{"id":9659,"date":"2017-03-17T13:34:49","date_gmt":"2017-03-17T02:34:49","guid":{"rendered":"http:\/\/sites.thomsonreuters.com.au\/journals\/?p=9659"},"modified":"2024-07-10T04:25:37","modified_gmt":"2024-07-10T04:25:37","slug":"the-future-of-equity-crowdfunding-in-australia","status":"publish","type":"post","link":"https:\/\/sites.thomsonreuters.com.au\/journals\/2017\/03\/17\/the-future-of-equity-crowdfunding-in-australia\/","title":{"rendered":"The Future of Equity Crowdfunding in Australia"},"content":{"rendered":"[Editor’s Note:<\/strong>\u00c2\u00a0Since publication of this article, the Corporations Amendment (Crowd-sourced Funding) Act 2017\u00c2\u00a0<\/em>(Cth) has been given Crown assent, making it Commonwealth Act No 17 of 2017.]\n

The\u00c2\u00a0Corporations Amendment (Crowd-sourced Funding) Bill 2016<\/em> (Cth), which is currently before<\/a> the Commonwealth\u00c2\u00a0Senate, plans to amend the\u00c2\u00a0Corporations Act 2001\u00c2\u00a0<\/em>(Cth) to deal with an\u00c2\u00a0increase in crowd-sourced capital-raising activities by companies within Australia. A more detailed exposition and analysis of the proposed Bill is contained within the latest issue\u00c2\u00a0of the\u00c2\u00a0Company and Securities Law Journal<\/em>\u00c2\u00a0in\u00c2\u00a0Catie Moore, \u00e2\u20ac\u0153Equity Crowdfunding in Australia: How Far Have We Come and Where to Next?\u00e2\u20ac\u009d (2017) 35 C&SLJ 102<\/a>.<\/p>\n

\"Crowdfunding_image\"Crowdfunding is a capital-raising activity whereby a company seeks investors\u00c2\u00a0to fund some future activity. Quite often, the company is a start-up which has been unable to access investment through traditional loans schemes or angel investors. Often, also, the investors (or \u00e2\u20ac\u0153backers\u00e2\u20ac\u009d) are many in number, but offer only small amounts of capital per person. Crowdfunding\u00c2\u00a0can take many forms, but is largely categorised into four broad types: donations-based, rewards-based, lending-based and equity-based.<\/p>\n

Donations-based and rewards-based funding have both taken a front page in the news in recent years, as small startups like Oculus raised millions<\/a> to fund\u00c2\u00a0game-changing\u00c2\u00a0technologies like virtual reality headsets; while\u00c2\u00a0other campaigns\u00c2\u00a0collected thousands of dollars overnight<\/a> to fly victims of abuse to Rome as Cardinal George Pell gave evidence\u00c2\u00a0for the Royal Commission into Institutional Responses to Child Sexual Abuse. Much of this sudden popularity is due to the ability of crowdfunding campaigns\u00c2\u00a0to take advantage of the viral nature of social media, as well as to market directly to a\u00c2\u00a0growing number\u00c2\u00a0of\u00c2\u00a0internet-savvy adults with disposable incomes.<\/p>\n

It is the fourth area of crowdfunding (equity-based) that Parliament\u00c2\u00a0is seeking to regulate with this Bill. Rather than donations-based (which is charitable in nature), lending-based (where repayment with interest is expected) or rewards-based crowdfunding (which acts more like a \u00e2\u20ac\u0153pre-order\u00e2\u20ac\u009d system), equity-based crowdfunding offers investment opportunities \u00e2\u20ac\u201c\u00c2\u00a0offering potential backers part ownership in a\u00c2\u00a0company in return for their money. Due to the nature of crowdfunding \u00e2\u20ac\u201c tending to attract risky, novel and innovative ventures \u00e2\u20ac\u201c there have been many calls for greater regulation in this area.<\/p>\n

This current Bill passed the House of Representatives on 8 February 2017, after which it was introduced to the Senate. The Bill’s second reading has been\u00c2\u00a0deferred to a later date, with amendments by the Opposition to be discussed. This is the second iteration of the Bill, with the Corporations Amendment (Crowd-sourced Funding) Bill 2015\u00c2\u00a0<\/em>(Cth)\u00c2\u00a0having lapsed due to the prorogation of the Senate in mid-2016.<\/p>\n

In her article, Moore discusses the 2016 Bill’s strengths and weaknesses, analysing it in light of current legislation and providing recommendations to enhance the Bill’s commercial application. Key recommendations<\/a> by Moore\u00c2\u00a0are:<\/p>\n