The government has revealed the amendment to the Corporations Act that will allow businesses to raise capital through equity crowdfunding.
As previously reported, the government has restricted the ability to crowdfund to “small, unlisted public companies”.
Only companies with less than $5 million in assets will be eligible, and they will be limited to raising $5 million a year.
Each investor will be limited to investing $10,000 per company per year, and will be required to complete a “risk acknowledgement statement”.
The government is providing an incentive for companies to meet the criteria in order to access the funding.
“Companies that become an unlisted company in order to access crowd-sourced equity funding will receive a holiday of up to five years from some reporting and governance requirements” said assistant treasurer Kelly O’Dwyer.
But restricting crowdfunding to public companies drew criticism from the startup sector when it was made public last week. Critics said the move would mean funding would be unavailable for early-stage startups, and would require so much compliance as to hurt business.
“We’ve waited two years for this legislation, but it’s clear the government hasn’t listened to the market. Though we welcome opening equity crowdfunding to mums and dads, there are too many restrictions to make it workable” said Tim Heasley, chief operating officer of Crowdfunding service VentureCrowd.
“[Startups] must register each shareholder individually rather than through a trust – in effect, the government is forcing startups who want to raise equity crowdfunding to focus on investor relations instead of growing their company.”
“It’s clear that the government’s attempt to shoehorn equity crowdfunding into the existing Corporations Act will leave us with ineffectual half-measures that threaten Australia’s competitiveness as a burgeoning international startup and innovation hub.”
Labor has withdrawn support for the bill in response to the startup community’s reactions. Labor had previously supported a bipartisan effort to legislate crowdfunding.
“It’s of great disappointment to Labor that the Abbott-Turnbull government refused to share or discuss its draft laws before their introduction to Parliament today,” shadow treasurer Chris Bowen said in a statement.
“While we have been willing to work with the government; we are not willing to be accomplices in a Abbott-Turnbull government attempt to ram through laws so heavy with red-tape that it makes it less attractive to utilise equity crowdfunding.”