Last week, Treasurer Scott Morrison announced the introduction of legislation to parliament to enact the extension of crowd-sourced equity funding to proprietary companies.
The bill will mean that from 29 September 2017, proprietary companies wanting to access equity crowdfunding will no longer have to convert to a public company entity, rather founders will be able to crowdfund while retaining the greater flexibility of the proprietary model.
Mid-tier accounting firm RSM raised doubts about the new fundraising approach and the conditions of eligibility.
“The new CSEF scheme, like other equity funding models, may open the doors for small businesses and start-ups who might otherwise struggle to get affordable finance,” said Glyn Yates, director and national head of corporate finance at RSM.
“However, it’s important for all small businesses thinking about participating in any equity funding scheme to get good advice to understand the advantages and disadvantages of innovation funding.”
Indeed, under the amended scheme proprietary companies will be required to comply with additional obligations to protect investors, including having a minimum of two directors, financial reporting in accordance with accounting standards, audited financial statements once the company raises more than $3 million from crowdfunding offers, and restrictions on related party transactions.
Mr Yates suggested that other small and medium businesses should consider the alternative funding models available.
“The CSEF is just one source of innovation equity funding. There is an increasing array of equity funding alternatives to debt financing available to SMBs, including angel investors, seed investors, and early-stage venture capital investors,” he said.
“In fact, the various funding options can make choosing very confusing and complicated. Not all sources of funding are the same, nor are they all suitable for every kind of business.”