Crowdfunding Report: Legislative Framework and Examples

This report provides a comprehensive overview of crowdfunding, encompassing its definition, various types (reward-based, charity, equity, and lending-based), and practical applications in both commercial and social contexts. It highlights the significance of crowdfunding for startups and small businesses, emphasizing its role in raising capital and connecting entrepreneurs with investors. The report delves into real-world examples of successful crowdfunding campaigns, such as those facilitated by platforms like Kickstarter and Indiegogo, as well as donation-based campaigns that have made a significant impact. A major focus is placed on the legislative framework governing crowdfunding in Australia, including the Corporations Amendment (Crowd-sourced Funding) Act 2017. The report examines the key provisions of this act, the advantages and disadvantages of the Australian regulatory approach compared to other countries, and the implications for companies seeking to raise funds through crowdfunding. The report also includes a discussion on the limitations imposed by the Australian government on crowdfunding, particularly for small businesses, and suggests improvements to make the framework more effective and accessible for entrepreneurs. The report concludes that while the Australian regulations may have limitations, crowdfunding still provides a better option for small corporations to raise investment and that improvements are needed to foster the growth of crowdfunding in Australia.

Running Head: CROWDFUNDING
Crowdfunding

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Introduction
Crowd funding is a process which provides financial help to small new business or start-ups by
raising capital from many people, who can be any one relatives, friends and investors1. It is a
collective effort of a large number of individuals. And in this instant case Howard Jones wants to
introduce his idea related to batteries in the market and he knows crowdfunding is a process
which will help him in raising crowd funding2 and this report is based on crowd funding. That
how it is works and how it’s helpful for new business and for start-ups. We are also discussing
the success of crowd funding in the social field and how crowd funding is helpful in the
commercial world. Further, we are discussing the legislative framework of crowdfunding in
Australia and how it's different from another international framework of crowd funding.
Crowdfunding: Meaning and Explanation
Crowdfunding gives perfect platform for new businesses to introduce and share their creative
ideas related to their new project by providing large number of investors and funding options. It
carries the entrepreneurs and investors together via the crowdfunding website. There are four
types of crowd funding3 Reward based crowdfunding in which individuals contributes in the
business for the reward offered by the company and the second type of crowdfunding is based on
charity, social cause in which investors do not get any financial return. The third one is equity
1 Monash Vitale, Crowdfunding: Recent International Developments and Analysis of Its Compatibility with
Australia’s Existing Regulatry Framework (September 13 2013) < https://papers.ssrn.com/sol3/papers.cfm?
abstract_id=2324573>.
2 Australian Securities & Investment Commission, Crowd-Sourced funding (28 August 2017)
<http://asic.gov.au/regulatory-resources/financial-services/crowd-sourced-funding/>.
3 Leigh Schulz & Domenic Mollica, The regulation of crowdfunding in Australia: Where are we and what’s to come?
(August 2015) <http://forms.minterellison.com/files/Uploads/Documents/Publications/Articles/Aus-banking-and-
finance-law-bulletin_leigh-schulz-anddomenic-mollica_aug2015.pdf>.

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based crowd funding which also known as crowdsourced is funding in which investors invest in
the business and in exchange take the shares of the company. The last type of crowdsourcing is
klanding based crowdfunding in which entrepreneurs collect money as debt from investors which
have to return with interest. Entrepreneurs who want to start crowd funding for their business has
to follow some steps.4 They have to give all relevant information related to business ideas to
investors about the product, goals, required fund, timeframe related to product development, and
at last about the rewards and incentives to the investor in exchange for funding. There are many
crowd funding website through which they can post about their business offer to invite the
investors.5
Commercial and Social Examples of Crowdfunding
According to Financial System Review given by David Murray considered crowd funding is one
of the leading technique in Australia’s economy which supports innovative businesses and
startups. The first is rewards-based crowdfunding, in which people who are contributing money
to a future product will be given guaranteed by the people who are seeking to crowd fund that
they will be the first among the individuals to get reward if they increase the fund. One of the
leading platforms for crowd funding are Indiegogo and Kickstarter. Equity crowdfunding is the
second way through which investors contribute in business to get a share of such business.
Artesian Venture Partners’s COO Tim Heasley said the Australian law considered only those
4 Australian Government, Crowdfunding: How to Fund Your Business (22 May 2017) <
https://www.business.gov.au/info/run/finance-and-accounting/finance/crowdfunding-how-to-fund-your-business-
idea>.
5 Shannon Kelly, ‘The Future of Equity Crowdfunding in Australia’ (2017) Company and Securities Law Journal.

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wholesale investors who can contribute in equity crowdfunding must have $2.5 million in
properties or income at least $250,000.
Ingogo, In 2014, through crowdfunding website Kickstarter investors contribute more than $
500 million for more than 22,200 projects. Two Australian companies Ninja Blocks and
Startmate startup KoalaSafe raise funds through Kickstarter.6
Crowdfunding is easy fundraising online process for a nonprofit organization, individuals,
and charities. It has the capability to delivers great supports for charities and donors. We have
several successful examples of donation based crowdfunding which helped people to raise
money. Eliza who was 4 year of age was suffering from Sanfilippo syndrome, a hopeless
neurological disorder. Her parents use the internet in the hope that anyone might help their child.
They got faith in a therapy trial which will perform in Ohio but researchers needs approx. $2.5.
Eliza's father made several homemade videos and got donations which were not sufficient.
Benjamin Von Wong a professional filmmaker joined the team and made a video related to
Eliza’s story and gave the name hashtag #SavingEliza, the video went popular and got $380,000
donations in the few months. Today, campaign saving Eliza has been increased $1.8 million
funds in four months.7
6 Alex Heber, A crowdfunding revolution is coming to Australia (30 April 2015) <
https://www.businessinsider.com.au/a-crowdfunding-revolution-is-coming-to-australia-heres-what-you-need-to-
know-2015-4>.
7 Larry Kim, Most Sucessful Feel-Good Crowdfunding Campaigns of the Year (2 January 2015) <
https://www.inc.com/larry-kim/most-successful-feel-good-crowdfunding-campaigns-of-the-year.html>.

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Legislative Framework Enacted for the Regulation of Crowdfunding in Australia in March
2017
In Australia, the crowdfunding is a new idea of the increasing fund for the entrepreneurs.
The Corporations Amendment (Crowd-sourced Funding) Act 2017 received approval on 28
March 2017 and came into the existence on 29 September 2017 this act introduces a fresh
legislative outline and provides rules for crowdfunding process in Australia . This Act amends
the Corporations Act 2001 and includes more effective principles of this new method .The Act
has made a change in the framework of Australian market license and made various exceptions
which is helpful for crowd sourced funding intermediaries and financial market operator. The
new market operatives may use the benefit of an exemption to escape the requirement of
Australian market license.8
This act is applicable to unlisted public companies which have an yearly turnover or
assets of value which is less than $25 million, and also to companies which are neither a
subsidiary nor have nexus with any listed company. Via crowd-sourced equity funding these
Companies can increase up to $5 million in 12 months.9 This amended Act introduces a fresh
disclosure system. An eligible company can use this new system to create proposals of securities.
This system is less difficult than the present disclosure system which is given in Corporations
Act. Any crowd-sourced equity funding offer should be comprised in a proposal document and it
should be introduced on a platform of crowd sourced equity funding intermediary must be made
through a crowd-sourced equity funding intermediary platform, which has a license of Australian
financial services. The Document related to offering should comprise all relevant information
8 Australian Charities and Not-for-Profits Commission, Crowdfunding and Charities ( July 2017) <
https://www.acnc.gov.au/ACNC/Edu/Crowdfunding.aspx>.
9 Lander & Rogers, New crowd-sourced equity funding legislation (21 March 2017) <
https://www.lexology.com/library/detail.aspx?g=c738f817-6489-47c3-9ab3-19b3b58d60d9>.

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given in the guidelines. This Act also offers several investor protections investing in a crowd-
sourced equity funding offer by a small scale investors will be up to $10,000 per proposal in a
period of 12 months. The risk acknowledgment should be accepted before giving an application
of crowd sourced equity funding. An interval period of five days will be applicable on every
investment.10
While this Act applies the limit on the amount which wholesale investor can contribute
in each crowd-sourced equity funding offer but it does not limit the total investment which is
contributed by the investor each year .an investor can invest in crowd-sourced equity funding
offers each year, but on the other hand, as is the situation in the USA and UK if there is no limit
on such investment In the absence of such a cap, new companies, and start-ups will get great
funding but provisions related to CSF framework are not applicable to the proprietary
companies. The crowd sourced equity funding can be used by only unlisted companies to raise
their fund by. This Act also provides relief from the requirement of corporate governance and
reporting under the Act of corporation 2001. Hence the Australian law related to crowdfunding
needs more attention of the regulatory authorities to make efforts for introducing more effective
and accessible framework for its proper implementation.
Observation
In Australia, the crowdfunding is new theory but unlike other countries. A number of countries
have accepted a the legal framework of crowdfunding like USA, UK, New Zealand, but the
legal framework of Australia is comparatively more strict from other territory11. The scheme of
10 Deborah Johns & Peter Reeves, The wisdom of crowd-sourced equity funding <
https://www.gtlaw.com.au/insights/wisdom-crowd-sourced-equity-funding>.
11 Niall Firth. "Crowdfunding successes show value of small donations." (2012): 22

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crowdfunding in Australia bound a number of companies that can access method of
crowdfunding to raise fund. The new policies made through the government of Australia have
handled a number of criticisms through the start-ups industry. As per the framework of
crowdfunding the startups entrepreneurs in Australia cannot use the crowdfunding unlike the
companies that can use this platform that have turnover of $ 5 million. Further the United States
has executed an active procedure of crowd funding through the new product and services. Oculus
is the one of the example that increased 2.5 million funds from the crowdsourcing process by the
platform of kickstarter12 and the after that Facebook purchased this company for $2 Billion in
2014. The global crowdfunding business has increased $ 34.3 billion in 2015. Hence the
crowdfunding framework in Australia needs improvement. It should adopt the new scheme of
crowdfunding from the other nations to allow the small business for using the platform of
crowdfunding to increase the fund for their new ideas.
There are many advantages of crowd funding in comparision to the tradition process of
invesment to increasing fund thus through this platform entrepreneurs can directly communicate
with their customers who are investing in the business as investors and entrepreneurs can also
receive feedbacks from such investors which can be very valuable for their new business project.
It gives opportunities for creating startups, creative ideas or new business. Entrepreneurs do not
have to share business with the investor. They can hold their entire business in crowd funding.
Hence crowd funding supersedes the traditional circle of funding. Although the Australian
regulations lack several benefits of crowdfunding, it is still a better option for small corporations
to raise investment. The Australian government is slowly adopting the policies of crowdfunding
but there is still time before they developed such as the United States or United Kingdom’s
12 Michael A. Stanko, and David H. Henard. "How crowdfunding influences innovation." MIT Sloan
Management Review 57.3 (2016): 15.

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policies. There are varied reviews related to the crowdfunding regulation in Australia from many
business authorities. As per the Jo Burston, the new law of crowdfunding approved by the
government of Australia is one of the most important action towards the development of
company’s funding condition but on the other hand the limitation obligated by the Australian
government on small companies to increase fund is wrong and against the crowdfunding
purpose13. And in this case Howard Jones can accesses crowdfunding to raise money for his
project, but the Australian government put the number of restriction on small startups and single
entrepreneurs. Hence Howard Jones can increase the funding through crowdfunding if his open
an unlisted company. The process of crowdfunding is significantly way better than traditional
process of investment because it gives large control to the small businesses.
Conclusion
The crowd is processed through which million of the startups, creative ideas, and new
business came into existence. The Equity crowd funding and reward crowdfunding are
13 N. Khadem. "Crowdfunding in Australia a step closer." The Sydney Morning Herald (2014).

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the example to increase fund and becoming a successful methods for the growth of new
product goods, ideas and services in commercial world. The donation crowdfunding in
which a number of people through this platform collect a small amount of donations from
peoples by starring campaign or making a video to save the people’s life. Recently in
Australia, provision of crowdfunding has been amended and made several changes in the
outline of crowd funding this amendment improve the framework of crowdfunding in
australia which was not in the previous Act.
References
Alex Heber, A crowdfunding revolution is coming to Australia (30 April 2015) <
https://www.businessinsider.com.au/a-crowdfunding-revolution-is-coming-to-australia-
heres-what-you-need-to-know-2015-4>.

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Australian Charities and Not-for-Profits Commission, Crowdfunding and
Charities ( July 2017) < https://www.acnc.gov.au/ACNC/Edu/Crowdfunding.aspx>.
Australian Government, Crowdfunding: How to Fund Your Business (22 May 2017) <
https://www.business.gov.au/info/run/finance-and-accounting/finance/crowdfunding-how-to-
fund-your-business-idea>.
Australian Securities & Investment Commission, Crowd-Sourced funding (28 August
2017) <http://asic.gov.au/regulatory-resources/financial-services/crowd-sourced-funding/>.
Corporations Amendment (Crowd-sourced Funding) Act 2017
Deborah Johns & Peter Reeves, The wisdom of crowd-sourced equity funding <
https://www.gtlaw.com.au/insights/wisdom-crowd-sourced-equity-funding>.
Josh Nichols, What Australian can learn from the UK and US about
crowdfunding (4 December 2015) < https://www.businessinsider.com.au/what-australia-
can-learn-from-the-uk-and-us-about-crowdfunding-2015-12>.

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Lander & Rogers, New crowd-sourced equity funding legislation (21 March
2017) < https://www.lexology.com/library/detail.aspx?g=c738f817-6489-47c3-9ab3-
19b3b58d60d9>.
Larry Kim, Most Sucessful Feel-Good Crowdfunding Campaigns of the Year (2
January 2015) < https://www.inc.com/larry-kim/most-successful-feel-good-
crowdfunding-campaigns-of-the-year.html>.
Leigh Schulz & Domenic Mollica, The regulation of crowdfunding in Australia:
Where are we and what’s to come? (August 2015)
<http://forms.minterellison.com/files/Uploads/Documents/Publications/Articles/Aus-
banking-and-finance-law-bulletin_leigh-schulz-anddomenic-mollica_aug2015.pdf>.
Monash Vitale, Crowdfunding: Recent International Developments and Analysis of
Its Compatibility with Australia’s Existing Regulatry Framework (September 13 2013) <
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2324573>.
Shannon Kelly, ‘The Future of Equity Crowdfunding in Australia’ (2017) Company and
Securities Law Journal.

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