Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Scott Morrison MP)General outline and financial impact
Overview
Crowd-sourced funding (CSF) is an emerging form of funding that allows entrepreneurs to raise funds from a large number of investors. Legislation to create a CSF framework for public companies will commence on 29 September 2017. Extending the CSF framework to proprietary companies will allow these companies to access an alternative form of finance with additional obligations that will protect investors.
Date of effect: The amendments in Part 1 of Schedule 1 to extend the CSF regime to proprietary companies will take effect the day after the end of the period of six months after Royal Assent. The changes to the CSF regime for public companies in Part 2 of Schedule 1 take effect from the day after Royal Assent.
Proposal announced: The proposal was announced as part of the 2017-18 Budget. Public consultation on the draft legislation occurred between 9 May and 6 June 2017.
Financial impact: The measure has the following financial impact:
| 2017-18 | 2018-19 | 2019-20 | 2020-21 |
| -1.3m | 0.2m | 0.0m | 0.0m |
Supervisory costs associated with this measure will be recovered from regulated entities, however with a one-year lag.
Human rights implications: This Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 3.
Compliance cost impact: The compliance costs associated with this Bill are $26.3 million per annum.
Summary of regulation impact statement
Regulation impact on business
Impact: This Bill will extend the CSF regime to proprietary companies, making a new funding source available for small businesses, whilst maintaining adequate investor protections through additional obligations on companies. These obligations are expected to have compliance costs for proprietary companies that use CSF; however these costs will be lower for CSF proprietary companies than if the company were to transition to public company type under the current regime.
Main points:
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- This measure extends upon the Corporations Amendment (Crowd-sourced Funding) Act 2017 to enable proprietary companies to access CSF without transitioning to public company status.
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- Three models are discussed in the regulation impact statement - a model extending CSF to proprietary companies without additional obligations, a model extending CSF to proprietary companies with appropriate additional obligations; and the status quo where proprietary companies may transition to public company model.
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- The model in the Bill is the extension to proprietary companies with appropriate additional obligations which balance the structural benefit of the proprietary company structure with certain obligations that increase shareholder protections.
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- The regulation impact statement details the stages of consultation undertaken between 2015 and 2017 in considering and refining this model. This included a consultation paper released in August 2015 which canvassed extending CSF to proprietary companies, industry roundtables conducted in late 2016, and public consultation on draft legislation released in May 2017.
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- The framework of Corporations Amendment (Crowd-sourced Funding) Act 2017 will be extended through this Bill and associated regulations. The Government and the Australian Securities and Investments Commission (ASIC) will continue to monitor the regime after its extension to proprietary companies.