Crowd Sourced Funding - non-investment and investment types
Crowd Sourced Funding

Crowd Sourced Funding – non-investment and investment types

Photo by Kelly Sikkema on Unsplash

Crowd sourced funding - non-investment and investment types

10 January 2020

Crowd-sourced funding (CSF) involves raising funds, usually via an online Intermediary. 

How?

A large number of people make relatively small financial contributions to your company.

And, there are 2 general types of crowd-sourced funding - non-investment and investment-based. 

Below, we'll go through each.

Non-investment crowd-sourced funding

Non investment crowd sourced funding involves you receiving donations from participants that support your cause or pre-purchase a good or service that will be using the raised funds. 

Investment-based crowdsourced funding

Investment-based crowdsourced funding involves participants investing money for a financial reward or gain.

Unlisted public companies and private companies with less than $25 m in assets and annual revenue can make offers of ordinary shares to retail clients with an Australian Financial Service (AFS) licensed CSF intermediary’s platform via a CSF offer document. 

Eligible companies can raise up to $5m in any 12-month period under the CSF regime. 

Corporations Act guidance

The Corporations Act has the regulatory framework for equity based crowd-sourced funding (investment based crowd sourced funding type). 

Your company offers ordinary shares to investors for a small cash investment. 

Do you have questions or comments about crowd sourced funding types? Be sure to leave them below. 


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CSF offer must be for ordinary shares
Crowd Sourced Funding

CSF offer must be for shares

Photo by Chris Liverani on Unsplash

CSF offer must be for shares

7 January 2020

In addition to other requirements when a CSF offer is made, your company's CSF offer must be an offer of fully-paid ordinary shares.

And, the CSF intermediary is a single platform that may publish a CSF’s offer. 

Fully paid shares

The company’s CSF offer must be for fully-paid ordinary shares and not other types of securities like partly-paid shares or preference shares. 

No sale or transfers

The offer may be for an issue of shares but not the sale of shares or a transfer or sale of shares that have already been issued.

Sale restriction

Investors are not able to sell shares purchased under a CSF offer within 12 months of their issue without a prospectus or other disclosure document, unless an exemption in s. 708 of the Corporations Act applies (e.g. sales to sophisticated or professional investors) or unless ASIC gives relief.

Do you have questions or comments about CSF offers? Be sure to leave them below. 


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A guide for defective CSF offer documents
Crowd Sourced Funding

A guide for defective CSF offer documents

Photo by Kaleidico on Unsplash

A guide for defective CSF offer documents

6 January 2020

Below is a guide for defective CSF offer documents.

The guide below is from the Corporations Act 2001 (Cth) and all references to sections are from the Corporations Ac.

In a hurry? Jump ahead below. 

738U When a CSF offer document is “defective”

A CSF offer document is defective if:

  • there are any misleading or deceptive statements; or
  • there is an omission of information required by CSF regulations; or
  • since the document was first published on a platform of a CSF intermediary, a new circumstance has arisen that should have been included based on regulations if the document was not already published.

738V Obligation to notify company making offer, and responsible intermediary, if CSF offer document is defective

Failure to comply with the items below is a strict liability offence: s. 1311(1).

Company discovers defective document

If, while a CSF offer is open, the company making the offer becomes aware that the offer document is defective, the company must notify the responsible intermediary as soon as practicable.

Responsible intermediary discovers defective document

If, while a CSF offer is open, the responsible intermediary becomes aware that the CSF offer document is defective, the intermediary must notify the company making the offer as soon as practicable.

Another person discovers defective document

If, while a CSF offer is open, any other person referred to in the table in subsection 738Y(5) becomes aware that the CSF offer document is defective, the person must notify the company making the offer, and the responsible intermediary, as soon as practicable.

738W Company may provide a replacement or supplementary CSF offer document

Company may provide another document

The company making a CSF offer may provide the responsible intermediary with a supplementary or replacement CSF offer document as follows:

  • the company may provide a supplementary or a replacement CSF offer document, that corrects any defect or non-compliance with regulations; and
  • in any other circumstances permitted per the regulations.

Note - defective CSF offer documents give rise to liabilities under section 738Y.

Limits on content

A supplementary CSF offer document or a replacement CSF offer document:

  • must only be updated per regulations; and
  • only correct a defect or non-compliance. 

Statement for supplementary or replacement CSF offer document

At the beginning of a supplementary CSF document, there must be:

  • a statement that it is a supplementary document; and
  • an identification of the affected offer document it supplements; and
  • a statement that it is to be read together with the affected offer document.

Intermediary may publish supplementary or replacement CSF offer document on offer platform

If, the company making a CSF offer provides the responsible intermediary with a supplementary or replacement CSF offer document, the intermediary may update the offer documents on the offer platform. 

However, the responsible intermediary is not required to publish the supplementary or replacement CSF offer document. 

Consents and gatekeeper obligations for replacement and supplementary CSF offer documents

The same provisions that apply to a CSF offer document, also apply to any supplementary or replacement CSF offer document: s. 738M (consents to publish a CSF document) and s. 738Q (obligations of CSF intermediaries). 

No fresh consent needed

Despite section 738M (consents to publish a CSF document), you don't need fresh consent for immaterial changes. 

738X Responsible intermediary's obligations on becoming aware that CSF offer document is defective

This section applies if the responsible intermediary for a CSF offer becomes aware, while the offer is open, that the CSF offer document is defective.

Note: See also section 738V, which imposes notice obligations in relation to defective CSF offer documents.

Responsible intermediary must suspend or close the CSF offer

The responsible intermediary must, as soon as practicable:

  • remove the CSF offer document from the offer platform; and either:
    • close the offer; or
    • suspend the offer by giving notice on the offer platform that the offer is suspended.

Failure to comply with this requirement is an offence: s. 1311(1).

Suspension notice must continue 

If the responsible intermediary suspends the offer, the notice required must continue to appear on the offer platform until the suspension ends or the offer closes.

Failure to comply with this requirement is an offence: s. 1311(1).

Publication of correction

The company making the CSF offer provides the responsible intermediary with a supplementary or a replacement CSF offer document and the responsible intermediary publishes the applicable document on the offer platform.

Suspension ends after correction

If the CSF offer has been suspended, the suspension of the CSF offer ends when the supplementary or replacement CSF offer document is first published on the offer platform.

Notice to each person who has already applied pursuant to CSF offer

The responsible intermediary must, as soon as practicable after the supplementary CSF offer document or replacement CSF offer document is first published on the offer platform, give each person who has already applied pursuant to the CSF offer a written notice, accompanied by that document, advising the person that they may, within 14 days after the date of the notice, withdraw their application and be repaid.

Failure to comply with this requirement is an offence: s. 1311(1).

Also, if the suspension does not end per this section, the responsible intermediary must return the application money when the offer closes: section 738ZB.

Withdrawal of application

A person who is given a notice, may, within 14 days after the date of the notice, withdraw their application. The withdrawal must be by notice in writing to the responsible intermediary.

Note: If an applicant withdraws their application, the responsible intermediary must return the application money (see section 738ZB).

738Y Other liabilities relating to defective CSF offer documents

Obligations giving rise to liabilities

A company must not offer securities under a CSF offer document if the document is defective.

A defect may be corrected by a supplementary CSF offer document or a replacement CSF offer document: s. 738W.

If this requirement is contravened, ASIC may make a stop order under section 739.

When company is taken to offer securities

A company is taken to offer securities under a CSF offer document at all times, before the offer is closed, when the offer document is published on a platform of a CSF intermediary.

When CSF intermediary must not publish CSF offer document

A CSF intermediary must not publish (or continue to publish) a CSF offer document on a platform of the intermediary if:

  • the document is defective; and
  • the intermediary knows that the document is defective.

A defect may be corrected by a supplementary CSF offer document or a replacement CSF offer document: s. 738W.

Criminal liability

A person commits an offence if:

  • a person offers securities under a defective CSF document or if an intermediary publishes or continues to publish a defective document knowing its defective; and 
  • the statement, omission or new circumstance because of which the document is defective is materially adverse from the point of view of an investor.                 

Right to recover loss or damage

A person who suffers loss or damages because of a breach of s. 738Y may recover the amount of the loss or damage from a person referred to in s. 738Y(5). 

Do you have questions or comments about defective crowd sourced funding offer documents? Be sure to leave them below. 


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When a CSF offer is made, opened, closed, suspended and complete
Crowd Sourced Funding

When a CSF offer is made, opened, closed, suspended and complete

Melissa Walker Horn @sugercoatit

When a CSF offer is made, opened, closed, suspended and complete

5 January 2020

Below are the rules for the term of a crowd sourced funding (CSF) offer based on section 738N of the Corporations Act 2001 (Cth).                       

And all section references in this article are from the Corporations Act 2001 (Cth).

When a CSF offer is made

A CSF offer is made at the time when a CSF offer document for the offer is first published on a platform of the responsible intermediary.

A responsible intermediary is simply a single platform where you publish your CSF offer document.

You can only publish the offer if its content complies with CSF regulations: 738L Corporations Act 2001 (Cth). We are not going through offer content in this article.

When a CSF offer is open

A CSF offer is open during the period starting at the time when the offer is made and ending at the time when the offer is closed, but not including any part of that period while the offer is suspended (explained below).

When a CSF offer is closed

Subject to the timing and hosting rules below, the responsible intermediary for a CSF offer may close the offer at any time by giving notice on the offer platform that the offer is closed. If the intermediary does so, the offer is closed from the time when notice is so given on the offer platform.

Timing of CSF offer close

The responsible intermediary for a CSF offer must close the offer as soon as practicable after the first of the following occurs:

(a)  the period of 3 months starting from when the offer was made ends;

(b)  if the CSF offer document states a period during which the offer is to be open, or a date after which the offer is no longer to be open--that period ends or that date occurs;

(c)  the responsible intermediary considers that the offer is fully subscribed to the maximum;

(d)  the company making the offer notifies the responsible intermediary under section 738S that the company wants the offer withdrawn;

(e)  section 738Q prohibits the continued publication of the CSF offer document on the offer platform.

Any failure to comply with the rules above for an offer close is an offence (under subsection 1311(1)).

And also under subsection 738X(2), which requires the responsible intermediary to either close or suspend the CSF offer if the intermediary becomes aware that the CSF offer document is defective.

Hosting arrangement for a CSF offer

The hosting arrangement for a CSF offer may impose limits on the responsible intermediary's power to close the offer otherwise than in circumstances when the intermediary:

(a)  is required by subsection (4) to close the offer; or

(b)  is required by subsection 738X(2) to either close or suspend the offer because the CSF offer document is defective.

When a CSF offer is suspended

A CSF offer is suspended during the period of any suspension of the offer under section 738X (responsible intermediary's obligations on becoming aware that CSF offer document is defective).

When a CSF offer is complete

A CSF offer is complete if:

(a)  the offer is closed because of paragraph (4)(a), (b) or (c); and

(b)  all periods within which people could withdraw applications made pursuant to the offer have ended; and

(c)  the applications that have been received by the responsible intermediary and that have not been withdrawn or rejected represent at least the minimum subscription amount for the offer.

Section 738T outlines when applications can be withdrawn.

Do you have questions or comments about crowd sourced funding? Be sure to leave them below. 


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Gatekeeper obligations of CSF intermediaries
Crowd Sourced Funding

Gatekeeper obligations of CSF intermediaries

Gatekeeper obligations of CSF intermediaries

4 January 2020

Crowd Sourced Funding (CSF) intermediaries have a gatekeeper role that’s outlined in s. 738Q of the Corporations Act 2001 (Cth).

So who exactly is an intermediary?

An intermediary is a single platform that publishes a CSF offer document. 

And, we'll break down the role of the CSF gatekeeper intermediary in this article. 

Below, references to an Act are references to the Corporations Act 2001 (Cth).

In a hurry? Jump ahead. 

Checks

CSF intermediary must conduct checks before publishing CSF offer document.

A CSF intermediary must not publish a CSF offer document on a platform of the intermediary unless the intermediary has, before starting to publish the document, conducted the checks prescribed by the regulations to a reasonable standard.

Failure to comply with this subsection is an offence: subsection 1311(1)) of the Corporations Act 2001 (Cth).

Regulations

Regulations outline what is a reasonable standard in relation to all or any of the checks. And, an offence is an offence of strict liability.

The intermediary needs to conduct checks and to conduct those checks to a reasonable standard about things it knows or has reason to believe are the case.

The CSF intermediary must not  publish a CSF offer document if not satisfied of certain matters.

Intermediary publishing is prohibited in these cases

A CSF intermediary must not publish a CSF offer document on a platform of the intermediary, or continue to publish such a document while the offer is open, if the intermediary:

  • is not satisfied as to the identity of the company making the offer, or of any of the directors or other officers of the company; or
  • has reason to believe that any of the directors or other officers of the company are not of good fame or character; or
  • has reason to believe that the company, or a director or other officer of the company, has, in relation to the offer, knowingly engaged in conduct that is misleading or deceptive or likely to mislead or deceive; or
  • has reason to believe that the offer to which the document relates is not eligible to be made under the Corporations Act.

In the above cases, the CSF intermediary must close the offer: 738N(4)(e). 

Also, failure to comply is an offence: 1311(1) Corporations Act 2001 (Cth).

CSF intermediary must have adequate arrangements to ensure compliance with gatekeeper obligations.

Also, a CSF intermediary must have in place adequate arrangements, recorded in writing, to ensure compliance with its obligations above.

The Corporations Regulation 6D.3A.08 outlines the checks that a CSF intermediary needs to perform before publishing an offer document on a platform of the intermediary for a CSF offer of securities made by a company and is restated below.

Corporations Regulations 2001 - Reg 6D.3A.08

Gatekeeper obligation of CSF intermediary--checks

(1)  For the purposes of subsection 738Q(1) of the Act, this regulation prescribes the checks that a CSF intermediary needs to conduct before publishing any of the following documents (the offer document ) on a platform of the intermediary:

(a)  a CSF offer document (or a document purporting to be a CSF offer document);

(b)  a supplementary CSF offer document (or a document purporting to be a supplementary CSF offer document);

(c)  a replacement CSF offer document (or a document purporting to be a replacement CSF offer document);

for a CSF offer of securities made by a company (the offering company ).

Identity of offering company

(2)  The CSF intermediary must check the following information:

(a)  the name, ACN and type of the offering company;

(b)  the address of the registered office of the offering company;

(c)  the address of the principal place of business of the offering company.

Eligibility to crowd fund

(3)  The CSF intermediary must check whether:

(a)  the company satisfies the requirements in paragraphs 738H(1)(a), (b), (c), (d), (e) and (f) of the Act; and

(b)  the offer document satisfies the requirements in subsection 738J(2) and section 738K of the Act.

Information on directors etc.

(4)  The CSF intermediary must check the following:

(a)  the names and addresses of each person referred to in paragraph 6D.3A.04(1)(d);

(b)  whether the offer document contains the information required by subregulation 6D.3A.04(3).

Below, regulation 6D.3A.09 prescribes what constitutes a reasonable standard in relation to all the checks referred to in reg 6D.3A.08 for the purposes of s 738Q(2).

Corporations Regulations 2001 - Reg 6D.3A.09

Gatekeeper obligation of CSF intermediary--reasonable standard of checks

(1)  For the purposes of subsection 738Q(2) of the Act, this regulation prescribes what constitutes a reasonable standard in relation to all the checks referred to in regulation 6D.3A.08.

(2)  To the extent that information to be checked is of a kind that is included in a register kept by ASIC under the Act, or on ASIC's website, a reasonable standard is to check:

(a)  whether the information is included in that register or on that website; and

(b)  if the information is so included--whether the information is contrary to any other information that the CSF intermediary has; and

(c)  if the information is the name and address of a person referred to in paragraph 6D.3A.04(1)(d)--whether the name and address is consistent with the name and address used by that person on an original, a certified copy or an authenticated electronic copy of:

    (i)  a primary photographic identification document; or

    (ii)  both a primary non-photographic identification document and a secondary identification document.

(3)  Subject to subregulation (4), for all other kinds of information or matters to be checked, a reasonable standard is to:

(a)  explain in writing to the offering company what information or matters are required, including the level of detail required for such information and matters; and

(b)  require the offering company to provide such information and matters to the CSF intermediary in accordance with a reasonable process that the CSF intermediary has developed, documented and implemented for this purpose.

(4)  A reasonable standard for checking whether the offer document (see subregulation 6D.3A.08(1)) satisfies the requirements in section 738K of the Act is to check the offer document in accordance with a reasonable process that the CSF intermediary has developed, documented and implemented for this purpose.

(5)  In this regulation:

"certified copy" has the same meaning as in the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) .

"primary non-photographic identification document" has the same meaning as in the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) .

"primary photographic identification document" has the same meaning as in the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) .

"secondary identification document" has the same meaning as in the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) .

Do you have questions or comments about the gatekeeper role of CSF intermediaries? Be sure to leave them below. 


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An introduction to crowd sourced funding offers
Crowd Sourced Funding

An introduction to crowd sourced funding offers

Photo by rawpixel on Unsplash

An introduction to crowd sourced funding offers

Updated: 7 December 2019

Those startups with an innovation and social entrepreneurship drive and possibly also shoe-string budgets are good candidates for crowd sourced funding (or CSF for short). 


To start, I am going to catch you up on some major CSF changes, then we'll get into the meaning of an offer.

2018 - the big year for private companies

A big 2018 CSF change - private companies can access CSF without changing to a public company. 

Some criteria for private companies

To be eligible, a private company that wants to issue a CSF offer, will need at least 2 directors (unless they are a Pty Ltd - they can have 1 director), also, they will be subject to related party transaction laws. 

So, let's start with an introduction to CSF below.

So what exactly is CSF?

A CSF is an offer that is one made under Part 6D of the Corporations Act 2001 that meets this criteria: 

  • Its an offer for the issue of securities of the company;
  • the company is an eligible CSF company; 
  • the securities are of the class in the regulations; 
  • the offer complies with the issuer cap;
  • you won't use the funds to invest in securities or interests in other entities or schemes; and 
  • Any other regulation requirement.

How to comply with the issuer cap 

An offer of securities for issue in a company will comply with the issuer cap if the total of: 

  • the total maximum amount to be raised; and 
  • all amounts raised 12 months before the new offer is made for CSF; and 
  • all amounts raised 12 months before the time when the new offer is made, pursuant to offers by the company, or by related parties of the company that did not need disclosure because of s. 708(1) or (10), does not exceed: 
    • $5m; or
    • A different amount if set out in the regulations. 

Now if you are wondering about the meaning of 'related party', here it is below.

Related party 

Under 6D, each of the following is a related party (a reminder - this meaning is important for the issuer cap rule):

  • A related body corporate of the company; 
  • An entity controlled by:
    • A person who controls the company; or
    • An associate of that person.

And for offers that don't need disclosure, they are covered in section 708 of the Corporations Act 2001. The key points are below.

Offers that don't need disclosure 

Briefly, your offers won't need disclosure if they meet s. 708(1) and (10) of the Corporations Act 2001 - below.

And, this definition is important to comply with the issuer cap. 

You won't need to disclose under s. 708(1) if you have:

  • small scale offers - one's that don't result in a breach of the 20 investors ceiling; and 
  • offers that don't breach the $2m ceiling. 

And, you also won't need to disclose these offers (per s. 708(10)) under these circumstances: 

  • offers made through a financial services licensee; 
  • licensee is satisfied on reasonable grounds the person to whom the offer is made has previous experience in investing in securities; 
  • the licensee gives the person before, or at the time the offer is made a written statement of the licensee's reasons for being satisfied about these matters;
  • the person to whom the offer is made signs a written acknowledgement before or at the time the offer is made that the licensee has not given the person a disclosure document about for the offer.

Now, onto eligibility. 

An eligible CSF company 

A company is an eligible CSF company at a certain time if these conditions are met at that time: 

  • The company is a public company limited by shares or a private company that:
    • Has at least 2 shareholders
    • Meets all other requirements prescribed by the regulations
    • The company’s principal place of business is in Australia
    • The majority of the directors (not counting alternate directors) reside in Australia
    • The company complies with the asset and turnover test
    •  Neither the company or a related party of the company, is: 
      • a listed corporation, or 
      • included in an official list of a financial market operated outside Australia 
    • Neither the company or any related party of the company has a substantial purpose of investing insecurities or interests in other entities or schemes

Finally, below is the assets and turnover test. 

Assets and turnover test 

A company complies with the assets and turnover test at the time if: 

  • the value of the gross assets of the company, and all its related parties is less than:
    • $25 million; or
    • If the regulations prescribe a different amount - the prescribed amount; and
    • The annual revenue of the company, and of all its related parties, is less than: 
      • $25 million; or
      • If the regulations prescribe a different amount - that amount. 

I wish you every success for your CSF plans!





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