Brakes on equity crowdfunding
Scott Morrison: The 'game-changing' legislation will have to wait until next year
The government failed to pass amendments to the equity crowdfunding regime before the end of the year, meaning private companies won’t be able to access the funding method until August next year at the earliest.
The federal government confirmed in this year’s budget that it would extend its equity crowdfunding regime to proprietary companies, and Treasurer Scott Morrison introduced legislation into the Parliament in September.
But after its second reading, the bill remains in the lower house, and will now stay there over the extended summer break. Despite broadly enjoying bipartisan support, the government did not find the time to move it to the upper house and pass it into law.
The second last sitting week for the House of Representatives was cancelled by Prime Minister Malcolm Turnbull during the same-sex marriage debate and as the citizenship crisis that has engulfed both major parties.
Mr Morrison had earlier said that the bill was a “game-changer” for local startups and an “example of the Turnbull government getting on with the job”.
The law would come into effect six months after royal assent, so even if it is passed quickly once Parliament resumes in February, it would not come into effect until August next year.
Tyro FinTech Hub head Andrew Corbett-Jones said it would be a frustrating wait for the startup sector.
“I’m hardly the lone voice in Australia lamenting the energy and effort the parties have expended on Section 44, especially as it has no meaningful impact for the good governance of Australia,” Mr Corbett-Jones told InnovationAus.com.
“Meanwhile, key legislation, including the equity crowdfunding amendments, is left to wallow.”
“These amendments will not come into effect for private companies for a full six months following the legislation being passed, so even if they are passed when Parliament resumes in February, they won’t become law until August 2018 at the earliest – almost a year since they were proposed in Parliament. Surely they can do better than that.”
The delay could be disastrous for cash-strapped early-stage businesses, Mr Corbett-Jones said.
“This is a bit of a blow for those developing FinTech business models that are dependent on equity crowdfunding. The most precious resource for a startup is time, and delays such as this will be crippling for some, even terminal," he said.
"No startup has the resources to coast in neutral for months waiting for the Parliament to rubber-stamp legislation that is all but inevitable.”
It’s another frustrating delay in an elongated and sometimes farcical journey to introduce equity crowdfunding in Australia.
After years of lobbying and support, the government confirmed it would be introducing a crowdsourced equity funding regime in Australia in its National Innovation and Science Agenda at the end of 2015.
But it was revealed the following year that the government’s legislation required a startup or larger company to convert to an unlisted public company in order to undertake an equity crowdfunding round.
This was widely criticised by the sector and the Opposition, with claims it would lock out 99 percent of Australian companies.
The legislation was eventually begrudgingly supported by Labor and passed Parliament at the start of the year, despite shadow minister for the digital economy Ed Husic dubbing it a “dodo”.
It came into effect in September, allowing unlisted public companies to undertake an equity crowdfunding regime.
In this year’s budget the government confirmed that it would extend equity crowdfunding to include proprietary companies, at a cost of $4.5 million over four years.
The Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017 was introduced to Parliament and read for the first time on 14 September.
The legislation still places a number of new reporting and compliance obligations on a startup or SME looking to undertake an equity crowdfunding raise, including:
- A minimum of two directors
- Financial reporting in accordance with accounting standards
- Audited financial statements once the company raises more than $3 million
- Restrictions on related party transactions
Treasurer Scott Morrison said at the time that the bill would help to develop a “strong and vibrant FinTech industry in Australia”.
“This will be a game-changer, once again, for Australian startups and new small businesses. This is yet another example of the Turnbull government getting on with the job and taking action now by backing in businesses, getting the settings right to create jobs and help our economy transition,” Mr Morrison said.
“Introducing this bill today delivers on the government’s commitment to extend equity crowdfunding to proprietary companies,” he said.
“Unlocking a new source of funding delivers on our commitment to foster innovative economic activity and support the development of the Australian FinTech sector.”