Crowd Sourced Funding Equity Raising Package
A new opportunity for small/medium enterprises, inventors and entrepreneurs has emerged with the passing by the Australian Senate of the Australian government’s Crowd Sourced Funding Amendments to the Corporations Act.
SMEs and others now have three distinct opportunities where they can raise capital from the public without producing a prospectus. These opportunities for capital raising are:
- Crowd Sourced Funding
- Early-Stage Innovation Company
- Section 708 of the Corporations Act “Capital Raising”
The opportunity to raise capital utilising Crowd Sourced Funding has been a dream for many SMEs, inventors and entrepreneurs over recent years. Whilst there has been some criticism of certain aspects of the legislation thousands of small/medium enterprises, inventors and entrepreneurs are expected to avail themselves of the opportunity to raise capital in this unique fashion.
Most of the entities seeking to raise capital using the Crowd Sourced Funding process are expected to be small/medium sized businesses. These types of businesses are traditionally the clients of small to medium-sized accountancy businesses all around Australia. Small/medium sized accountants who gear up for the opportunity of being able to service this new emerging market will be able to create a significant “new income stream”.
The government has decided that only unlisted public companies will be able to raise capital from the “crowd” utilising the crowdfunding methodology. This will mean that many proprietary limited companies will be interested in converting their current companies into an unlisted public company.
An eligible unlisted public company, that is able to raise capital utilising crowd-sourced funding, will have a turnover under $25 million and gross assets valued at under $25 million. If a company passes these tests it will then be able to raise up to $5 million every 12 months from the “crowd”.
The legislation has introduced a series of exemptions from the more onerous requirements for a public company which will apply for up to 5 years from the date that a proprietary limited company has converted to an unlisted public company.
These exemptions relate to:
- Holding annual general meetings.
- Audit of accounts.
- Providing “paper” annual reports.
The audit exemption will expire if the company raises more than $1 million in capital.
The legislation introduces some new titles to corporate law relating to the “gatekeepers” who are referred to as CSF Intermediaries. The Intermediaries are businesses with financial services licenses which are expressly authorised by a further license to provide a crowd funding service. In this role the Intermediary will check the CSF Offer Document and the other documentation required to be produced and will then list the company’s Offer Document onto the Intermediary’s website where it can remain for up to 3 months or such lesser time that has been stipulated in the Offer Document.
The legislation includes a restriction on the amount of money that a retail investor can invest in a company raising capital by Crowd-Sourced Funding to $10,000 every 12 months. The legislation does not identify any minimum investment amount.
There is no restriction on the amount of investment from a sophisticated investor.
Companies will be able to raise capital by utilising a mixture of crowdfunding and raising capital utilising section 708 of the Corporations Act, if they wish.
Obviously the benefit from this legislation for small/medium enterprises, entrepreneurs and inventors is that there is an opportunity to raise money for business expansion without having to utilise extensive personal funds, second mortgages on houses, credit cards or borrowings from relatives etc.
However companies will need to be able to produce adequate documents which will form part of the CSF Offer Document to convince firstly the CSF Intermediary and the “crowd” that the company is in an “investment ready state” and that the company’s directors and management team understand modern corporate practice and the immense responsibility of using other people’s money in their business activities. Some of these companies will grow into very large corporations which will have significant benefits for their founders and investors.
However this “fairy tale” ending will not be achieved unless there has been strong discipline shown in the preparation of the documentation that is going to be required to be submitted to the “gatekeeper”.
This is the area in which accountants can play a significant role by assisting the directors of small companies to prepare the strategy for the company and then to work with professional advisors for the preparation of the required documents.
Companies aspiring to raise capital from Crowd-Sourced Funding will require:
- Market Research – which identifies the potential for the company’s products or services and at what price.
- Marketing Plan – which will identify the marketing activities that are proposed to be undertaken together with cost estimates for each marketing activity.
- Management Plan – which will identify key management positions within the organisation including job descriptions. If some persons have already been appointed a CV for the appointees should be prepared so that it can be incorporated within the documents.
- Team Plan – a summary of the team members including job descriptions/summary of responsibilities should be prepared.
- Corporate Chart – an overview of the management and team structure proposed for the company.
- Intellectual Property Summary – identifying the ownership of intellectual property and details of any patents, trademarks, confidentiality agreements and licenses held by the company.
- Research and Development Strategy – a summary of the processes that have been implemented for the control of research and development being undertaken within the company.
- Business Plan – incorporating the earlier documentation and identifying the directors’ vision for the company for at least the next three years.
- Budgets and Cashflow Forecasts – financial projections on the vision for the company outlined in the business plan and the other supporting documents for the next three years highlighting projected capital to be raised and identifying how the capital raised will be spent by the company.
- Information Memorandum – the information memorandum is a “précis” of the business plan document including information required to be produced by the Corporations Act.
- Corporate Governance Advice – many of the Company Directors will not have experience in the operations of an unlisted public company and will require mentoring on their roles as directors.
This is a significant amount of work that an accountancy firm, that is committed to supplying a broader range of professional services, should be able to provide.
To assist accountants to understand the requirements of The Corporations Amendment (Crowd-Sourced Funding) Act 2017 ESS BASIP, in conjunction with “For Accountants”, are inviting accounting businesses to subscribe to the ESS BIZTOOLS/ESS BASIP Crowd Sourced Funding Equity Raising Package which incorporates:
- Introduction to Crowd-Sourced Funding for Companies – a paper outlining how the legislation operates.
- Checklist of matters to be considered by directors of a company.
- Checklist of matters of significance for an intermediary (gatekeeper).
- Checklist of matters for review by the accountancy business.
- Video on the crowd funding equity legislation.
- Webinar explaining the utilisation of each form, template, article and other information contained within the Crowd Funding Package.
- Crowd Funding Equity Raising Mentoring Session.
- Business Plus+ Client Newsletter (4 editions).
– “Potential Fee Slippage and New Opportunities Calculator”
The “Crowd-Sourced Funding Equity Raising Package” will assist your accountancy business to assist your clients to adequately understand the various components of the Crowd- Sourced Funding opportunity and will place you in an ideal position to work with your clients in the preparation of the various documents required for the CSF Offer Document.
Last week the Federal government indicated that there will be further consideration given to enabling proprietary limited companies to be eligible to raise capital utilising Crowd Funding. This process could take a considerable time.
In the meanwhile there is an opportunity to utilise the legislation in its current state to assist companies to raise capital.
- This product package is a great set of tools to assist an accountancy/advisory business to get prepared to be able to offer professional assistance to SME companies, entrepreneurs, inventors to be a company capable of raising capital by Crowd-Sourced Funding Due Diligence System.
- Accountants/Advisers this is a great opportunity to get in on the ground floor of a whole new “income stream” – “crowd funding equity raising”!
- Our two Accountants Minute articles will give you additional information on this new exciting work area:
– “Crowd Funding Offers Significant Benefits to SMEs and Accountants (AM106)
– “Crowd Sourced Funding Equity Legislation Passed (AM103)
This is another service offering that your accountancy team will be happy with as they will be performing “real accountancy work”!
- News Release “Crowd Sourced Funding – a Great Opportunity for Accountants”.
- Webinar – “Crowd Funding Offers Significant Benefits to SMEs and Accountants”.
- Detailed questionnaire/action plan to assist accountants/advisers to conduct a due diligence review on a company to determine whether it complies with Crowd Sourced Funding (CSF) status including:
- CSF Legislation Overview
- Eligible CSF Company
- Issuer Gap
- Fund Raising in addition to a CSF offer
- Primary Issue Only
- Making a CSF Offer
- Corporate Governance Concessions
- CSF Intermediaries – Licensing Requirements
- Australian Market Licence (AML)
- The Obligations of a CSF Intermediary
- Stages of a CSF Offer
- CSF Investors
- General Investor Protections
- Investor Protections for Retail Customers Only
- When is a CSF document defective?
- Obligations in relation to defective documents
- Investor Rights – defective documents
- Criminal and Civil Liability
- Why would you use Crowd Funding to raise capital? – A Q/A summary to assist you with this conversation with your clients.
- How does Crowd Funding Equity Raising compare with other capital raising strategies available in Australia?
- Checklist of matters to be considered by directors relative to Crowd Funding Equity Raising
- Checklist of matters to be attended to by the Intermediary (Gatekeeper) appointed.
- Checklist to guide an accountancy business in offering a Crowd Sourced Funding Due Diligence Review
- Crowd Sourced Funding Mentoring Session
A one hour mentoring session to guide the accountancy/advisory business through the material provided will be offered by Skype or a webinar.
An Agenda will be sent to the subscriber prior to the session.
Within 2 days of the session an action plan will be prepared and sent to your firm.
You will be able to purchase additional mentoring sessions, if you wish.
- How to Use Webinar
A detailed how to use “Crowd Funding Equity Raising Webinar” is included in the product package.
- Seminar/Webinar Package for Subscriber’s Use
The Seminar/Webinar Package gives subscribers the ability to present seminars/webinars to clients/prospects on all aspects of Crowd Funding Equity Raising.
- Web Page Article
The web page article will assist you to communicate with your clients/prospects that you are familiar with Crowd Sourced Funding and keen to assist clients/prospects to get ready for a “Crowd Funding Ready Status”.
- Improving Your Bottom Line
A promotional article on Crowd Funding that you can badge and send to your clients/prospects to inform them about Crowd Funding Equity Raising and to inform them that your firm is keen to assist them if they would like to explore Crowd Funding Equity Raising.
4 x Client Newsletter Templates
You will receive four editions of the ESS BIZTOOLS’ Business Plus+ Client Newsletter. You can edit the material and distribute Business Plus+ newsletter to your clients, prospects and professional affiliates.
Value Adding Package
“Potential Fee Slippage and New Opportunities Calculator”
Assists in identifying the group of clients that you might be vulnerable to “fee slippage” because of marketplace changes.
The “new opportunities” component assists you to identify the group of clients you could promote additional “non-compliance” services.