Crowdfunding Part III - Australian regulations on crowdfunding

Equity crowdfunding is covered by Australia's very strict consumer protection regulations, which incorporates specific elements regarding disclosure and licensing. The Corporations Act 2001 actually limits the ability of companies to engage in capital raising activities from the general public, and instead funnel funds through heavily regulated channels. 

Disclosure documentation

The Act states that capital raising activities by proprietary companies must have 'full and continuous' disclosure, which means reams of paper - disclosure documentation - before any shares can be put on sale. 

The Exemptions Clause

This rule has one exemption, which is that a company can make a small personal offer to no more than 20 investors within one year and can only raise up to $2 million. 

Investors are excluded if they are considered to be 'sophisticated' - that is, someone who has net assets of $2.5 million or had a gross income of over $250,000 in the past two financial years. This creates a problematic gap for those investors who may fall between the cracks here due to a wish to invest in startups in this way. It also heavily limits who can invest in startups, leaving this to anyone worth $2.5 million or less, or who earnt $250,000 in the past two years. 

Specific Legislation

Equity crowdfunding in Australia has no specific legislation, leaving startups to rely solely on the exemption in the Act to raise funds and avoid the disclosure clause. 


The Australian Financial Services Licence (AFSL) is the next hiccup startups (or others seeking funds or capital) face. Intermediaries that promote the investment opportunities that startups provide must have an AFSL, but the costs associated with investing small amounts of capital do not make this viable - or interesting - for those with AFSLs. It's just not their cup of tea, it seems. 

What equity crowdfunding looks like in Australia today

Australia, through inaction and current legislation, doesn't allow equity crowdfunding, and the Act tends to cater only to large organisations that have funds and staff and big deals. This is changing, but as with everything financial in Australia, it is progressing at a slow amble. 

Change is on the way (so they say)

The Corporations and Markets Advisory Committee (CAMAC) issued a report in 2014 that examined in more detail the barriers Australia is facing in utilising crowdfunding, and made several recommendations for development. 

  • Amendments should be made to the current regulatory environment for proprietary companies
  • Offers could be restricted to certain types of investing
  • Fundraising provisions could be amended for other companies
  • Introduce a new regime specifically for equity crowdfunding so a new business model could thrive - these models have already been successfully implemented in the USA, UK and New Zealand. 

The Financial Systems Inquiry Final Report, also released in  2014, suggested that fundraising regulations should be graduated to 'facilitate crowdfunding for debt and equity, and over time, other forms of financing', however so far it seems not much is happening. 

As discussed in Crowdfunding Part I, crowdfunding plays a positive role in economic recovery by offering small and medium businesses and startups access to business-building funds, which in turn create jobs and add to the economy. 

Crowdfunding is not just a novelty anymore - it's a real way for startups and small or medium-sized companies to get a leg up. Roll on regulatory movement. 

Crowdfunding Part I - An overview from a regulatory perspective

Crowdfunding Part II - Understanding crowdfunding trends and regulatory approaches globally