Convertible notes, if well structured, can be a simple, flexible and cost-effective way for a start-up to raise funds. Start-ups can offer convertible notes, which are debt instruments that may be converted to equity, to raise capital, instead of offering shares to investors at the very outset.
Does your business qualify for crowd-sourced funding?
Do you understand the legal implications associated with CSF?
Overview of the CSF Regime
Crowd-sourced funding (CSF) is an alternative way of raising funds and is especially attractive to innovative companies,
start-ups and emerging businesses as it allows large numbers of the public to make small financial contributions in exchange for obtaining
equity in these companies. The Corporations Amendment (Crowd-Sourced Funding Proprietary Companies) Bill 2017 received royal
assent on 21 September and came into effect on 19 October 2018, making CSF a reality for proprietary companies without the need for them
to convert to unlisted public companies. The changes to the CSF regime have presented an exceptional opportunity for smaller companies to
tap into this large pool of funding. The criteria for a private company to raise funds under the CSF regime are:
Having Two Directors.
- If the company has only two directors then at least one of these must reside in Australia;
- If the company has more than two directors then the majority of the directors must reside in Australia.
- The company must have its principal place of business in Australia.
- Is not an investment company; and
- Its gross asset is less than $25 million; and
- Its gross turnover was less than $25 million in the previous twelve months.
- Shareholder cap.
The company cannot have more than fifty shareholders. However, employee shareholders under an employee share scheme and CSF shareholders do not count towards this cap.
Provided those requirements are satisﬁed, a company can raise money from private investors. Up to $10,000 can be raised from each investor and a total of $5 million can be raised over any 12 month period. All CSF must be conducted through licensed CSF intermediaries.
In addition to some of the issues noted above, proprietary companies with CSF shareholders will be subject to some additional governance obligations which are not ordinarily imposed on small proprietary companies. These include:
- Preparation of financial and directors’ reports in accordance with accounting standards.
- Financial statements must be audited if proprietary companies raise $3 million or more from CSF offers.
- Shareholders’ approval is required for any related party transactions; and
- The company registers must include additional details including details about the CSF offer and the CSF shareholders as part of the company registers.
Contact Allied Legal
A specialised legal adviser can guide you through the complex rules, procedures and obligations companies and intermediaries must meet when contemplating CSF. Allied Legal’s commercial lawyers in Melbourne regularly assist proprietary companies, entrepreneurs and start-ups and take great pride in seeing them flourish. We provide free 30-minute initial consultations to help understand your needs. Please contact us when you are ready to seek specialist advice: http://alliedlegal.com.au/contact/.