Posted on December 11, 2018
T 
Written by
Team@readyfundgo

Crowdfunding: The Game Changer for 2.5 million Australian Companies

 

Crowdfunding: The Game Changer

 

A change in the crowdfunding legislation in Australia has just changed the game for 2.5 million companies.

 

The long awaited legislative change in the form of The Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Act 2018 (the Proprietary CSF Act)  became operational in October 2018 amending the requirement for proprietary companies to have no more than 50 non-employee shareholders.

 

Under the new legislation proprietary companies canraise up to $ 5 million in a 12-monthperiodfrom retail investors who can invest up to $10,000 per company per 12-month periodvia a licensed crowdfunding intermediary.

 

In order to be eligible to use the new legislation a proprietary company must:

  • Have its principal place of business in Australia
  • Have at least two directors, at least one of whom must reside in Australia. Where there are more than two directors the majority of the directors must reside in Australia
  • Have consolidated gross assets and annual revenue below $25 million
  • Not have a substantial purpose of investing in other companies
  • Not intend to use the funds raised to provide a loan to a related party

 

If an eligible company  meets the criteria and successfully acquires crowd-sourced equity funding shareholders they will be subject to additional reporting requirements.

 

They will need to prepare an annual report however, this can be posted via a website and there is no requirement to make the report  public.If they raise $3 million or more they will be required to have their financial statements audited.

 

Companies looking to raise funds will need to be accepted by a licenced platform and enter into a hosting agreement. Typically the platforms operate an up-front fee of upto around $10,000 to cover the cost of their due diligence and take a success fee of around 7% of the funds raised.

 

Whilst this is a game changer for the right entities, it is important to recognise that equity crowd-sourced funding will not be suitable for all proprietary companies. Even where an entity meets the criteria and is deemed to be suitable by a licenced platform there is a lot of hard work involved and there are no guarantees of success.

 

For some entities reward based crowdfunding may be an alternative or a first step before undertaking an equity-based crowdfunding campaign. A reward-based crowdfunding campaign can be used to test the market validity of a new product and build a crowd of customers without diluting existing shareholders.

 

If you would like further information about equity or reward-based crowdfunding or to understand if it may be a viable option for your business please contact  us at info@readyfundgo.com


If you'd like to see more of our essential tips for managing and promoting your crowdfunding project, you can grab our Guide To Crowdfunding here.

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About ReadyFundGo

ReadyFundGo is a crowdfunding platform and community of social entrepreneurs, business owners, change makers and innovators who have a great idea they want to get off the ground or grow. If you are interested in the world of innovation and ideas, or want to find strategies for raising funds for your own project or expansion, ReadyFundGo can help. To begin your own crowdfunding campaign, start your draft here.

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