Australian companies are regulated under the federal Corporations Act. This legislation provides for the circumstances and manner in which companies can issue securities, and thereby raise funds, from the public.
Whilst a company may engage in crowdfunding for donations or prepayment for goods or services just like an individual, issuing shares under the current law using a crowdfunding platform has not yet been permitted under the Corporations Act. Only public companies are permitted to offer shares across the public generally, and these offers are governed by the requirements for a prospectus.
There are exceptions to the prospectus requirements for private offers or small scale offers. The nature of these exceptions are such that using a crowdfunding platform is possible. This is largely because the offer would be open to the public, as opposed to a small number of larger investors and because the Corporations Act prohibits an offer of securities without having first lodged a prospectus.
The regulation of crowd sourced equity funding for companies under the Corporations Act is likely to change in the future. Whilst these changes will facilitate crowdfunding by companies, it is likely that the changes will be limited to public companies and they will potentially involve relatively high costs because they will require crowdfunding intermediaries to hold a financial services licence10.
Crowd sourced equity funding for co-operatives is different.
Offers of securities by a co-operative are primarily governed by the CNL. When a co-operative offers membership shares, there is no separate requirement for a prospectus and there is no limit on the number of people that can be targeted – provided they are within the co-operative’s ‘home’ state.
Co-operatives are required to prepare a disclosure statement prior to incorporation11 and this document is the disclosure required prior to any share offer and any advertising of such share offers. See Part 1.6.4 Start ups and Part 4 where disclosure is discussed more comprehensively.
The disclosure required for a co-operative share offer, is consistent with best practice and experience with community share offers in the UK. The ability to advertise security offers after the preparation of the necessary disclosure effectively permits co-operatives to raise modest but adequate share capital using a crowdfunding platform at a significantly low cost.
Separate disclosure is required in the event that a co-operative wishes to offer other securities such as debentures or Co-operative Capital Units, however, the disclosure requirements will depend upon who is the target investor.
Community investment should not be seen as a cheap way to attract capital. Community investors through a co-operative model may be happy to accept little or no financial reward for their investment, but they demand disclosure that matches the risk, purpose and engagement between the member and the co-operative.
The disclosure requirements under the CNL are examined in Part 4 of the Handbook.
Pingala did not use a crowdfunding platform, their community engagement work at the start up phase meant that they actually had a crowd in the room and held an event to sell their membership shares.