What is Crowd Source Funding (CSF)

ASIC page

ASIC has its position on CSF.

What is CSF?

CSF is a form of investment where people invest money in exchange for shares in a company.

Buying shares (aka stocks, securities or equities) makes you a shareholder or part-owner of the company.

Shareholders often expect a return on their investment in the form of dividends or capital appreciation when the company is sold or goes public.

However, your investment may increase or decrease in value depending on the performance of the company.

CSF is typically used by startups and small-medium companies to raise capital to grow and scale their business.

What does a company need to do for financial reporting for crowd source funding? 

1. General purpose financial statements (AASB 1060 simplified disclosures)
2. Report to ASIC by 31 October each year
3. Form 388
4. MAY need to be audited - depends on revenue

We have helped many companies, some are only turning over $500,000 in annual revenue. Most only have 2 directors. 

It is an alternative to the usual funding options

Instead of seeking funding from:

1. Venture capitalists
2. Banks 

You can:

1. Turn to the general public
2. Your community
3. And raise money by offering equity in the business 

What companies are eligible to use the CSF regime?

The eligibility requirements to make a CSF offer are:

• Proprietary company (i.e. Pty Ltd) or unlisted public company

• Consolidated gross assets less than $25 million

• Consolidated annual revenue in the 12 months prior to making the CSF offer less than $25 million

• Principal place of business in Australia

• Majority of directors residing in Australia

• If a proprietary company, must have at least 2 directors

• If an unlisted public company, must have at least 3 directors

• Must not be listed on a financial market in Australia or overseas

• Must not have a substantial purpose of investing in other companies, entities or schemes

Key features of the CSF regime

• Investors will hold shares directly in the company

• All shares issued are new fully-paid ordinary shares, with voting rights

• CSF shareholders will not count towards the 50 non-employee shareholder cap for proprietary companies (i.e. company can potentially have an unlimited number of shareholders)

• Companies will be required to provide shareholders with an annual financial report & directors report

• No audit requirement for small proprietary companies using CSF until more than $3 million is raised through CSF

• Proprietary companies using CSF will be subject to the rules on related party transactions

• Proprietary companies that have CSF shareholders will be exempt from takeovers rules

• Companies will need to maintain information about CSF shareholders on its share register

• CSF offer can be advertised (in accordance with the regulations)

  Companies prepare and publish a regulated disclosure document, the CSF offer document, with information about the business, financial statements and terms of the offer