Private companies now eligible for crowdfunding campaigns

New legislation passed on Thursday that will allow private companies to raise funds through crowdfunding.

The Corporations Amendment (Crowd-sourced funding for Proprietary Companies) Bill 2017, which was fast tracked and will come into effect by the end of October, creates new opportunities for private companies to raise funds. Previously, a company undergoing crowdfunding would have to convert to an unlisted, public company.

The change will also allow everyday investors access to large-scale, high-growth investment opportunities.

“This is good news for the thousands of Australian private businesses that will now have the ability to crowdsource up to $5 million a year from retail investors, capped at $10,000 per retail investor, in return for equity in their company,” BDO business service partner Sharon Houghton said.

Houghton noted that the government was previously criticised for the long and staggered release of the legislation, but believes yesterday was a welcome development for a budding industry.

Co-founder of crowdfunding platform Equitise Jonny Wilkinson said the changes are a huge step forward for the Australian fintech and startup sector.

“Having a formalised structure and process for smaller proprietary companies to raise funds from ‘the crowd’ (their customers, friends and family) will be a huge boost to small companies and the economy, driving both growth and employment,” Wilkinson said.

“In turn, it also gives everyday investors the opportunity to invest in these companies and potentially make a return.”

Wilkinson said that Equitise has interacted with over 1000 companies since January, 570 of which formally applied on its crowdfunding platform, with less than 5 per cent completing the process of converting to a public company to be in a position to raise funds.

“A large proportion thought the time, cost and compliance for converting and managing a public company to be too onerous at a point where they needed to focus their energies on growing their business,” Wilkinson said.

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