Zed Seselja (ACT, Liberal Party, Assistant Minister for Treasury and Finance) Share this | Hansard source

I'd like to thank all those senators who have contributed to this debate. This bill gives effect to the government's commitment to extend crowdsourced equity funding to proprietary companies in Australia. Extending the crowdfunding framework to proprietary companies will allow these companies to access an alternative form of finance, with additional obligations in place to protect investors.

Alternative forms of finance are particularly important for innovative, early-stage businesses that may have difficulty accessing funding from traditional sources. As part of this bill, proprietary companies wanting to access equity crowdfunding will no longer have to convert to public company type, with its more onerous obligations. Instead, founders will be able to crowdfund while retaining the greater flexibility of the proprietary model. This extension will enable proprietary companies to access the existing regime that passed the parliament in March 2017. Providing one framework for both public and proprietary companies will reduce complexity, as proprietary companies will use the existing offer document processes and licensing regime for crowdsourced equity funding intermediaries. Investors in crowdfunding proprietary companies will benefit from the intermediary obligations and minimum requirements of the offer document, as set out in the existing crowdfunding framework.

Crowdfunding proprietary companies will be exempt from the takeover provisions that usually apply once a company has more than 50 shareholders. The government listened to stakeholder feedback that the draft legislation's proposed exit arrangements would hamper legitimate capital raising. However, as it is common for proprietary companies to have tag rights in their constitutions, which allow smaller shareholders to participate in a buyout, the government proposes to include in regulations a requirement for companies to disclose these rights in the crowdfunding offer document.

Recognising that proprietary companies generally have lower reporting and governance obligations than public companies, investors in proprietary companies will benefit from appropriate additional protections. These include a minimum of two directors, financial statements prepared in accordance with accounting standards, and auditing of financial statements once a proprietary company has raised at least $3 million through crowdsourced equity funding.

Crowdfunding proprietary companies will also be subject to the related party transaction rules under part 2E of the Corporations Act 2001. These additional company obligations will promote investor confidence in the market by ensuring that companies have a minimum level of transparency with their crowd investors. Transparency of the online market enabled by technology also gives shareholders greater power. Confidence in the market will ensure the sustainability of the equity crowdfunding regime. This will help maintain a diversity of funding options that small businesses need in order to succeed. The government has consulted at length on the extension of this policy to proprietary companies to seek an appropriate balance on the trade-off between the corporate governance and transparency measures that are necessary to protect retail investors and the cost of compliance for small innovative companies.

Submissions expressed widespread support for the extension of the crowdsourced equity funding framework to proprietary companies, although they have diverse views on the detailed design elements. The government has closely listened to this feedback and considers that the bill strikes the right balance between the need for transparency and good corporate governance and the costs of compliance. The extension of the crowdsourced equity funding framework in this bill will take effect six months after it receives royal assent, although I note the amendment from the opposition, which the government will be supporting and which will see the bill take effect earlier than was initially anticipated.

The Australian Securities and Investments Commission received $4.5 million in the 2017-18 budget to implement and monitor the extension of the equity crowdfunding framework. This bill's introduction will enable proprietary companies to obtain the capital they need to turn good ideas into commercial successes while providing Australian investors with a larger pool of choice. I commend the bill to the Senate.

Question agreed to.

Bill read a second time.