Crowd-Sourced Funding: An Analysis of the New Regimes in Australia

Running head: BUSINESS AND COMPANY LAW
BUSINESS AND CORPORATE LAW
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BUSINESS AND CORPORATE LAW1
Introduction
The way any small or medium scale business or any start-up raise the capital for
financing the business from the public is known as crowd-sourced funding or equity crowd
funding. The definition of crowd-sourced funding can be stated as the raising of small
amounts of money from a large number of people, generally by way of internet for the
funding of any venture or any project. It can be seen as offering the small and medium scale
business or any start-up to be highlighting their business or projects to the world. In Australia
the crowd sourced funding has been introduced by the Government of Australia in the year
2017. The frameworks for the CSF are provided by way of the Corporations Amendment
(Crowd-sourced Funding) Act 20171 under the Australian Securities and Investment
Commission (ASIC)2. In the essay a detailed discussion has been made about the effectiveness
of the new regimes for the crowd source funding and their applicability towards the
companies and intermediaries as well as the investors.
Crowd-sourced Funding
Crowd sourced funding is the way of any start-up or any small or medium scale
business to be raising funds for the business from a large number of investors investing in
smaller amounts3. Although there are certain similarities, yet crowdsourced funding can be
differentiated from donation based crowdfunding by the way that the entrepreneurs for the
artists raise money by way of crowdfunding for one off projects. Crowdsource funding can
also be differentiated from crowd funding with investment based nature by the way that
1 Corporations Amendment (Crowd-sourced Funding) Act 2017
2 Australian Securities and Investment Commission (ASIC)
3 Storey, Jill. "Crowdfunding assists Agtech with crucial challenge." Australasian Biotechnology 28.2 (2018):
36.

BUSINESS AND CORPORATE LAW2
investment crowdfunding requires the involvement of investment in any scheme related to
investment managed or offered by an individual who does not need licence for Australian
financial services. An individual can invest in a company through CSF for up to $10000
within a year. There are certain risks or liabilities related to crowdsource funding as well.
These risks include: insolvency or fraud risk, lack of the track records of the company, shares
might be harder to sell back or they can fall.4
Insolvency or fraud risk
The money invested can be having a risk of getting lost if it is handled in
inappropriately or the website that is operating in a intermediary way between the business
and the investors does not meet its obligation for keeping the money invested separate and
the website becomes insolvent.
Lack of track records of the company
Businesses raising capital by way of crowdsourced funding are mostly new or are in
the earlier stages of the development process, hence, more risk of the business to be
unsuccessful and even higher risk to be losing the invested money is present.
Difficulty to sell the shares or falling of shares
Even after the success of the company, the value of the shares invested by an
individual can be diminishing and the returns received by them can be reduced if there are
more shares issued by the company. The shares are also highly unlikely to be liquid which
means that there is a less chance for the investor to be selling their shares easily.5
4 Moritz, Alexandra, and Joern H. Block. "Crowdfunding: A literature review and research
directions." Crowdfunding in Europe. Springer, Cham, 2016. 25-53.
5 Moneysmart, "How To Buy & Sell Shares | ASIC's Moneysmart", Moneysmart.Gov.Au (Webpage, 2019)
<https://www.moneysmart.gov.au/investing/shares/how-to-buy-and-sell-shares>.

BUSINESS AND CORPORATE LAW3
Current Regimes
Like the debate for the proper regulation of the concept of limited liability had arisen
at the time when it was introduced in the United Kingdom, the debate about the proper and
best way for legislating and regulating the crowd sourced funding have also been observed to
be existing. The main question that arises in this context is the best way for the legislations to
be balancing the interests of the business for raising funds while simultaneously protecting
the investors. The challenge in the Australian legal system is the recognition of the fact that
CSF is not just a matter for the accommodation of the activities of fundraising in the legal
framework that has been existing for the big businesses. The law is required to be
reconceptualised towards the approach of raising the funds to be in consistence with the
broader ambitions of the policies for providing support towards the businesses that are likely
to be needing the access towards the innovative models for the funding that are not
considered as traditional, like the crowd sourced equity funding. These businesses can be
including start-ups, entrepreneurial businesses, the micro, small or medium scale businesses
and the innovative firms. This reconceptualization of the legislation has been done by the
Australian Government in the year 2017 by way of the amendment of the Corporations Act
20016 to Corporations Amendment (Crowd-sourced Funding) Act 20177. The Act can further
be seen as making minor amendments towards the provisions of the Australian Securities and
Investments Commission Act 20018 for providing a legal framework for the CSF. The regime
can typically be observed as reducing the requirements of the regulations for fundraising in
public while simultaneously maintaining the protection measures of the investors. The
legislation was seen to be published after years of debate and consultation in 2017; however,
the application of the legislation was highly restrictive in nature and only made the public
6 Corporations Act 2001
7 Corporations Amendment (Crowd-sourced Funding) Act 2017
8 Australian Securities and Investments Commission Act 2001