The federal opposition has put forward its amendments to the government’s controversial equity crowdfunding legislation with the aim of removing “onerous red tape” for startups.
It comes as a Senate committee has returned its findings on the bill, broadly supporting the legislation and recommending it should be passed as is.
The Corporations Amendment (Crowd-sourced Funding) Bill 2015 was introduced by the government in December to open up equity crowdfunding to retail investors.
The means of funding is currently only available to “sophisticated investors” with more than $2.5 million in investable assets and annual earnings of more than $250,000.
The bill included a $5 million cap on the amount a business can raise from retail investors annually along with a $10,000 cap on investors.
The most controversial aspect was a requirement that companies seeking to participate in equity crowdfunding become incorporated as a public unlisted company, with certain concessions for the first five years.
In submissions to the Senate inquiry, CrowdfundUp said this would result in “undue compliance costs, administration costs and regulatory burdens”, while BDO Australia said it would be a “significant deterrent” for companies wanting to access equity crowdfunding.
VentureCrowd founder Tim Heasley has previously labelled the bill a “dead duck” due to this requirement, which he says would make startups “jump through hoops”.
The amendments put forward by Labor remove this requirement, instead suggesting that businesses access the Corporations Law exemptions after they begin an crowdfunding campaign.
Labor says there are “key shortcomings” in the government’s bill and that the public entity requirement will cost early-stage businesses “thousands” of dollars in compliances.
But not all submissions were against the public company requirement, with Fat Hen Ventures saying the associated compliance costs would be “immaterial” compared with the money raised through a campaign.
“It does not matter whether a public company raises $250,000 or $25 million from the public – they must in our opinion take on the added reporting responsibility and governance around audit, proper systems and shareholder meetings,” the VC firm said in a submission.
“Saving a few dollars should not be at the expense of good governance.”
The opposition has also proposed to double the maximum assets and turnover test for equity crowdfunding eligibility from $5 million to $10 million.
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“The current $5 million cap on assets and turnover concentrates risk and encourages retail investors to place their money on the highest risk early-stage startups, losing all the benefits of diversification,” Labor senator Chris Ketter says in the report.
Despite these concerns, the opposition says it does “not intend to block the bill”, and will instead work with the Greens and key crossbenchers to get the amendments added.
“We do need to remove a major barrier to small firms accessing the equity crowdfunding system,” Ketter says.
The Senate committee report found that the government consulted widely with stakeholders before introducing the bill.
“The committee cannot fault the government’s consultation process and although the proposed legislation came under heavy criticism for being either too restrictive or too liberal, the committee is of the view that the cautious approach taken at this early stage is prudent,” the report reads.
“The committee believes that the benefits presented by this bill – namely, the introduction of a functioning CSEF framework – far outweigh any risks that may exist.
“This is largely because sufficient safeguards are in place to ensure that investors are protected.”
The review recommended that the controversial aspects of the bill be reviewed again once the regime is in place and has had an “opportunity to be judged on its effectiveness”.
“Overwhelmingly the committee is of the view that the government has, after extensive consultation, taken a prudent course of action by introducing a low-risk regulatory framework which strikes the right balance between supporting small businesses and protecting investors,” the report says.
“It may well be true that, if enacted, the legislative framework will benefit from subsequent fine-tuning – that is to be expected.”