Equity crowdfunding in Australia has finally been extended to proprietary companies after the government passed legislation through the upper house yesterday, despite the extension being first proposed more than one year ago.
Legislation for equity crowdfunding first passed in Australia in May 2017 after more than two years of consultation and debate, however at the time, the only companies eligible for the niche form of capital raising were public unlisted companies, meaning the method was highly restrictive in its application.
That didn’t stop Aussie startups from jumping on board though, with numerous equity crowdfunding raises coming through over the past 12 months, including $2.5 million for DC Power Co and $2.16 million for Xinja, an Australian neobank.
The legislation passed this week opens up the funding methods to a much larger pool of companies, and in a further win for startups, an amendment by Labor was also agreed to, which will see the new laws come into effect in just 28 days, rather than the originally proposed six months.
Get daily business news.
The latest stories, funding information, and expert advice. Free to sign up.
However, companies will still need to have turnover or gross assets of no more than $25 million to use the funding method, and will be able to raise no more than $5 million a year.
In a statement, Matt Vitale, co-founder of equity crowdfunding platform Birchal, welcomed the long-awaited reforms.
“While interest in equity crowdfunding has been astounding so far, the need to convert to a public company has been a significant deterrent. We have been speaking with numerous companies that have been holding off launching campaigns until this announcement. This news will be of immediate benefit to them,” Vitale said.
However, while the reforms will be a boon for the many startups keen to raise money via the crowd, Vitale warns those that do so will be subject to a range of stringent disclosure obligations.
“These include related party transaction rules, and enhanced reporting and disclosure obligations. All of which are entirely appropriate for companies permitted to raise funds from the public,” he says.
Jonny Wilkinson, co-founder of fellow local equity crowdfunding platform Equitise, praised the federal government and opposition for passing the legislation with amendments, pointing to the $545 million raised by startups via the method in the UK last year as a sign of things to come in Australia.
“Having a formalised structure and process for smaller proprietary companies to raise funds from ‘the crowd’ (their customers, friends and family) will be a huge boost to small businesses and the economy, driving both growth and employment. In turn, it also gives everyday investors the opportunity to invest in these companies and potentially make a return,” he said in a statement.