New Crowdfunding Laws Might Affect Startup Capital Raising in Australia

crowd funding

Legislation changes have been passed to allow public companies, which are unlisted, to use crowdfunding to raise money from small time investors (otherwise known as “mum and dad” investors). This legislation has been successfully passed in the lower house of parliament.

There was a lot of criticism of this bill from the opposing parties. The bill will allow companies to raise as much as $5 million, even if they are not listed, and have a combination of assets and turnover that is less than $5 million already. This can be done once per year, using the highly popular method of crowdfunding.

Those who are wondering what exactly crowdfunding is, might need to consult experienced commercial lawyers or do some research on the subject. But a basic explanation is, crowdfunding allows people and companies to ask for money from potential customers and investors, for products, services, and business ventures that have not actually come into fruition yet. This type of thing is commonplace in countries like the USA, so many people see no issue with bringing that kind of practice to small businesses in Australia. After all, small companies are typically in need of the most help from legislation. However, there are some deeper issues to look at.

There is already similar legislation in place in other countries, including the USA, the UK, and New Zealand. However, there has not been anything like this available in Australia, up until now.

The minister for small business, Kelly O’Dwyer, stated that the bill is intended to help start ups and small businesses out with breaking into the market. Without these types of changes, they would otherwise be inhibited by various requirements, and the cost of disclosure. In addition, the laws are meant to help protect the small time investors who back these ventures. O’Dwyer also stated that the bill was crafted after consulting with stakeholders extensively, and looking at the existing models in other countries.

Ed Husic, the shadow minister for startups, did not agree with O’Dwyer’s views on the matter. He voiced concerns about red tape that could prove problematic. One complication in particular is the need for startups to delist themselves, and become unlisted public companies, if they want to be allowed to use crowdfunding in this manner.

Husic also stated that the opposition had plans to propose changes with the crowdfunding laws. First, he wanted a chance to review the finalised report on the bill, once it is released by the Senate Economics Committee.