Part 2: Looking to raise capital under the new Australian crowd sourced funding regime?

By Rania Seoud, Andrew Gaffney and Daniel Knight

While the CSF regime removes some of the existing regulatory barriers to capital raising, there are a number of other key considerations for eligible companies intending to utilise the CSF regime.  Below are just a few:

• CSF intermediary platform requirements: Offers for a company’s securities must be made through an authorised CSF intermediary. At this point in time and apart from service fees, it is unclear whether a CSF intermediary will impose any other obligations on the company to be admitted onto their platform (e.g. due diligence, verification and CSF offer document sign off obligations).
• Disclosure requirements: The CSF offer document must contain certain information required by the regulations which are yet to be released.
• Liability: The Company and its individual directors and officers may be held liable for loss or damage suffered by a person due to a defective CSF offer document. Accordingly, it is important that you have a reasonable objective basis for the contents of the CSF offer document. In particular, you will need to be careful when providing financial forecasts and statements regarding future events.
• Restrictions on advertising: There will be restrictions on advertising for the CSF offer.
• How do you value your business: In practice, you will need to determine a pre-money valuation for your company to set an appropriate offer issue price.
• Setting a minimum size for investment: While there is a maximum investment cap of $10,000 per investor per offer, to avoid having many shareholders with small parcels and the associated administrative burden, you may want to consider setting a minimum subscription amount.
• Share buy-back mechanisms: Where certain requirements are met, companies utilising the CSF regime will be exempt from meeting higher corporate governance and reporting requirements applicable to public companies for a period of 5 years (e.g. annual audit and filing of financial statements). At the expiry of the 5 year period, the company may want to ensure that it has in place effective mechanisms to allow it to convert back to a proprietary company should the need arise (e.g. consider including share buy-back, share valuation mechanisms in the company’s constitutional documents).

You may find our article on CSF intermediaries and ASIC’s CSF Guidance of use.