- Virtual Chief Financial Officer Service
- Company Secretary
- Share Register Services
- Company Director
- Audit
We have produced detailed product packages for Early Stage Innovation Companies and Crowd-Sourced Funding Equity Raising Companies to assist accountants/business advisers to offer expert advice on the operations of both of these new entity types.
We invite you to sign up for Crowd-Sourced Funding Equity Raising Companies Package at our special “End of Financial Year” price of $299.25 (incl GST). Please (click here) to sign up.
(Click here) if you would like to talk to an ESS BIZTOOLS/ESS BASIP representative.
For details of any other aspects of ESS BIZTOOLS, ESS BASIP or ESS BIZGRANTS, please contact Peter Towers, Managing Director, ESS BIZTOOLS at peter@essbiztools.com.au.
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