Michael Sukkar (Deakin, Liberal Party, Assistant Minister to the Treasurer) Share this | Hansard source

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.

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