Equity crowdfunding allows Australian startups, scaleups and other growing companies to raise capital from a larger number of investors through a crowd-sourced funding intermediary, such as StrideEquity (hereinafter referred to as “StrideEquity" or "Us” or “we”).
This article outlines the key requirements of ASIC's Regulatory Guide 261, Crowd-sourced funding: Guide for companies. We recommend founders looking to make a Crowd Sourced Funding (CSF) offer read the complete guide.
Please note that the information contained in the document is general in nature and is not legal advice. You should seek your own advice from a qualified solicitor relevant to your circumstances.
Eligibility requirements
To be eligible to make an offer under the CSF regime a Company needs to:
Be a proprietary company (with a minimum of two directors) or a public company limited by shares;
Have its principal place of business in Australia;
Have a majority of its directors ordinarily residing in Australia;
Not exceed the assets and annual revenue caps of $25 million (including the assets and revenue of its related parties);
Not be listed on a financial market in Australia or overseas (including its related parties);
Not have a substantial purpose of investing in other companies, entities or schemes;
Make an offer for the issue of fully-paid ordinary shares;
Comply with the issuer cap (offers to raise no more than $5 million in any 12-month period).
The issuer cap includes all funds invested by retail, sophisticated, or professional investors through a retail CSF offer.
Funds raised through an offer that is only available to sophisticated or professional investors do not count towards the issuer cap. We display such offers as "Wholesale" on StrideEquity. Please contact us to learn more about our wholesale offer process.
Hosting Agreement
Every business that wants to raise capital through the crowd needs to enter into a hosting agreement with StrideCorp. We must then check the identity of the company and its key personnel, its eligibility to make a CSF offer, and the CSF offer document. In addition, we will conduct additional due diligence.
CSF offer document
Businesses must prepare a CSF offer document. The document must contain certain minimum information, which is prescribed under law. Furthermore, the document needs to be worded and presented in a clear, concise and effective manner.
The CSF offer document must include a table of contents with specific sections and headings, namely:
A general risk warning about crowd-sourced funding;
Information about the company, its business, directors and senior managers;
Information about the offer such as the terms and conditions and rights associated with the shares;
Information about the investor rights such as cooling-off rights, reporting and corporate governance obligations.
The list mentioned above is not conclusive. Please consult ASIC's regulatory guide 261 and contact us for more details. Furthermore, a template of the CSF offer document is available to download on ASIC.
Communication facility
One of our obligations as a CSF intermediary is to provide issuers and investors with a communication facility to enable both parties to discuss the offer. Furthermore, we must monitor the communication between issuers and investors to ensure no misleading or deceptive information gets published.
Timing rules
We must close a CSF offer at the earliest of:
Three months after the offer is made;
Any closing date specified in the CSF offer document;
When the offer is fully subscribed;
When the company decides to withdraw the offer;
When circumstances require us to remove the offer from the platform.
Corporate governance and reporting obligations for proprietary companies
In addition to the obligations that all proprietary companies must comply with under the Corporations Act, companies with CSF shareholders must also comply with the following governance and reporting obligations.
Record certain details about shares issued under CSF offers and its CSF shareholders in its share register
Notify ASIC of certain changes to its share register and share structure, including when it issues shares under a CSF offer, cancels those shares and when it starts to have, or ceases to have, CSF shareholders
Prepare an annual financial report and directors' report in accordance with accounting standards and lodge these reports with ASIC
Obtain shareholder approval before giving financial benefits to related parties (which includes directors and their spouses, children or parents)
Companies that raised more than $ 3 million through CSF offers must appoint an auditor and have their annual financial reports audited.
Two other important legal aspects of equity crowdfunding are:
50 Shareholder limit
Proprietary companies usually must not have more than 50 non-employee shareholders or make a public offer of their shares. However, the CSF regime allows businesses to make a public offer of their shares to retail investors. Furthermore, shareholders who buy shares via a CSF offer do not count toward the 50-shareholder limit.
Cooling-off rights
Retail investors can withdraw from a CSF offer within five business days of making an application.
If a retail investor decides to withdraw its application, we must refund the application money.
Please submit your application if you wish to raise capital through the crowd and contact us for more information about StrideEquity.
