Monday, 26 February 2018
Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017; Second Reading
I thought I would let you know that I'm reading a wonderful book. It's called Thank You for Being Late by Thomas Friedman. It's a great book. I commend it to anyone who's got an interest in innovation. I'm sure the member for Greenway has already poured through it. The back reads:
We all sense it: something big is going on. Life is speeding up, and it is dizzying. Here Thomas L Friedman reveals the tectonic movements that are reshaping our world—
technology, globalisation and climate change—
how to adapt to this new age and why, sometimes, we all need to be late.
I thought this is appropriate given that we are now debating the Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017. Inadvertently, the Turnbull government has managed to be quite late, but not through design, on an issue that is supposed to support innovation in this country—equity crowdfunding. It introduced this bill in September—there's nothing dizzying about this—and we're debating it in February. And that's not the end of it, by the way. We're finally getting to debate this—a very dizzying speed indeed!
The government tell us all the time that this is a game changer. They tell us that they are the game-changing government and everything is being done to help support innovation in this country. There is the application of technology and new ways to help the economy. They're always telling us how great a government they are—and, if you want a second opinion, you can ask them again and they'll tell you. They'll let you know how they're going on this front and how they're reshaping the country. When it comes to actually doing anything then we have exhilarating glacial speeds. Again it has been a long and tortured journey to this point of just getting this legislation debated.
While this is not a bill that is going to capture the minds or attention of many Australians, it is going to be something of great interest to many start-ups and small businesses that are looking for new ways to raise funds to support their ideas. This bill finally removes a stack of regulatory burdens stopping proprietary companies from using crowdsourced equity funding. Those burdens weren't there beforehand and the government woke up to them and decided to pull them apart; they were actually put in place by this government, who then realised they had to pull them apart. That's why we're here. In a nutshell, for those who are unfamiliar with this concept, equity crowdfunding uses the internet to harness the financial support of investors to back a business, usually through what's called an online intermediary or a crowdfunding platform, and in return those investors get a stake in the business seeking the funds.
The government says this bill, like all of its bills associated with innovation, is a game changer, a boost for innovation. All the cliches get recycled for the purpose of a ministerial speech or media release, but, as is often the case with the coalition, it takes its sweet time to create or reach outcomes. Given the years it's taken to get to this point with this one bill, it seems more appropriate to stretch back in time and reach for that old Shakespearean one-liner: you speak an infinite deal of nothing.
When we're contemplating the history, let me remind you of this bill's protracted journey. In government, Labor tasked the Corporations and Markets Advisory Committee, in about May 2013, to start scoping out a framework for equity crowdfunding. A year later they finished their report and in May 2014 handed it up to the coalition. Any action languishes. It's jammed in a loop of seemingly perpetual consultation. I think there were three different consultation phases through 2014 and into 2015. In the meantime, government report after government report was issued identifying the potential of equity crowdfunding to improve access to finance for innovative businesses. Let me run through them.
For example, the government's Industry Innovation and Competitiveness Agenda, released in 2014, talked about equity crowdfunding. The Murray inquiry into Australia's financial system, released by the government in 2014, also talked about equity crowdfunding. There was the Productivity Commission's Business set-up, transfer and closure draft report, released in May 2015, and the subsequent final report. The government's National Innovation and Science Agenda, NISA—we only got one of them, NISA 1.0—released in December 2015, talked about equity crowdfunding and said it would be something that would be happening. It took its time again. The government's own fintech statement was released in March 2016. All these reports talk about the value of equity crowdfunding. After all this, a bill was finally introduced in 2015 but widely panned for being a dud, too cumbersome, too unwieldy, user unfriendly. After withdrawing that bill, the government introduced another bill, in 2016, with exactly the same fatal flaws they had been told time and again would prevent businesses from being able to access equity crowdfunding efficiently. In March last year they used their numbers to force the bill through this place. They signed into law an equity crowdfunding framework that they knew deep in their heart would have to be fundamentally reshaped in the future. At the time, I labelled the framework 'ScoMo's dodo', and people thought I was being harsh. But the reality is this framework was racing towards one milestone and one milestone only—extinction.
Sure enough, we are right back here again in 2018, nearly 12 months to the day, with the government trying to fix the fatal flaws in its 2017 legislation that it knew were there. I do admire the innocent way in which the Treasurer slipped this line into the second reading speech introducing this bill in September, where he referred to its rationale emerging from stakeholder consultation and he described it in the following terms:
Submissions expressed widespread support for the extension of the crowdsourced equity-funding framework to proprietary companies.
Really? 'Widespread support'—it was like they'd just woken up one day and discovered this. The only time they'd heard of the energetic desire of stakeholders to have proprietary companies included within the equity funding framework was limited purely to the consultations around this bill that we are discussing now.
The government should stop with the mock innocence and the game playing. The harsh reality is this: in the four years it has taken to get to this point, the government was told their previous equity crowdfunding regime was a dud—it was highly restrictive and unlikely to get business support—and that they needed to bring in a regime that would be usable by proprietary companies and one where they weren't forced to contort their structures for the sake of accessing crowdfunding. In case the government would like to play dumb on this, let me read into Hansard the range of warnings they were given years ago on this. The University of New South Wales Faculty of Law said that 'the bill that they were putting forward excluded over 99.7 per cent of companies from accessing crowd sourced equity funding. The current proposed model in front of the parliament is too restrictive and excludes the majority of Australian companies from relying upon it'. The Law Council said: 'The committee is concerned that the bill is too complicated to be easily understood by start-ups and early stage companies.' The firm BDO said: 'The requirement to become a public company is likely to be daunting and costly to start-ups and businesses.' Employee ownership Australia and New Zealand, reflecting on the issue about the public company requirement, said: 'Significant costs for a smaller organisation from $15,000 per annum. The financial statement and content requirements also may cause some concerns for entities that do not wish to give full disclosure for competitive advantage.'
When I previously said that this would lock out small businesses and start-ups from using this, I had some in the start-ups space challenge me on it. So they went away and, on Twitter last year, I saw that they started to add up the costs of what it would involve to go through the audit and legal contortions to be able to potentially participate in the government's crowdfunding platform that they put forward. I remember a lot of them scoffing at the idea that it would lock them out, and they certainly scoffed at the notion that $15,000 might be the cost. At the end of it all, one person I am very familiar with who had wanted to genuinely test the outcome and see if it was true, Adrian Stone, found out in the end, through all the discussions they had had online, that, yes, it could cost up to $15,000. So to raise money you had to pay $15,000 to go through the government's crowdfunding platform. Even their own Small Business Commissioner, Kate Carnell, said exactly the same thing: the costs and structure would be prohibitive. Their own adviser tells them this and they still press ahead with it through various forms of legislation put forward. So it costs $15,000 before you even raise a dollar through equity crowdfunding.
Pitcher Partners, another group, told the government that 'significant restrictions for eligible participants, customers, and eligible securities, products, under the regime will ultimately result in very limited demand for the regime.' Let's come back and check how many firms in my contribution actually used their regime in the time that they had it in—since March last year. You will be staggered as to how many. But just remember what was said there. Pitcher Partners, years ago, said the regime will result in very limited demand. I'll come back to that point later. 'Accordingly,' they said, 'we believe it will be difficult for CSF platform operators to create platforms that will, from a business perspective, be economically viable.' That was their point.
Crowdfunder, that actual platform, said that 'in its present form the bill would not be attractive to start-up companies due to the onerous requirement'. So when the Treasurer gets up here and says there was a lot of interest—he had just woken up one morning and basically been smacked on the head with all this sudden interest by proprietary companies to access this—this is not the case. They had known for ages. He knew this was the case. Even when they brought in the legislation that they put to this place last year, they were told by Veromo's Andy Giles that 'the thought of switching to a public company to avail ourselves of a potential wider investor base is unthinkable. Everyone told the government don't lock out small firms.'
The co-founder of crowdfunding platform Equitise, Chris Gilbert, decided he would read the riot act to the opposition last year claiming, 'It's very disappointing to see the Labor Party be disagreeable—after everything that I have read out, we are the ones that are being disagreeable!—'at this stage in the process when they had such vast amounts of time to work with the coalition to get this legislation right.' True, we did want to work with the coalition on this. Not only had we urged the government privately to bring in laws that would fix this, but we would give them the space to do so. We would not criticise them if they took it off, and I've said that in the House constantly: we would not chip the government if they decided to take this off the books and fix it up. It was the government's choosing to knowingly proceed with a flawed bill, stating it wanted to pass that bill and fix it up later. So they pass a dud bill and say they'll fix it up down the point. That's their approach. That's the business-friendly approach that they'll put in. It was the Treasurer who admitted that he'd need to fix this up.
Not content with the delays and the dysfunctional process it employed, the government introduced this bill, as I said, in September last year, and we're now debating it in February. That's after two weeks of sittings have already preceded the debate. In the meantime, what have we seen? In January this year, 10 months after the last lot of equity crowdfunding laws passed, ASIC got around to licensing the first crowdsourced funding platforms. Seven companies were issued with an Australian financial services licence authorisation to act as intermediaries. Australia trails other countries we compete with in the global marketplace. In the US, the UK and Canada, for example, they're discussing and offering opinions on the top 10 crowdfunding platforms in this space. Such are their platform numbers. But what do we have here? We have seven. It's great that we've got seven, but how much time has been wasted in which we could have built those numbers?
The delay in providing approvals raised the question: what happened before January 2018 in terms of campaigns? How many successfully completed equity crowdfunding campaigns have there been? Remember, Pitcher Partners said, 'We think this regime will be so limited it'll hardly get used.' So I inquired: how many have they had? How many successful equity crowdfunding campaigns have there been? Three—three in 12 months. Why? They introduce the legislation in March. They then say they'll wait six months as they build in the delay in their last lot of legislation and wait for royal assent. That kicks in in about October. They take three months to register the platforms through ASIC, and then there are only three crowdfunding campaigns that come through—a game changer, we were told by those opposite! That's what's happened. They continually build in delay.
There have been some good ones, and this is why a lot of people on that side and this side believe in the promise of equity crowdfunding. I noted on the weekend that there had been a great example that was reported in the Financial Review: there had been more than 350 investors that had crowdfunded the country's first crowdfunded pub. They got some investors offering as little as $50 and some as much as $10,000, committing a combined total of $1.2 million to become part-time owners of the latest sports-themed pub developed by US-style chain The Sporting Globe. Good on them. This is good. This is what it's providing. It is providing an opportunity for business to get access to capital in that way and creating ownership opportunities. But how many opportunities did we miss out on because those opposite wanted the headline and the style rather than the substance? I look forward to potentially visiting that pub, shaking their hand and trying the brew.
Ms Rowland interjecting—
I don't know. I think he does his own internal crowdfunding of his pubs. But I'm being generous. They're very successful. They operate one in my electorate. I'm very happy about the Plumpton Inn. But, putting that aside, the changes to the crowdfunding platform framework that this bill provides are the same as those requested many times over many years. So now they've come up with a bill to plug the gaps. In fact, after all that time trundling along, it'd be no surprise if that 2017 ledge turned into a pumpkin. The government that publicly pinned all this expectation provided the sector with so little, so late.
So, while we'll support the bill in its current form, I lament the opportunities lost and what we've had to go through to get to this point. Among the changes that are made is that, as we said, proprietary companies wanting access will no longer have to convert to a public company type. Many of the features of the existing framework which the government introduced previously, such as the obligations on intermediaries and the process of making those offers, will be the same; and to let the PTY companies access crowdfunding without breaching the current 50 shareholder cap. Investors acquiring shares through crowdfunding won't be counted towards the cap.
This is an elegant solution, dare I say. I commend the government on that. It is good way forward. It just took them four years to get there, despite all the people asking for it. Proprietary companies with shareholders who acquire shares through the crowdfunding offer won't be subject to takeover rules, and there are a stack of other changes in there as well. But what was also interesting to note is that there would be a regulation-making power to help the government act quickly, apparently, when something goes wrong. Given their performance to date, we would be very interested to see how quickly the regulation-making power will be enacted by the government. As he said, there is this sluggish pace of change, and you would think on the one hand that this has been the end of that delay—that they've finally got their act together and we'll see some changes. Wrong, because what we're picking up from the fintech sector and many others is that they are concerned about how long it's taking for core elements of this regime to be put in place. In particular, there are those that are bridling at the exceptional conservatism of ASIC in putting to bed the key measures required. People are worried about the disclosure regime that's been put in place. On the one hand people understand that if you have something that will potentially affect investors in adverse way, you have to advise potential investors accordingly. We support that. They are also told that campaigns might be held up because of positive news. You might have to delay a campaign because there is positive news that needs to be reported. They've been raising this with ASIC and Treasury to say, 'Why are we going through this process?' They're bridling at the fact that some to the disclosure requirements are tougher than the type of PDS requirements you go through for an IPO.
Certainly, everyone appreciates that crowdfunding is going to be a bit different. At the same time, you can't have the regime that's being brought in that's quite different from the IPO process, liberate the general 50 shareholder cap, and then have that reaction from businesses telling us—and I shall I'm sure they're telling those opposite—that they're making it even harder to go through this process and that they are bridling at some of the conservatism that ASIC is embracing.
I certainly appreciate that ASIC has a tough time. If you try to liberate things too quickly and do what the sector wants, the sector isn't the one that's there and has to clean up afterwards—it will be ASIC. I appreciate that. But the question is, why keep building in delay? This bill builds in delay. Remember, the bill came in last year in March. It then already factors in a six-month delay waiting for royal assent. Then they only got round to starting the accreditation process for the crowdfunding platforms in October. This bill wants to put another six months in. So all the work that had been done by ASIC to gear itself up for equity crowdfunding wasn't enough—they want to put in another six months on top of that. That's why we'll be moving an amendment here that calls on the government to bring forward the start date. They've had enough time to bring in their regime. They've had enough time to bring in things within ASIC. They can certainly bring forward the start date from royal assent from six months to three months. We don't think that's unreasonable, based on our consultations with stakeholders. We think, if the government is so confident in its regime and so confident in all the time that it's taken and all the protections they've put in place, why put in another six months delay? Halve that delay and make sure it's three months. Accordingly I move the following second reading amendment, which I've had it seconded by the member for Gellibrand:
That all words after "That" be omitted with a view to substituting the following words:
"whilst not declining to give the bill a second reading, the House:
(1) notes with concern the extraordinary amount of time taken by the Government to introduce a functioning equity crowdfunding regime within Australia; and
(2) calls on the Government to bring forward the start date for this legislation by ensuring that the proposed changes take effect from the day after the end of the period of three (3) months beginning on the day this Act receives Royal Assent".
We know that the sector will welcome this. We know that there will be people saying, 'We need to get moving on this.'
We on the Labor side started a process in 2013 to look at what is required to bring in equity crowdfunding. It's now 2018. Half a decade has passed, and we still don't have this regime in place. We saw its potential. We saw, in the example that I read out, $1.2 million raised. That capability is there to do this, but we should not be held up by further delay—and we certainly need to find a better way to clear up issues between the sector and the regulator, which have been raised by the sector, to speed up the way this is being done.
This isn't the only thing. In a few weeks time we'll no doubt be debating proposals to liberate the regulatory sandbox that's been applied to fin-tech, where exactly the same thing's being said. There's all this talk about regulatory sandboxes. Three companies have just gone through using the equity crowdfunding platform, and there've been roughly the same number that have used the fin-tech regulatory sandbox. Again, the talk is there about doing all these things differently, but the regulations absolutely crush the ability of companies to get things done and to achieve anything.
This is exactly the problem with this government when it comes to the issue of innovation. They're all talk. If you pull back the curtain, you see the true nature of their commitment to innovation and the importance it places on accelerating economic activity. It's all talk—style over substance. Their hearts and minds aren't properly engaged in the mission to build a country that works smarter, performs faster, generates wealth and jobs, and spreads the innovation dividend for the benefit of many across the economy and community.
As I said, we're not going to oppose the bill, but we are certainly going to be recommending amendments to improve it and accelerate the way in which this is introduced, because otherwise we will just be mired in more delay. We will see more people frustrated that a government that have talked up the prospect of this regime coming into place have done very little to actually fast-track its implementation. It is completely unacceptable.
As I said, we were prepared to work with the government on this, right from when this bloke called Bruce Billson, who used to be on their side, had been looking at what to do on this. I certainly had very constructive conversations with him about it. We said we appreciated the complexity, because you're reforming Corporations Law in a way that is quite different from its conventional operation to accommodate this, but we knew there was potential. We're seeing it in very limited circumstances now.
While we wanted to give the government room to move to explore options—and they've finally, as I said, come up with an elegant solution in terms of what can be done to provide for equity crowdfunding in this country—they also did things like lift the asset and turnover cap, which we recommended and pushed for amendments to. Those opposite said they only wanted to have $5 million capped. We doubled it. They came in with $25 million, and good on them. But we'd said this stuff could be done.
The recommendation put forward by CAMAC for an unlisted public company vehicle—we'd argued that way back then. We have been absolutely consistent saying that, while we could appreciate why CAMAC wanted to introduce some of these vehicles, we thought we needed to find a better way to do it. We'd said all along there's got to be a better way to do this. We said all along we've got to liberate some of the caps put in place.
We said all along we would work with the government to allow this to happen, and they wouldn't do it. They brought in legislation they knew was flawed. They knew from day one this legislation that was brought in last year was flawed at its heart and they still brought in, because they're show ponies. They're not serious about bringing in legislation that gives meaningful effect to the words that they bandy about. This is why they should be condemned, and this is why they've been found out.
People within the broader start-up community have worked this government out when it comes to the issue of innovation, that all they were there for was to accept the applause way back when but, when it came to stumping up, they weren't there when it all got too hard to explain the importance of innovation to the community. For those people who were concerned about the impact on jobs and their economic future, this government was completely unable to explain that. And, not only that, they were unable to come up with solutions to help people out.
In an environment where we know technology will change jobs and where the requirement to invest in human capital is paramount, what have they done? They've cut funding to schools. They've cut funding to vocational education. They've cut funding to universities. They've slowed down the process of getting these reforms in. They talked a big game about what they wanted to do and then failed to deliver. They are being found out by the broader community. Look at the reaction to the release of the ISA report and the way that's gone down. People are thinking, 'Yet another report, but more excuses for inaction.' It's not good enough.
Like I said, I commend the amendments to the House. We remain committed to supporting a viable regime. But we are not about building in further delays as a result of the government's inability to get its act together.
The original question was that this bill be now read a second time. To this the honourable member for Chifley has moved as an amendment that all words after 'that' be omitted with a view to substituting other words. The question now is that the amendment be agreed to.
Mr Deputy Speaker Irons, I note your recent contribution to the prior debate as well where you tried a play on words with METRONET. I thought it was particularly courageous to try to talk about state debt, particularly in light of the recommendations and findings of the report handed down last week. But I digress.
Let me come now to this second piece of crowdsourced funding legislation from this government. I think I can sum it all up by saying: finally. Finally there is a little bit of common sense coming from the Turnbull government. Labor actually began the moves to introduce equity crowdsourced funding via our reference to the Corporations and Markets Advisory Committee to advise on an appropriate framework to allow for this. It handed down its final recommendations to the government in May 2014, which was about the same time that the government announced its plans to abolish the Corporations and Markets Advisory Committee. But now here we are, standing at the beginning of 2018, and the Turnbull government has finally got its act together and introduced an equity crowdfunding regime that might actually be able to be used by some start-ups—or at least more than three of them. So much for being the party that apparently supports small business!
In the wake of the 2008 global financial crisis there was a huge decrease in small-business activity. It has long been recognised that one of the greatest hurdles that start-ups face is building capital investment. Access to equity is a huge challenge. Companies that are eligible to be registered as proprietary have to have fewer than 50 non-employee shareholders. The Corporations Act imposes different rules and obligations on these proprietary companies, reflecting the small number of members that they have, that equity and risk is often kept closely held through their shareholders and that the members of those companies are likely to have a much greater understanding of the day-to-day running of those businesses.
Crucially, a proprietary company is unable to raise funds from the public. For entrepreneurs, who often form their business start-ups as a proprietary limited companies, this presents some pretty big hurdles when it comes to raising the funds that are required to get their businesses off the ground. Founders resort to putting their family savings on the line, remortgaging their houses and taking out massive loans—and that's just to start. To get the further funding needed to take that next big leap is even more difficult. This prevents everyday people who are interested in doing these things from investing in perhaps the next Uber, Airbnb or Spookfish, as we have in Western Australia. It prevents organisations such as Lucky Chan's in Northbridge, which was the first pub to be crowdsourced funded in Australia, from being able to have a crowdsourced equity funding arrangement. But maybe not now.
At the moment, under the government's previous legislation, the only way around this is for them to become a publicly listed company or a public company that can access the previous regime that the government brought forward. But, of course, if you want to become a listed company, you've got increased disclosure; the cost of an initial public offering—and I can tell you as a former corporate lawyer, that's not cheap; the potential loss of control of the business; separation of ownership from management; and the risk of focusing on short-term gains instead of the long-term interests of the business—what the start-up entrepreneur got into the business for in the first place—and trying to meet the expectations of investors that may be quite disparate. Starting a business is challenging enough; we shouldn't be imposing additional burdens on the Australian start-up community.
The 2017 legislation established a regime that allowed for unlisted public companies to raise funds via crowdsourced funding equity offers. Through this previous botched attempt to introduce equity crowdfunding, we—by which primarily I mean the member for Chifley and I—called out the government and asked for them to pull down the self-imposed regulatory hurdles that would effectively lock out over 90 per cent of the businesses that were actually interested in using crowdsourced equity funding. Like so much of this government's legislation, I find myself in this chamber constantly pointing this out. We pointed out the deficiencies and that we were happy to help the government fix them so that Australian start-ups really could access crowdsourced equity. But the government refused. Instead, they pushed through floorless legislation last year that they knew that they would eventually have to come back here and amend, simply so that they could claim that they had finally introduced equity crowdfunding. Well, I'm sure the media release made somebody warm in bed that night. What an incredible example of publicity triumphing over policy.
Labor has long recognised the importance of early stage innovation to drive economic growth. As we have often said, it is important to have policies in place that help grow as many innovative firms as possible—policies that remove barriers to growth, like a lack of access to capital. While traditional sources of funding for early stage innovation and start-ups have traditionally come from venture capital and angel investors, equity crowdfunding has emerged as a viable alternative for raising capital around the globe. So it is a shame that opening this up for Australian start-ups has taken so long.
These changes to open up crowdsourced equity funding to proprietary companies, while still ensuring appropriate consumer and investor protections, are vitally important. Ensuring that those protections are there is also important—protections such as having at least two directors, having to provide financial and directors' reports to shareholders and being required to comply with related third-party transition restrictions. Labor supports all these changes but we, like the Australian start-up community, are left wondering why the government has taken so long to get to this point. And, of course, the point we are at now is merely starting to introduce the legislation that will fix the changes that the government had previously made, so that we can now have the sort of regulatory regime that we actually need so that we can make sure that Australian start-ups can get access to crowdfunding.
But then we look at the detail and we also see that, despite the delays that were in the previous legislation and despite the hold-ups—having to wait three months for royal assent, having to wait six months for the law to even kick in and having to wait for the regulator to go through its processes of regulation and approving the facilities to be able to do this—we have another delay built into this legislation. I don't know what ASIC and the regulatory regime have been sitting around doing this whole time, if we need to create such a long pause again to be able to get to a situation where we have this new amended regime—one that might actually be accessible to Australian start-ups; one that people were asking for in the first place; and one that Labor said that we were happy to make the changes to to allow for this to occur the first time the government brought in this legislation a year ago. It is unclear to me why we now have to have a further delay.
As I said before, I fear that this is becoming a bit of a habit for this government, that I often find myself in this chamber speaking on legislation that this government is introducing to amend legislation that it had introduced only months or maybe a year ago, when Labor had offered to fix those problems as it went through parliament the first time. When I'm out at my 'coffees with Keogh' at various coffee shops around the great electorate of Burt, people often ask: 'Why does the opposition have to be so oppositionist? Why does it have to be so adversarial in our parliament? Why can't you all just get together and agree?' Do you know what I say to them? I say: 'Well, it's funny that you mention that, because, for this opposition, despite having grave opposition to some of the priorities of this government, which are so incredibly wrong for this country, there are some things where we come into this chamber and we say: "We want to help you. We want to help you make that legislation better."'
I tell my constituents, the great people of electorate of Burt, that the Labour Party is a constructive party. We come into this parliament wanting to make Australia better. So, when the government are doing things—even if it takes a long time for them to do them, such as with this legislation, which was recommended in 2014, dealt with for the first time at the beginning of 2017, and is now being fixed at the beginning of 2018—we say to the them that we will be happy to work with them on making them better.
The thing was, the crowdsourced funding legislation that they had before was fine. It would allow some people to access crowdsourced funding for equity, but it wasn't actually going to be that accessible for the people who needed to have access to it. So we said to the government: 'You should change this. You should make this work better.' But, instead of doing that, they decided that a media release was more important, as was being able to go out to the sector and say: 'Look! We've introduced this legislation and we've sent it through the parliament. Aren't we an excellent government? We're the government of small business.' That's what they said, but no-one could actually use the legislation.
So, now we find ourselves here, again, on this area of law, saying, 'Okay, we're going to change it again so that the start-up community in Australia can actually use it.' It is so vitally important. It is vitally important in two ways. One is that they must have access to the equity. It is really important that we make access to equity easier for our small business and our start-up community. As a nation, we need to have that equity input and growth into our businesses—businesses that go on not only to create great economic value in themselves but also, as they get larger, to employ people in our country.
It is also important that we have an effective consumer protection regime, because when you make it easier for consumers to invest it is also paramount that they are protected from the risks. The government has put forward some useful changes here: when a company wants to access these provisions there are some additional consumer protections. But it has been concerning, as the member for Chifley outlined just moments ago, that some of the disclosure requirements that have been put forward seem to exceed even those that would be required if a company wanted to go through a full IPO process. Quite frankly, that is ridiculous. One of the issues that we constantly deal with in the Parliamentary Joint Committee on Corporations and Financial Services—of which you are the chair, Mr Deputy Speaker Irons—is this issue that overdisclosure can quite often complicate matters even further and make potential investments even more risky for investors. That is because investors tend to take the view—this is a bit of behavioural economics for everybody—that because there is a nice glossy document that has so much fine print and that has been submitted to the regulator—not approved by the regulator—that it must all be fine. So, it's important that we get the disclosure regime right and that any risks are properly identified and consumers know what it is that they're getting into and understand the risks of investing through this method. This isn't going to be for everyone. This probably isn't where you'd put your superannuation savings. But it is important that companies and start-ups have access to this equity, it is important that there is proper disclosure, and it's important that there are consumer protections, which this legislation introduces.
But, critically, like with so many things, we're here fixing something that could have been fixed up a year ago. The start-up community of Australia could have been already accessing this legislation at the end of last year. We could have had a huge influx of equity into the smallest businesses in Australia, helping them reach that next step of development in their business. But, this government—a government that talks about supporting small business, talks about trying to help small business and talks about growing our economy and making it innovative and agile—has actually strangled that off for another 12 months. This is already many years after those original recommendations were made. That's why we not only support the bill—and I am supportive of the bill—but also support the amendment put forward by the member for Chifley, which, critically, calls on the government to bring forward the start date for this legislation, so that we can unlock the potential of equity crowdfunding for this nation, as we should have done many years ago.
How on earth can this government, the Turnbull government, even think of itself as a government that supports innovation when it takes five years to get the legislation on crowdfunding to a usable form in our parliament? It's an amazing indictment of this government that this really quite simple piece of legislation, the Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017, has taken so long.
I say 'simple' because, even though equity crowdfunding has its complexities, it is simple relative to the kinds of challenges that governments need to face now when they deal with innovation—the changing ways that businesses are starting to work and the effort going on around the world to restructure our concepts of the economy and how business interacts to deliver social good. When you look at all the change that government's going to have to deal with in the very short term, this is not a really complicated one. This has actually been around in the US. President Obama introduced the US legislation in 2012. The word 'crowdfunding' is known. People know what it is, yet this government has taken literally years to get the legislation to a point where it can be passed by this parliament and finally implemented several months down the track, if you let this government go.
It's been a litany of disaster from the beginning. The Labor government, way back in 2013, asked the Corporations and Markets Advisory Committee to advise on the appropriate framework to allow equity crowdfunding to operate here. That was in 2013, a year after the US. The committee brought down its final recommendations to the Abbott government in May 2014—and then nothing. In 2015, nothing. In 2016, nothing.
Then finally, in 2017, we had a bill before this House—actually, I think it was late 2016—which did not meet the needs of the start-up community and was widely criticised. There was some delay as we on this side of the House attempted to negotiate amendments to make it more suitable, but essentially the problem with it was really simple: it required businesses that wished to crowdfund to become unlisted public companies, at incredible expense and with an enormous amount of red tape. Ninety-nine per cent of the businesses that might want to participate in the crowdfunding are actually private companies, so 99 per cent of businesses were not structured appropriately to use the legislation that was introduced and eventually passed in early 2017.
So the government was widely criticised, and criticised by this side of the House as well, for putting through a bill which did not actually achieve what it needed to achieve. We on this side knew then that it wouldn't work. In fact, the previous speaker, the member for Chifley, called it a dodo, saying it would be extinct within days, and in fact it was. He points out that now, a year later, there have been seven platforms launched under that old legislation and three completed crowdfunded projects. World experts on where the money moves estimate that crowdfunding is a field that will be worth about $95 billion worldwide by 2025, which is only seven years away, and we've got seven platforms and three completed crowdfunded projects, a year after the government's first legislation was introduced.
This new legislation addresses a lot of the botched parts of the previous bill. It actually meets the needs of the sector, and it will allow this sector to grow rapidly, which is a very good thing. But I just want to go back to what I said at the start of this: this is in many ways a simple exercise to get something right for equity crowdfunding and, again, five years is a long time to wait for appropriate legislation. The industry itself is complaining loudly, and quite rightly, that it'll have to wait at least another six months, if the government has its way, before it can actually use this legislation. We will be working hard to fix that for the industry and bring it forward.
Most of the speakers who will speak on the crowd-sourced funding bill today—the member for Chifley, the member for Burt and the member for Griffith—are into tech. They are speaking today because they are great followers of new technology and innovation. My interest in it is different. I am interested in the changing relationship between customers and businesses and between business and business in my community and right around the world. I am interested in the efforts that are going on around the world to restructure the way we think about business in our communities to effectively allow communities to make better decisions about how their resources are spent.
You can see all sorts of examples of this. You can see the growing number of co-ops and mutuals where people decide that they want a medical centre in their small town and so they form a medical co-op. You can see in Europe where people are getting together and forming mutual insurance companies that are now so wealthy—essentially because they insure small business owners, and small business owners don't get sick very often—that they are expanding right across Europe, out of one country and into several others. Enormous amounts of money have been put together through co-ops, because that was the only structure that actually worked for them. You can see in the US where small towns are getting together and forming mutuals that build their own internet network or that build their own power companies. You can see people all around the world—some very smart people—trying to find ways to strengthen the consumer within a company so that that old relationship that we had with economies of scale where a big company had customers and there was no real interaction is actually changing and breaking down. We will see over the next 10 years or so a dramatic increase in that kind of activity and in the way that people approach their relationship with their customers and customer-owned businesses. Crowdfunding is very much a part of that.
Equity crowdfunding is one part of crowdfunding, but I imagine that, if you took the rules away, if you took the law away—and I am not suggesting we do take the law away, by the way—if you allow it to flourish and follow its own path, you would find an incredible array of forms of customers coming together with money or businesses or investors coming together and forming different kinds of relationships with the companies from which they buy products or in which they invest. I suspect that we will see that anyway and that we will very quickly see platforms and businesses that are wishing to crowdfund bumping up against the legislation, even though at the moment it looks right. I suspect we will see that happen very, very quickly.
Crowdfunding isn't as new as people think. In Parramatta, my community crowdfunded its swimming pool just after a World War II. They wanted one and so they got together and crowdfunded it. In the US, they crowdfunded the base on which the Statue of Liberty stands. There are many examples. Of course, co-ops and mutuals were a different legal form of a group of people getting together and deciding how they wanted their money to be spent and how they wanted their resources to be allocated. Again, we are seeing the re-emergence of new forms of those. In Belgium, there is a group called SMart, which takes people in the gig economy in the arts industry and collects all their fees and effectively pays them a full-time salary. It has an incredibly large amount of capital sitting there, with 80,000 artists on its books. That is a co-op. It is a new form whereby people get together to create the business that they want the solution from. So, effectively, it is not a business looking for a crowd but a crowd looking for an answer—the reverse of what we now see as crowdfunding, and we will see more and more of that.
It is not new here either. I read quite often that the first recognised modern crowdfunder was a British rock artist in 1997, who got together a whole bunch of his fans to fund his tour. ArtistShare created their platform in 2000. But I can tell you that the Cafe of the Gate of Salvation, which is a gospel choir, got its fans together in 1989 to crowdfund its CD, and I bought one. I still have it, I think. We paid for that CD a year before they made it. We knew we were doing that. I challenge this first recorded incident of the 1997 British rock artist who doesn't seem to be named anywhere. I name the Cafe at the Gate of Salvation as the first official crowdfunder. Go the gospel choir. They were very, very good.
I would also point to the Melbourne Theatre Company in the late 1960s and 1970s, which invented what we now know as subscription. They got all their fans and customers to pay a year ahead. In Australia we think that's normal, but it's actually not—it's only Australia and South Africa that do it. You have companies in Australia like the Australian Opera that have at times received 80 per cent of their income 12 months before they even produced a production. It's an Australian invention. Don Finlay and the Melbourne Theatre Company invented it, and it's gone through virtually every Australian company. It too in many ways is an early form of crowdfunding, because it brings the crowd together to produce the service that they wish. It's crowd up, not crowd down.
So when I look at this particular piece of legislation and the great stuff that is happening, the wonderful new platforms that are coming out, and the great business ideas that we will see funded that way, I still think that there's another step to it. Over the next few years we will see a dramatic change in the way businesses and customers interact. We will see more customer owned businesses. We will see a whole range of new ways of business and customers and investors working together.
When this legislation comes into force and we start seeing more and more start-ups and other businesses seeking crowdfunding, I suspect it's not going to be as trouble free as we might like. We'll have quite inexperienced investors that have emotional attachment to the company in which they invest. We'll have a range of different kinds of relationships between the business and the investors because of the choice of the business or the choice of investor. I suspect it won't be quite as neat as we think. There will undoubtedly be some that will hit a wall because of the different expectations of the different groups. That, in many ways, is exactly my point. We now have a growing number of people in our communities right across the world who are looking for a different kind of relationship. As our communities themselves become less and less capable of coming to common conclusions, because we no longer live and work in the same suburbs, but we jump in our cars and leave, there are people who are trying to find new structures that bring people together to make decisions about where they want their resources to go.
It's an incredibly exciting time. Quite frankly, we need a government that can work a hell of a lot faster than this one on this stuff. We're going to need a government that can respond when new ideas start bumping up against this. We're going to need a government that can respond when new forms of coops and mutuals start to get into kinds of crowdfunding of their own, as they already are. We need a government that puts its legislative power where its mouth is. It talks about innovation, it talks about game changers, but it's just not prepared to do the work. There's a phenomenal amount of work to do, because the opportunities out there for new ways of thinking and new ways of making things happen, for empowering communities to make decisions to solve community problems for the common good or for personal good, are legion. Every major university is into it, and is trying to work out the new economic models. Every council knows they have problems they can't fix. Every community has people in it looking to do this. We have groups in Western Sydney who for years now have been collecting groups of people to invest in solar panels on the roofs of not-for-profits, because they believe that's where their resources should go. There are incredibly complex structures that these not-for-profits have to set up in order to do it. We need easier ways to do that.
Crowdfunding is not finished. This is just the beginning of it. We'll be astonished when we look back in 10 years at how far it's gone, around the world. Let's hope it goes here as well and let's hope we have a government that's capable of adjusting its laws, of looking at the possibilities and opening doors for those possibilities.
It is, of course, a pleasure to follow the member for Parramatta, who is well known in this place for her interest in innovation, in small business, in start-up businesses and in new and emerging corporate forms. It's always such a pleasure to see her at our events for the Parliamentary Friends of Innovation and Enterprise. She is a frequenter of such events and is well known to the innovation community. In making those observations, I draw a very clear distinction between small businesses and start-ups. They're very different things but nonetheless have some related interests. Some of those interests are at the heart of what this new bill is about.
It was very interesting to hear the thoughts of the member for Parramatta on what is the evolution of the corporate form. We here all know, don't we, that corporations and the corporate form are not things that were handed down from on high. They've evolved over the last few centuries. In fact, it was previously considered quite controversial to confer legal personality on an entity and to have limited liability for people who own shares in that entity, yet that's now the norm. It's reflected in our corporations legislation and seems almost natural because it has now been around for so long. But it's not set in stone; it's not immutable, and certainly not frozen in time. I'm sure that most people here will have had interactions with people who are now challenging the way we see the corporate form under our legal system.
The shareholder primacy model is being challenged by benefit corporations, a new corporate form that has been emerging, particularly in the United States, where they're seeking to move away from shareholder primacy models to genuine stakeholder models. It makes a lot of sense when you think about it, because, regardless of what their legal obligations might be, how many corporations do you know that consider only shareholders' interests in the decisions that they make? Of course they don't. Of course they consider—and have legal obligations to do so—the interests of their employees, their creditors and their customers. All of these stakeholder groups—or, as some people describe them, corporate constituencies—have a role to play in interacting with corporations, particularly corporations that exist so that a firm can operate within the law and take the benefit of the corporate regulation that we have.
It's not just the emergence of benefit corporations. The member for Parramatta talked about co-ops and mutuals, who play an incredibly important role in Australian society. I'm a member of one myself, the RACQ. It does absolutely sterling work in respect of road safety in Queensland for the benefit of its members. It's not a corporation in the same way that a trading corporation might be; it falls within the class of co-ops and mutuals. I'm very pleased to engage with the Business Council of Co-operatives and Mutuals, and I'm sure that people here will have met with them when they have been in parliament, including quite recently to talk about this alternative yet very common form in Australia.
When you talk about the continuously emerging and evolving way that corporations are organised, we're really talking about the way that people can get together collectively for the purpose of an enterprise or an undertaking. As I said, it's not just shareholders or directors; it's employees, creditors, customers, providers of finance and suppliers. Corporate constituencies are very broad, and that's very important because, when we're talking about how to increase economic activity, we need to recognise that sometimes our old laws aren't fit for purpose. In this case we're talking about laws to promote and encourage investment, particularly in early-stage high-growth start-ups. This is a very important issue, and it's something that Labor kicked off when we were in government. We sought the advice of CAMAC, the Corporations and Markets Advisory Committee, the same committee that, unfortunately, this Liberal government had legislation previously before the House to abolish. Nonetheless, we did seek advice from CAMAC to see what we could do in respect of allowing equity crowdfunding to operate here in Australia. It was really important, because, if you're an early-stage start-up, you're going to be looking for options to raise capital. Finding investors at that early stage when you've got an idea is quite a difficult thing to do. Maybe you've developed a minimum viable product but you're not yet at a point where your firm is sufficiently mature enough to convince investors necessarily that you are a fairly low-risk proposition, so you're looking for capital that has a slightly higher or a much higher appetite for risk.
Mr Deputy Speaker Irons, I'm sure you've been, as have I, to a lot of incubators and accelerators that provide support to early-stage start-ups and then try to connect them either with angel investors if they're very early-stage or, later down the track, with venture capital. Those are very important, but increasingly I am hearing entrepreneurs saying that they are not willing to go down the route of engaging with the incubator or the accelerator with a view to getting particularly venture capital for their firms because of the requirements that are usually imposed to give up large portions of the equity in the firm—in other words, to give up a large amount of ownership of the firm, to have people they don't know who haven't been part of the business from the ground floor getting involved in the running of the firm.
I've certainly been to accelerators and incubators in Jerusalem, in Yangon, in San Francisco and of course plenty here in Australia. It is quite common across these incubators and accelerators, particularly the for-profit ones, to seek to take a slice of ownership in the start-up once they've assisted them to obtain capital, and of course it's very common for venture capital, as a condition of providing the funding, to seek a slice of ownership of the firm. Once that starts to happen, you're giving over more and more control. So it's not really a surprise that founders in those sorts of firms would be looking at alternatives to raise capital that don't involve them giving up control over what's really their baby—this business that they're starting from the ground up.
We have a strong and growing angel investment sector in this country. We do have a lot of strength in venture capital, and I certainly would not seek to minimise the importance of venture capital or the role that venture capital plays in Australian innovation, whether it's traditional venture capital or some of the corporate venture capital that we're starting to see in firms like Qantas and Telstra, who of course pioneered corporate venture capital in Australia. I certainly do not seek to discount the role and importance of venture capital or, as I say, at a more early stage of angel investment. Access to equity crowdfunding is another string to bow for those early-stage, high-growth start-ups when they are trying to seek funding.
I've spoken in relation to equity crowdsourced funding in this place before. I've expressed a great deal of frustration at the fact that this government really did not have its act together when it came to crowdsourced equity funding. In fact it had a previous bill early last year, which you'll remember, Deputy Speaker Irons, which sought to set up an equity crowdfunding regime, but, as we said at the time, excluded proprietary limited companies. So only limited companies, only public companies that were able to bear the compliance obligations and costs of transforming into an Ltd company, had access to the regime under the coalition's previous legislation.
A number of us, including of course the shadow minister, the member for Chifley, who is here at the table—who has done an excellent job in leadership on this issue over many years—spoke out about our concerns about the previous version of this bill, because it was not workable. It was of no use. You had people from across the start-up sector saying, 'Why would we go to all the cost and compliance obligations of trying to change our corporate form to become limited companies rather than proprietary limited companies just to access this regime?' The sector was speaking out and we were speaking out. The government knew they had a problem, because they were foreshadowing that they'd need to come back with further legislation—which is what this bill is—in order to fix a very obvious and glaring problem, yet they went ahead with it anyway. It was just legislation by publicity. It was a triumph of publicity over common sense. What a shame that was to see the government so desperate for a headline and for a bit of good publicity that they rushed through legislation that was not workable and that was in receipt of significant criticism from our innovation ecosystem participants in this country.
So I am delighted—I'm quite moved—to be standing here on what is a red-letter day for this nation. Finally this government is showing some common sense. Well done, government. I am deeply moved and delighted to acknowledge that there has finally been a show of common sense from the Turnbull government. Now that we are seeing some common sense on this issue, maybe we'll start to see some common sense on some other issues. Maybe we will see common sense on schools funding or corporate taxation or perhaps even not cutting university funding by $2.2 billion—which, by the way, is not particularly popular among the innovation ecosystem participants either. Maybe we will start seeing some common sense when it comes to pensions. Maybe we will even start seeing some common sense when it comes to ruling out any cuts to the GST for my home state of Queensland.
Or Tasmania, says the member for Franklin from the table. I'm not going to hold my breath for more common sense because I am sceptical. It has taken a very long time to get to the point where we have legislation that is workable for the innovation ecosystem, that is workable for early-stage high-growth start-ups. It has taken a very long time to get to the point where we come here and say: 'Well done, government. Finally, you've got your act together. You've finally listened to us. You've finally listened to the sector. You've listened to Labor. You've listened pretty much everyone in the world, except for yourselves, who knew that this was a great big giant problem!' In fact, as I said earlier, the government knew it was a problem and did it anyway. Credit where it's due! Two thumbs up! It is quite a delight to acknowledge the common sense of the Turnbull government, finally, in bringing this legislation before the House.
This speech is not all about me saying I told you so. It's not all about a vindication of our earlier stated position. It's not all about placing on record that we had called for this much earlier. It's also a genuine acknowledgement that this legislation will help early-stage high-growth start-ups raise the capital that they need that is crucial for them to be able to grow and create jobs and create products and services that will help Australians and Australia. It is a very good thing that equity crowdfunding will now be available to those organisations—in particular, it is good that it will be available to them without having to change from being proprietary companies into limited companies. Accordingly, I am very happy to stand up and support this legislation from the Turnbull government. In so doing, it is of course deeply important to acknowledge that this legislation would be unlikely to be happening at all if it were not for the work of the shadow minister at the table, the member for Chifley, and the work of Labor in government seeking to obtain advice from CAMAC in respect of crowdsourced equity funding.
It was not just our view that the previous legislation was unworkable. It was not just the view acknowledged by the government, when they were moving the legislation, that it was unworkable. We had start-up founders criticising it at the time. One founder said, 'Switching to a public company to avail ourselves of the potential wider investable base is unthinkable.' Of course it was unthinkable; the additional compliance costs and obligations outweighed the potential benefits of the previous version of this legislation. In this new version, proprietary companies will be able to crowdsource equity fund and still meet the obligation of a proprietary company not to have more than 50 shareholders—because those who obtain shares through crowdsourced equity funding will not be counted towards that cap. People using this new regime will, nonetheless, have slightly higher compliance obligations than ordinary proprietary limited companies. It is important that those companies will be able to use this legislation.
The member for Chifley has moved an amendment seeking that the commencement of this legislation be brought forward by three months. The sector should not have to wait another six months. They have been waiting a very long time already as a consequence of this government's failure to get the bill right in the first place. I would encourage all members of this House to support the second reading amendment with a view to calling on the government to bring forward the operation of this regime by three months. I know that the sector would welcome that and I know that the entire innovation ecosystem would welcome that. There is no reason why a competent government couldn't bring this forward and allow it to commence operating in a more timely manner, particularly given how much time has already been spent by the government on this and how much time the sector has already been forced to wait as a consequence of the dilatory conduct and delay of this unfortunate Turnbull government.
I rise in support of the Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017. As the House has already heard, this bill amends the Corporations Act 2001 to extend crowdsourced equity funding to proprietary companies. It will mean that all proprietary and unlisted public companies with an annual turnover or assets of up to $25 million will be able to raise up to $5 million annually in crowdsourced capital. Extending crowdsourced funding to proprietary companies is good for business and it is good for everyday Australians. Individual investors will be able to invest up to $10,000 per year per company. I believe that this bill demonstrates the government's commitment to supporting Australian businesses, both public and private, and to helping them operate at world-class levels.
We all know that strong businesses result in more jobs for Australians and better wages for Australians and that a strong business sector is the bedrock of a robust national economy. With the legislation that was passed in September 2017, publicly listed companies in Australia have been able to crowdsource funding. Several Australian financial services licences have been issued to platforms to act as intermediaries in the sector of capital raising. Interest in crowdsourced capital raising has, to date, being very strong. It's quite clear that there is certainly an investor appetite for this type of capital raising, and that should be extended to proprietary companies because it's already happening in other parts of the world.
I note that around 99 per cent of Australian companies are proprietary companies. So, while the work in this field by the government has been most welcome to date, the reality is that until now most Australian companies have been locked out of crowdsourced capital. That's all about to change with this legislation. Expanding crowdsourced funding to proprietary companies will let these firms retain their current company structures. So they do not have to change them in order to access the funds and the capital. This means that they can continue to be lean, flexible and responsive to market conditions, which is often why they're successful in the first place. It's the dynamism of the proprietary company structure which often leads them along the path to success.
I am encouraged by the extensive consultation that has occurred with businesses to get this legislation and the framework to the point that we see today. In fact, there have been two years of consultations with businesses and industry groups, as well as others in the sector, and this has all helped to shape a bill that recognises the needs of the market and will facilitate the market to get the capital to where it's needed.
These proposed amendments will open the door to a new type of equity for the vast majority of Australian companies. I think the important thing about it is that it will also foster enterprise and encourage many entrepreneurs, including younger entrepreneurs who may have difficulty raising capital, to turn their business ideas into reality. As anyone who has done it knows, starting a business is an extremely difficult thing. It's not enough just to have a good idea or a dream. A lack of capital is often one of the biggest hurdles that young entrepreneurs face, and it is one that can prove fatal. So access to capital is vital in the early stages of an enterprise when there are many costs that need to be borne and there is often little or no revenue. That is just the cold, hard truth of starting a business. If we can help our entrepreneurs overcome this handbrake on growth that is a lack of capital, they can then go on to produce wealth, jobs and prosperity for our country and, in particular, our country communities.
The fact is that traditional forms of finance may not be an option for start-ups. Finance can be extremely difficult to obtain, particularly in these economic times. They can also have a long lead time. Business loans for start-ups or expansion ventures can be notoriously difficult to come by, and loan repayments, if you can get a loan, drain scarce resources out of a new business at the time when those resources are most needed.
Increasing the attractiveness of equity crowdfunding will also increase the pool of potential investments, giving investors the opportunity to share in the risks and successes of these growing enterprises, and allowing proprietary companies to access crowdsourced equity funding opportunities will help our small to medium enterprises bring their ideas to life. I'd like to commend the minister for his careful work in balancing the regulatory requirements to protect investors and potential investors with important provisions that will ensure that our enterprises can access this type of capital for growth. ASIC's oversight of crowdsourced funding to date has helped with a smooth implementation of this new regime, and they will no doubt be working diligently to ensure that the implementation of this legislation is as smooth as possible. An increase in the number of directors to at least two helps to protect investors through transparency, succession planning and enhanced decision-making. Financial reporting in accordance with established accounting standards will help potential investors be able to make well-considered investment decisions.
I note that proprietary companies that raise $3 million or more will be required to maintain audited financial statements. This bill also increases the audit threshold for eligible public companies from $1 million to $3 million. Lifting the audit threshold is important because the cost of an audit can range anywhere from $10,000 to $20,000, and audit costs can be a major disincentive for firms to access this type of capital raising. Intermediaries regulated through an Australian financial services licence will be established in a fair, transparent and equitable way so everyone can see what's going on and investors will be able to make informed decisions. The restrictions on related-party transactions are also important to guarantee that investors have protection against fraud and bias.
I also note that the new legislation exempts users of equity crowdfunding from takeover rules and the 50-non-employee-shareholder cap that would otherwise apply to proprietary companies. To leave that restriction in place would mean that a proprietary company would only be permitted to have 50 non-employee shareholders, which would limit its ability to access the crowdsourced funding regime. All of these factors work together to create an environment that lets business thrive without unnecessary red tape but which also safeguards Australian investors from unscrupulous operators.
Crowdsourced funding is an increasingly popular method of capital raising overseas, and I think it's important that we give Australian companies the ability to reach their full potential in an increasingly competitive international environment. But we also need to give investors this choice and investment opportunity, which this legislation provides.
In conclusion, can I say that this bill will help Australian companies unlock untapped reservoirs of capital, and it certainly will fuel important growth and wealth and the prosperity that it brings. I commend this bill to the House.
Firstly, I'd like to take this opportunity to thank all members who have contributed to this debate. The Turnbull government is getting on with the job of supporting innovation and small business. This leads, as we've said on this side of the House many times, to more jobs, higher wages and better productivity. The Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017 fulfils the government's 2017-18 budget commitment to extend the equity crowdfunding framework to proprietary companies. This will allow more businesses to use this fintech to grow their businesses in Australia.
The extension of this framework reduces current regulatory impediments, including the necessity to convert to a public company, that have meant that public equity fundraising has not been a viable source of funds for many smaller companies.
This bill builds upon the existing crowdsourced equity framework for public companies that the parliament passed in March last year. While the public company bill provided temporary concessions for new public companies that accessed crowdsourced equity funding, this bill in enables proprietary companies to directly access equity crowdfunding. This will make it cheaper and easier for proprietary companies to use crowdsourced equity funding and improve the attractiveness of crowdfunding as an alternative funding option. Increasing the number of companies in the crowdfunding sector also increases the number of investments available. Whereas proprietary companies previously could not issue equity to the public, this bill will remove the regulatory barriers and allow the transparency of a well-informed, online marketplace to direct investors to appropriate businesses. Investors will be able to share in the success of these Australian businesses.
The government acknowledges, however, that enabling proprietary companies to raise funds from the public is a change from the current law. Proprietary companies have traditionally been closely held, whereas shareholders usually rely on their relationship with the founder for information and influence. To ensure that the crowdfunding market for proprietary companies succeeds, the government has taken a balanced approach, minimising compliance costs for companies while building in investor protections. The government has engaged in lengthy consultations to arrive at the best form of crowdsourced equity funding legislation. Early feedback on the extension to proprietary companies emphasised that there should be a single framework for public and proprietary companies to access crowdsourced equity funding. The proposal in this bill follows this principle, building on the existing public company framework in areas such as obligations for intermediaries, and the general approach to disclosure requirements for companies and cooling-off periods for investors.
Public consultation on the draft legislation revealed widespread support for the extension of the crowdsourced equity funding framework to proprietary companies. However, there were mixed views on the fundamental trade-off between what corporate governance and transparency measures are necessary to protect retail investors weighted against the compliance costs for small innovative companies that generally have low governance obligations. To enable proprietary companies to effectively access crowdsourced equity funding, the bill exempts crowdfunding investors from the 50-shareholder cap. The government has further expanded this exemption after stakeholder feedback, allowing crowdfunding investors who on-sell their shares while the company is unlisted to also be exempted from the shareholder cap. This enables crowdfunding investors to have some liquidity without causing the company to breach the shareholder cap and be forced to transfer to the public company type immediately.
Crowdfunding proprietary companies will also be exempt from the takeover provisions, recognising feedback that this can be a costly and complex process that could hamper legitimate capital injections into a business. The government proposes to require, via regulation, that companies disclose in the offer document any tag-along rights that a minority shareholder could use to tag along to an existing or trade sale. To provide investors adequate transparency, this bill requires crowdfunding proprietary companies to provide shareholders with financial statements prepared in accordance with the accounting standards and to have their financial statements audited once they have raised a certain amount of funds via crowdfunding. The government acknowledges that stakeholder views on the reporting obligations, particularly the audit, were mixed. The government has listened to stakeholder concerns that a low audit threshold may deter small companies from using crowdsourced equity funding. The government believes that an audit threshold of $3 million provides an appropriate balance between compliance costs for companies and ensuring investors can rely on the financial statements that they receive.
The measures in this bill will extend equity crowdfunding to a wide range of early-stage businesses in Australia. It's another example of how the government is removing regulatory barriers, enabling innovative economic activity and allowing Australian entrepreneurs to obtain the capital they need to turn good ideas into commercial successes, and, therefore, I commend this bill to the House.
The original question was that this bill be now read a second time. To this, the honourable member for Chifley moved as an amendment that all words after 'that' be omitted with a view to substituting other words. So the immediate question is that the amendment moved by the member for Chifley be agreed to.