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Crowd funding AustraliaBy Michael Scholefield, MSI Ragg Weir, Accountants, Melbourne.

Crowd funding has been successful for enterprises trying to raise funds though what is effectively pre-selling products or donations through sites such as “Kickstarter”.

In order to further fuel innovation, a few countries including New Zealand have passed legislation to allow a new type of crowdfunding called ‘Crowd-Sourced Equity Funding’. This allows for companies to raise capital from the general public without the normal costs associated with producing a prospectus and the associated marketing campaigns.  In the last 12 months, 20 innovative New Zealand companies have raised over $12 million in combined funds to support the growth of their businesses.

To make capital raising for innovative companies easier, the Australian Government is now taking steps towards implementing a similar system with the release of a ‘Crowd-Sourced Equity Funding Initiative’ as part of the National Innovation and Science Agenda. Some of the key points from the fact sheet about how the implementation will work are companies with turnover and gross assets less than $5 million will be able to raise up to $5 million per year at no more than $10,000 from each investor. To participate, the entity must be or convert to become an Unlisted Public Company.  There is also a five year exemption from the obligations to hold Annual General Meetings, produce audited financial statements and provide an annual report to shareholders which normal Public Companies are required to do.

Currently in Australia, in order to raise funds from the public a company must issue a prospectus or source investment from sophisticated investors. This is costly and heavily reduces the market of investors available to small businesses. The ability to raise capital via ‘Crowd-Sourced Equity Funding’ will commence within 6 months of the passing of the relevant legislation and it having received Royal Assent.

Businesses who may want to raise capital should commence their preparation to become “Investor Ready”.  This would include having up to date financial statements, forecasts and a business plan.

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