Crowd-sourced equity funding (CSEF) has been a hot topic in Australia over recent years, in particular as a result of the increased proliferation of new tech companies and start ups. Much of the discussion around CSEF has been around the rather unsatisfactory approach adopted by the Australian Government, in particular when compared to the model adopted by New Zealand.

However, earlier this year, the Federal Parliament passed legislation which will bring CSEF to Australia by amending the Corporations Act 2001 (Cth) to enable public companies to undertake CSEF. The legislation is due to come into force on 29 September 2017.

Recently, Commonwealth Treasury announced plans to extend CSEF to proprietary companies, with provision for these changes being budgeted for as part of the 2017-2018 Federal Budget. Draft legislation to bring these changes into effect has been released for public consultation, which closed recently.

These changes, once implemented, will remove the need for proprietary companies to convert to a public company to undertake CSEF, but will also ensure investors are protected by placing additional requirements on proprietary companies looking to undertake CSEF, including the requirement to have two directors, financial reporting in accordance with accepted accounting standards, audit requirements, restrictions on related party transactions, and minimum shareholders rights to participate in exit events.

If/when the legislation is passed, it will still mean proprietary companies looking to undertake CSEF will need to give careful consideration to the additional requirements, but should be a positive for start ups and small companies looking to raise funds for sustained growth and development.