Crowd Sourced Funding Assignment 2022

RUNNING HEAD: BUSINESS AND COMPANY LAW
Crowd-Sourced Funding
Name of the student
Name of the university
Author Note

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BUSINESS AND COMPANY LAW
Introduction:
The process in which any medium and small scale business starts and increase the
amount of their capital for the business finance from the crowd or public is well known as the
funding of equity crowd or crowd-sourced funding. The funding of crowd-sourced can be
defined as increasing the lesser money amount from a huge number of the individual; it is done
generally by the method of internet use for any project or any venture funding. It has been
observed that the medium and small scale trade or any of the business start-up are offered for
highlighting the particular business or start-up golbally. In Australia, the administration has
introduced the process of crowdsourced funding in 2017. The CSF framework has given the way
of Amendment Act of the Corporation 20171 popularly known as crowd-sourced funding which
can be considered under the ASIC2. In the following essay a thorough analysis is done about the
effect of latest regimes for the funding of crowdsource and their application for the
intermediaries and companies along with the investors.
Funding of Crowd-Sourced:
The crowd-sourced funding is a process in which any medium and small scale business
starts and increase the amount their funds in terms of trade from a wide range of investors those
who willing invest in a small amount3. Therefore it has been found that certain similarities are
present, but it can easily be distinguished from the way of crowdfunding that is donation based
rather than by the method of increasing the amount of money for the sake of artists by the
entrepreneurs for the projects. Crowdfunding can be distinguished from the crowd-sourced
funding based on the nature of investment by the method of crowd-funding investment
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.

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concerning any scheme relating to the offered and managed investment by a person who does
require any license for the financial services of Australia. A person can made the investment in
an organisation through CSF up to the amount of $10000 yearly. There are different liabilities
and risks concerning the crowd-sourced funding. This type of risks includes the fraud risk,
insolvency and lack of records in the track of the organisation.
Deficiency in track proceedings of organisation:
Raising the business capital by the method funding of the crowd-sourced is the new method, or
in earlier stage of the process of development. Therefore the increment in the risk of the business
becomes unsuccessful and the risk of losing the money that is invested increases.
Fraud risk of insolvency:
The invested money has the threat of getting mislaid if it is not handled properly or the operating
website in the way of intermediary between the investor and the business that do not meet the
obligation for setting aside the amount of money in a separate, invested and therefore the
insolvency of the website can be seen.
Fall in the share or difficulty in selling the share:
After the achievement of the organisation the invested value of share by a person has been
observed to be diminished, and the return can be easily reduced if huge number of share is being
allotted by the organisation. The shares can be considered as the high and unlikely liquid that
explains that the chance for investor is less for selling the share in an easy manner4.
4 Moritz, Alexandra, and Joern H. Block. "Crowdfunding: A literature review and research directions." Crowdfunding in Europe. Springer,
Cham, 2016. 25-53.

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Current Regime:
Like the discussion of the concept of proper rules and regulation of the liability that is
limited had emerged at the moment once it was first introduced to the U.K, the debate or the
discussion about the best way and proper regulating and legislating the funding of the crowd-
sourced had been observed as existing. The actual question that is arisen in this contention is
found to be the best method for balancing legislation according to the interest of the trade for
increasing the fund while protecting the main investors. The Australian legitimate scheme faces a
challenge that is the fact recognition that CSF is not a matter of accommodation for the actions
of raising the fund in a lawful framework that exists for a huge business. There is a requirement
of the reconceptualisation of the law related to the increasing the fund for keeping the huge
consistency ambition for giving support to the business policies that need access for the
innovative model refunding that can be considered as traditional like equity funding
crowdsourced. This type of business includes the entrepreneurial business, startups, micro,
medium or small scale industry and the forms that are innovative. The legislation was
reconceptualised by the government of Australia in 2017. It is done by amending the CA 2001 to
amendment of the corporation act 2017. This particular act has been observed making
amendment that is minor three sections of the ASIC and ICA 2001 for giving a lawful
framework to CSF. This regime has been observed typically lowering the requirement for the
regulations of raising the fund in public and also maintaining the measure of protection for the
investors. It was seen that the legislation was published after many years of discussion and
debate in 2017. The legislation is applied that is found to be restrictive highly in nature, and it
had made the companies that are publicly listed, and those are eligible to be unlisted for
increasing the capital funds. The act amended India 2018 was observed as the regime is extended

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towards the proprietorship companies that become eligible by the method of Corporation
Amendment Act in the year 2018. Before the amendment it was not legal for the companies that
were private for increasing the fund from the shareholders. There are 12 essential characteristics
of a proprietorship company having bi demarcation of maximum fifty shareholders, and they
cannot raise the capital from the public. This is the main reason for the property ship companies
that have faced few regulations because they are observed as they provide little protection about
the shareholder's right. In a proprietorship company there is an arrangement of general meeting
annually that is not required and any performance record it is not required by the shareholders of
the organisation for the statement of finance. The method related to crowdfunding for the
companies those are public was found to be adopted by the government of Australia in 2017, and
the same method was applicable for the private companies by amending the actin 2018.
Effectiveness:
Cooling off period:
According to the Act of the year 2001, an intercessor for the CSF was essential to provide the
written notice to the persons applying, for publicising of replacement or supplementary to CSF
document offer. Known to be the cooling-off period for a month. The latest regime provides the
period of cooling off offer for about fourteen days. The time helps the CSF intercessor to be
aware to any defects that were found in the document of offer and writing them by providing a
chance of correction of the defects and giving them the supplementary or replacement document
of offer.

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Corporate Governance:
In accordance with the latest regime, any proprietary organisation containing one shareholder
CSF is essential for following some obligation that is considered to be additional. These
obligations can be defined as having two directors at least; if the organization is increased to $3
million or more from the CSF offer, having audit for the statement of finance maintaining the
registers of the organization in detailed and comprehensive way that includes all the details
related to the offer of CSF and also the shareholders; for any transaction of the party relating to
the field of approval of the shareholders that is essential to be gained; concerning about the
standard of accounting for the report of the director and the finance department5.
Exemption of takeover rule:
According to the CA 2001 the used quantity of shareholders in a company of proprietorship was
considered to be fifty, but according to the amendment that has been done the maximum share
recently holder was remained in the number of 50 but the restriction will not be applied for
maximum shareholder according to the CSF shareholder in an organisation. According to the
provision the company that is proprietor will not convert itself to a public listed company for
avoiding recap of increasing the fund by the method of crowdsource funding. Any public listed
organisation having greater than fifty shareholders are subjected to the provisions of takeover as
mentioned in the Corporation act chapter six.
As the companies are known to be proprietor having greater than fifty shareholders and as a
result, they are subject to the rules of takeover. This rule of takeover can be imposed restriction
upon the structure of raising fund, and there is also option to exit as applying is mainly related to
control the acquisition of minimum twenty per cent of the share of voting present in an
5 Cumming, Douglas J., and Yelin Zhang. "Are crowdfunding platforms active and effective intermediaries?." Available at SSRN
2882026 (2018).

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organisation. For the father avoidance off the takeover rule the amending provision of the
Corporation act has been observed as it provides and exempts from the takeover rule towards a
company of proprietor that meets the essential conditions and requirements that is provided in
the provision of the particular legislation. This exemption provides for reducing the compliance
cost and for avoiding any kind of restriction that can be considered as undue to the company
adjusting their capital structure for using of CSF for growing their business.
ASIC Levy:
Under the Australian Securities and Investment Commission Funding Industry all the intercessor
CSF and the unlisted youth companies that are public and proprietor will be subjected for a leave
that is imposed by the Australian Securities and Investment Commission. The intention of ASIC
is to publish the guidance specifically to help the CSF intercessor compliance along with the
obligations, there will be an application of flat levy for the large scale companies those are
proprietors or are public listed companies that are not listed.there is no specification of sub-
sector for small companies those are proprietors, and annual levy was not applicable to them.
Further ASIC has been observed to be published updated guidance of regulatory that is available
to CSF intercessor those who to seek to provide the service of CSF and also for the organisations
those who seek for increasing the fund on CSF intercessor platforms. According to the
Regulatory Guidelines 261 it has been observed that assisting the organisation, which seeks to
increase the capital through CSF, complying and understanding the obligations under the rules of
the latest regimes.
The intermediaries and the companies provide certain relief from the specified requirement of
the CA 2001. In the latest CSS regime it is a requirement for the intermediaries and the
companies to hold the ASF licence. The applied obligations under the licence will be honestly

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and efficiently acting and complying with the mentioned conditions in the specified licence and
the provisions for the services of finance, managing the interest of conflicts, providing enough
requirement of the resource, to maintain the organisation competence, having proper and
adequate system of managing the risk, providing proper external and internal dispute resolution,
and having essential arrangement for compensation.
Conclusion:
Crowdsource funding is the latest tool for the finance of the companies in Australia.it is the
method of any medium or small scale business startup to increase the fund for the trade or
business. Therefore crowdsource funding is not a new concept but the implementation is done in
Australia in recent time
In this report, a detailed discussion is made about the effective regime for the finding of
crowdsource and their application towards the intermediaries and the companies and also the
investors

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Reference:
Australian Securities and Investment Commission (ASIC)
Australian Securities and Investments Commission Act 2001
Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Act 2018
Corporations Amendment (Crowd-sourced Funding) Act 2017
Asic, "Cost Recovery Implementation Statement | ASIC - Australian Securities And Investments
Commission", Asic.Gov.Au (Webpage, 2019) https://asic.gov.au/about-asic/what-we-do/how-
we-operate/asic-industry-funding/cost-recovery-implementation-statement/
Asic, "Crowd-Sourced Funding | ASIC - Australian Securities And Investments
Commission", Asic.Gov.Au (Webpage, 2019) https://asic.gov.au/regulatory-resources/financial-
services/crowd-sourced-funding/
Cumming, Douglas J., and Yelin Zhang. "Are crowdfunding platforms active and effective
intermediaries?." Available at SSRN 2882026 (2018).
Corporations Amendment (Crowd-sourced Funding) Act 2017
Australian Securities and Investment Commission (ASIC)
Storey, Jill. "Crowdfunding assists Agtech with crucial challenge." Australasian
Biotechnology 28.2 (2018): 36.

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