Equity funding law to be revamped to make crowdsourcing easier

Published 14 June 2013 00:07, Updated 17 June 2013 08:11

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Equity funding law to be revamped to make crowdsourcing easier

A consultation process will examine whether the Corporations Act – which was drafted in an age before social networks and mobile payment platforms – “appropriately facilitates and appropriately regulates” equity crowd-funding. Photo illustration: Phil Carrick

The potential for entrepreneurs and risky companies to raise capital more easily was given a tremendous boost this week, after three ministers of the federal government said the corporate law might be modernised to recognise the extent to which technology (including social networks and mobile payment platforms) has created new avenues for fund-raising.

Ministers Greg Combet, David Bradbury and Stephen Conroy, in a joint announcement on Wednesday, said a consultation process would examine whether the Corporations Act – which was drafted in an age before social networks and mobile payment platforms – “appropriately facilitates and appropriately regulates” equity crowd-funding.

The act currently has a specific provision, section 708, exempting small offerings (less than $5 million in a 12-month period) from strict prospectus requirements, but only if 20 investors or fewer participate.

But this looks increasingly antiquated, given social networks and fund-raising platforms can combine to bring investment opportunities to a much bigger “crowd”.

As Capital examined in a feature published on March 27, many international jurisdictions, including the Netherlands, Britain and United States, are regulating equity crowd-funding. This is different to the more common crowd-funding of the “pledge and reward” type – popularised by websites such as Kickstarter in the US and Pozible in Australia – where sponsors “pledge” small amounts to help projects get off the ground and provide rewards (often the product itself) to attract support. Legally speaking, this model is not controversial, but allowing these sites to raise equity is a different story, as securities laws are triggered.

Read the full story on The Australian Financial Review’s Capital

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