The 2017 Federal Budget announced the Federal Government’s plans to extend the crowd sourced funding (CSF) regime so that all private companies can engage in CSF. At present, the CSF legislation, which is due to commence on 29 September 2017 by way of changes to the Corporations Act 2001 (Cth) (Corporations Act), only allows unlisted public companies to engage in CSF as a means of fundraising.

The draft Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017, which the Federal Government released with the Budget papers, will further amend the Corporations Act so that private companies, together with unlisted public companies, are permitted to use CSF as a means of fundraising. These changes to the CSF regime will be of particular benefit to technology companies and start-ups, which are typically not public companies.The draft bill will allow private companies to engage in CSF if they satisfy the following additional obligations:

  1. Minimum number of directors – A private company must have at least two directors before it can engage in CSF.
  2. Additional reporting obligations – A private company must include additional information in its company register, including the date of each issue of shares as part of a CSF offer, the number of such shares issued and the date on which a shareholder ceases to be a CSF shareholder. ASIC will also need to be notified of the dates on which a private company starts and then ceases to have CSF shareholders.  
  3. Additional financial reporting obligations – A private company engaged in CSF must prepare and provide ASIC with copies of annual financial and directors’ reports. This additional obligation will ensure that CSF shareholders have access to adequate information about their investments. Furthermore, a private company that raises more than $1 million from CSF must audit their annual financial reports.
  4. Restrictions on related party transactions – To protect investors against fraud and bias arising from related party transactions, private companies engaged in CSF will be subject to existing related party transaction rules under the Corporations Act.
  5. Takeovers – A private company that has CSF shareholders will be exempt from takeover rules in Chapter 6 of the Corporations Act if the company’s constitution provides a minimum level of protection for investors to participate in an exit event. If such protection is not provided for, the existing takeover rules will continue to apply. To qualify for this exemption, the company’s constitution must require someone who acquires more than 40% of the voting shares in the company to offer to purchase all other shares in the company on the same terms within 31 days. It is then up to each shareholder to decide whether or not to sell their shares on the terms offered.

The existing 50 shareholder cap for private companies will also be amended under the draft bill. To allow private companies to effectively use CSF as a means of fundraising, CSF shareholders are not counted as part of the cap.

Whilst the changes to the Corporations Act proposed in the draft bill will make CSF a very attractive fundraising option for many private companies, it is important that these companies understand the additional obligations imposed on them under the CSF regime before they undertake any such fundraising activities.

Authors: Darren Pereira & Maree Andresakis



Darren Pereira, Partner
T: +61 2 8083 0487


William Khong, Partner
T: +61 3 9321 9883


Trent Taylor, Partner
T: +61 7 3135 0668


The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this publication is accurate at the date it is received or that it will continue to be accurate in the future. We are not responsible for the information of any source to which a link is provided or reference is made and exclude all liability in connection with use of these sources. 

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