Bypassing the stockbroker, mum and dads, aided by the adviser and accountants can directly invest in public businesses and start-ups. The Crowd-sourced Funding Bill issues in a new stream of business for advisers and accountants to help Australians invest via equity crowdfunding.
However, the proposed legislation is too restrictive.
Only eligible unlisted public companies, with less than $5m in assets, can raise funds through crowdfunding. The amount raised is also capped at $5m in any 12-month period. Mum and dad investors are capped at $10k each per public company start-up. That is $30k in total when you include their Self-Managed Super Fund.
Let’s break down the eligible of the unlisted public company:
a. limited by shares
b. principal place of business in Australia
c. directors ordinarily reside in Australia
d. complies with the assets and turnover test;
e. not listed on any stock exchange
f. can’t invest in securities or interests in other entities or schemes
Remember over 99% of companies created in Australia are Pty Ltds. They must now be converted to the expensive public companies (Ltd). A Pty Ltd company cannot have more than 50 non-employee shareholders.
My problem with ‘Ltds’? The underlying issue is the additional regulatory requirements. The enhanced expense and administrative burden associated with becoming a public company signifies a huge risk for start-ups. You can not run a Ltd company without the aid of accountants and auditors.
This acts as a deterrent for small companies to utilise crowdfunding as a means of financing, leaving very limited amount of companies for mum and dad investors to actually invest in.
The Bill also presents a problem for existing crowdfunding platforms. They are banned from aggregating investments into a single vehicle (like a unit trust)..
The Labor government shares our concerns. Shadow treasurer, Chris Bowen, and shadow parliamentary secretary for digital innovation and start-ups, Ed Husic, jointly expressed their disappointment.
“The release of the legislation confirms industry concerns that start-ups will be forced to wear high costs and red-tape if they want to use equity crowdfunding as a capital pathway for early stage innovation.”
The Liberal government tried defending this issue.
Assistant Minister to the Treasurer, Alex Hawke, said that the government is giving newly converted companies a “holiday” with a five-year exemption from standard governance and reporting obligations. This is to make the transition to public company easier and access crowdsourced funds.
We are still unhappy. The red-tape is only getting thicker, longer and harder to break.
It was a strategic move from the Turnbull government to wait until the last parliament sitting day of 2015 to introduce the legislation. We can only infer they anticipated this backlash from the start-up community.
The next parliament sitting takes place February 2016.
Once the Bill becomes legislation, we say farewell to stockbrokers. The novelty and complexity of crowdfunding requires the professional advice of accountants and financial advisers. This is to ensure the public companies are aware and comply with the requirements.
Accountants and advisers will source and guide the next Mark Zuckerbergs into crowdfunding. They will sit on the boards, set budgets and be the glue that keeps it all together. The accountants and advisers will then guide their clients into investing into these businesses.
There is nothing that the candlestick maker and stockbroker can do. Both are dead professions.