CSF Regulation in Australia: Unlisted Public and Proprietary Companies

This report analyzes the effectiveness of Australia's current regulatory regime for crowd-sourced funding (CSF), specifically in relation to unlisted public and proprietary companies. It examines the balance between investor protection safeguards and the encouragement of innovation within companies. The report defines CSF, its types, and the legislative framework established by the Corporations Act 2001 and its amendments, highlighting key requirements for companies and obligations for intermediaries. It discusses the application of CSF to unlisted public and proprietary companies, including eligibility, fundraising procedures, and the impact on startup businesses. Furthermore, it explores the role of innovation in business, emphasizing how CSF can foster it through increased efficiency, product development, and market competitiveness. The report concludes that CSF plays a significant role in providing funding opportunities for businesses while underscoring the importance of innovation for long-term success.

Running Head: CSF 0
[School]
[Course title]
CROWD-SOURCED FUNDING
AUSTRALIA

CSF 1
Introduction
In this assignment the discussion will be made upon the effectiveness of the current regulatory
regime which could be made applicable in the crowd sourced funding in Australia. All this
would be done in relation to the unlisted public and proprietary companies. In short the
discussion will basically be focusing upon the adequacy of balance which was struck between
those safeguards which are inserted in the place for the protection of the investors while they are
encouraging the innovation in the companies.
The most eminent and the emerging form of funding is the CSF Crowd Sourced Funding and a
number of reviews are been undertaken for ascertaining the benefits of having a legislative
framework which is basically designed to facilitate the funding and its various types. CSF is very
successfully implemented in many nations and taking guidance from them Australia has also
introduced or it became possible for the Australian to adapt it for themselves. Thus the
Government of Australia for making their nation a progressive one and also for building a digital
future for their nation adopted this legislative policy of CSF for themselves.
Crowd sourced funding in Australia
The very term “Crowdfunding” means that practice which can help in raising the funds from the
pooling of finance from a large number of investors in the financing business for the smaller
financial contributions, or it can also be defined as commercialization of new product which can
basically be done through the online platforms. It can basically be of four types i.e. first reward
based, second donation based, third is based on equity and lastly it can be based on lending1.
The Corporation act of 2001 was amended in the year 2017 and had brought about certain minor
changes in the Australian Securities and Investments Commission Act 2001 and hence had
1 Anne Matthew, Crowd-Sourced Equity Funding: The Regulatory Challenges Of Innovative Fintech And
Fundraising, (2017) < http://www9.austlii.edu.au/au/journals/UQLJ/2017/3.pdf>.

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provided a basic framework to the Crowd-sourced Funding. Basically this regime is used to
diminish the regulatory requirements and for raising funds for the general public for maintaining,
protecting and measuring the appropriate investments in the Australian Financial Services2.
The basic requirements of the Crowdfunding in Australia are firstly the securities must be
offered by the company making offer, secondly the company at the time of making an offer must
be deemed fit for becoming CSF company. Thirdly all the conditions mentioned in the regulation
must be properly satisfied by the companies. Fourthly, the ‘issue cap’ must be compliant along
with the offer etc.
There are a number of obligations given to the intermediaries under the CSF region and those are
as follows firstly they are considered gatekeepers who are obligated with non-disclosing or
ceasing the existing issue relating to the offers in the documents of the intermediaries. Secondly
they are to make provisions for enhancing the necessity of the communicating facility. Thirdly
they are also obliged for sending a notice to the potential investors relating to all the rights, risks
regarding the occurrence of fees and interest in the company where the issues are raised and
lastly they can terminate or suspend an offer which are needed and can be held responsible for
processing the money so received in the application. Etc. 3
Application of CSF and its effectiveness as related to the unlisted public and proprietary
companies
Unlisted public companies
It was September 29. 2019 when the corporation act of 2001 was amended by the corporation’s
amendments (Crowd-Sourced Funding) Bill in the year 2016 for creating a framework for the
2 Christopher Brown and Harry New, Crowd-Sourced Funding For Proprietary Companies – Why You Might Or
Might Not (2018) < https://hallandwilcox.com.au/thinking/crowd-sourced-funding-for-proprietary-companies-why-
you-might-or-might-not/>.
3 Madeleine Hunt, Update: Crowd-Sourced Equity Funding – Public and Private Companies (2017) <
https://legalvision.com.au/update-crowd-sourced-equity-funding-public-and-private-companies/>.

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CSF i.e. Crowd-Sourced Funding by all the eligible public companies. The new legislation
resulted in raising the funds for small and unlisted public companies. This is to be eradicated
form the large number of small scale investors that to without disclosing burdens on the public
companies who are seeking to raise the funds. Thus it can be largely expected that after using the
new legislations of the CSEF the publically unlisted companies can get extended to the
proprietary companies. The main aim or the objective of this legislation is to provide new and
fresh funding opportunities to the companies which are about to start up with its business, here
all the potential investors are to ensure that there exist an adequate protection for the investors in
the correct place.
CSF Crowd-Sourced Funding, is determined as that term which is given to that process where
the funds are raised by the company from a large number of individuals contributing a small
amount of money and expect little amount back from the equity in the company. All the
eligibility requirements, amounts which can be raised, disclosure of the requirements, all the
duties and obligation of the potential investors, the prescribed procedure for raising the funds and
all the other additional protecting given to the investor are very clearly included and mentioned
in the new CSEF4.
But there are a number of commentators who determined that or were of the view that the
amendments were not adequate for the companies on its startup mode rather they access funding
which could only be made available for the unlisted public companies. Whereas the majority of
the startup businesses were considered as propitiatory limited companies and they had to conduct
their transaction to a public company so to get an access of the existing regime. Though there are
many exemptions which are not permanent existing out of these obligations but are still felt as
4 James Delesclefs, Manoj Santiago and Sarah Hickey, Crowd-sourced equity funding a
reality for Australian companies (2017) < https://www.pwc.com.au/legal/assets/legaltalk/crowd-sourced-equity-
funding-in-australia.pdf.

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barriers for the new startups. This thus resulted in pushing the startup communities up to a
broader regime for including it into a proprietary company5.
Proprietary Companies
After watching the success of the previous bill the government of Australia has introduced the
newly amended Corporation Act i.e. Crowd-Sourced Funding for the proprietary companies after
viewing all its federal budgets.in the year 2017 in the parliament. Slowly and gradually the bill
extended to the CSF regime of the proprietary companies and created a considerable and
numerous opportunities for the startups in Australia. Upon passing of the bill all the proprietary
companies would be able to raise the funds from the rules prescribed in the CSEF as was
mentioned in public unlisted companies6.
This new bill has a very tremendous impact on the proprietary companies such as it will bring
huge benefit for the small and the medium sized companies and especially in the technological
companies and the companies on its startup phase. The companies would get opportunities for
driving both the sale of the product and the capital which is been raised from the key customers
as well as the user of the products to participate in the equity of the company7.
Thus it can be taken into consideration that if a proprietary company wants to adapt the CSF
regime then it is needed to make certain changes in their existing structure and those are as
follows, first one is that the company must at least have two directors and the majority of them
must be residing in Australia only. Secondly by taking into consideration all the accounting
standards the proprietary companies must prepare and provide all its financial reports and list of
5 Tas Bindi Australian government to extend investor tax incentives to support fintech startups (2017) <
https://www.zdnet.com/article/australian-government-to-extend-investor-tax-incentives-to-support-fintech-startups/.
6 Hall & Wilcox, Crowd-sourced funding for proprietary companies - why you might or might not (2006) <
https://www.lexology.com/library/detail.aspx?g=964ac68d-b588-4b96-bca5-e832f91b1ce7>.
7 Laulegal, Asic Facilitated Crowd Funding - Should Your Business Consider This? (2017) <
https://www.laulegal.consulting/articles/2017/9/29/asic-facilitated-crowd-funding-should-your-business-consider-
this>.

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directors to the ASCI. Thirdly all the related rules and party transaction mentioned in chapter 2
of the Corporation Act are to be very effectively complied by these companies and lastly the
register of these companies must include all the additional information such as the date of issuing
the shares as an essential part of CSF, number of shares issued to the shareholders, all the
notifications made to the ASIC regarding the startups and termination of the CSF shareholders
etc.8
Encouragement of innovation in companies
Innovation means to successfully exploit the new ideas which are very crucial for the business to
improve their business and eradicate new and improved products and services within the
marketplace and also enhance their efficiencies and improve its profitability. The marketplace
can be any area i.e. local, regional, and national or the global competitions. It’s the competition
which gets raised up due to wider access of the technologies and the increased trading and the
shared knowledge and opportunities offered via internet. In a business process, innovation is
considered as its key issue which can very clearly outline the different approaches which can
take place in the course of business. Advices are given for planning the innovation and creating
an environment which is correct for conducting business.
It is very important for the unlisted public companies and the proprietary company to be very
clear about all the different inventions and the innovations held up within them. Invention here is
considered as the new ideas whereas the innovation is usage of those ideas in such a way that
could bring success for the company9.
Being fundamentally innovative means to introduce something new into the business and this
could help firstly, for increasing the efficiency and productivity of the businesses it is very
8 Jim Heskett, What Is Management’s Role in Innovation? 2007) < https://hbswk.hbs.edu/item/what-is-
managements-role-in-innovation>.
9 Gary Hamel and Nancy Tennant, The 5 Requirements of a Truly Innovative Company (2015)
©https://hbr.org/2015/04/the-5-requirements-of-a-truly-innovative-company>.

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important to extend the range and quality of existing products and services. Secondly for,
developing completely new and improved products and services which can meet up with the
needs of the rapidly changing demands or needs of the customers. Thirdly for changing the
businesses or making it better form that of their competitors it is very important to add values to
its existing products, services or the markets or perceive a greater value to its customers10.
Introduction of innovation along with that of the Crowd Sourced funding can help the companies
to improve the productivity, reduce the cost, and get alive in the competition, build or provide a
value to the personal brand of the company, establishments of the new partnerships and
relationships, increase and improve the profitability level of the company etc. Whereas the
business which fails to be innovative can face the risks of losing its personal market shares in the
hands of its competitors, efficiency of the products may fall and the key staff may be lost. It
could further lead to reduction of the profit margins and can also throw off the companies out of
the conducting the business zone11.
Innovation which can help the company to grow can be planned by assessing or having
knowledge of its competitors, by studying all the trends resisting in the marketplace so that the
production of the products and services can be planned accordingly. A healthy and a good
relationship must be built with the customers so that their need can be taken into consideration
while producing the products and the services. All the partners to the business must be properly
involved while taking all the crucial decisions regarding the growth and progress of the
company12.
10 Bansi Nagji and Geoff Tuff, Managing Your Innovation Portfolio (2019) <https://hbr.org/2012/05/managing-
your-innovation-portfolio>.
11 Stephen Bottomley, Kath Hall, Peta Spender, and Beth Nosworthy, Contemporary Australian Corporate Law
(Cambridge University Press, 2017) 652.
12 Hans Landström, Annaleena Parhankangas, and Colin Mason, Handbook of Research on Crowdfunding (Edward
Elgar Publishing, 2019) 416.

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Thus it can be very well determined that CSF must always try to encourage the innovation in the
companies so to earn a huge amount of profits for all its investors and this could only be attained
if there are proper funding are made available for bringing innovation or taking innovative steps
for earning the profits for the company. Innovation can be easily funded by the programs held up
by the Government or any other sources which could held up an assisting help in it.13
Conclusion
Thus to conclude with the assignment it can be very well determined that Crowd-Sourced
funding helps to bring or raise down funds for the newly starting up businesses or for the small
business which needs to raise its business at very little returning interests. It helps the investors
to protect its business from completely diminishing down. All this could be only done if the
company takes innovative steps towards achieving it.
Bibliography
Bindi, Tas Australian government to extend investor tax incentives to support fintech startups
(2017) < https://www.zdnet.com/article/australian-government-to-extend-investor-tax-
incentives-to-support-fintech-startups/.
Bottomley. Stephen, Kath Hall, Peta Spender, and Beth Nosworthy, Contemporary Australian
Corporate Law (Cambridge University Press, 2017) 652.
13 Julian Costley, How To Use Crowdfunding (Pan Macmillan, 2017) 440.

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Brown. Christopher and Harry New, Crowd-Sourced Funding For Proprietary Companies –
Why You Might Or Might Not (2018) < https://hallandwilcox.com.au/thinking/crowd-sourced-
funding-for-proprietary-companies-why-you-might-or-might-not/>.
Costley. Julian, How To Use Crowdfunding (Pan Macmillan, 2017) 440.
Delesclefs. James, Manoj Santiago and Sarah Hickey Crowd-sourced equity funding a
Hall & Wilcox, Crowd-sourced funding for proprietary companies - why you might or might not
(2006) < https://www.lexology.com/library/detail.aspx?g=964ac68d-b588-4b96-bca5-
e832f91b1ce7>.
Hamel. Gary and Nancy Tennant, The 5 Requirements of a Truly Innovative Company (2015)
©https://hbr.org/2015/04/the-5-requirements-of-a-truly-innovative-company>.
Heskett. Jim, What Is Management’s Role in Innovation? 2007) <
https://hbswk.hbs.edu/item/what-is-managements-role-in-innovation>.
Hunt Madeleine, Update: Crowd-Sourced Equity Funding – Public and Private Companies
(2017) < https://legalvision.com.au/update-crowd-sourced-equity-funding-public-and-private-
companies/>.
Landström. Hans, Annaleena Parhankangas, and Colin Mason, Handbook of Research on
Crowdfunding (Edward Elgar Publishing, 2019) 416.
Laulegal, Asic Facilitated Crowd Funding - Should Your Business Consider This? (2017) <
https://www.laulegal.consulting/articles/2017/9/29/asic-facilitated-crowd-funding-should-your-
business-consider-this>.
Matthew. Anne, Crowd-Sourced Equity Funding: The Regulatory Challenges Of Innovative
Fintech And Fundraising, (2017) < http://www9.austlii.edu.au/au/journals/UQLJ/2017/3.pdf>.

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Nagji. Bansi and Geoff Tuff, Managing Your Innovation Portfolio (2019)
<https://hbr.org/2012/05/managing-your-innovation-portfolio>.
reality for Australian companies (2017) < https://www.pwc.com.au/legal/assets/legaltalk/crowd-
sourced-equity-funding-in-australia.pdf.