Corporations and Markets Advisory Committee †MyAssignmenthelp.com

Question: Discuss about the Corporations and Markets Advisory Committee. Answer: Introduction: The client Howard Jones (Client) has requested to be advised on the aspect of crowdfunding with respect to his new venture for an idea that would double the life of batteries, instead of going for the traditional Corporate Funding management under Chapter 6D of the Corporations Act 2001, he would like to opt for the crowdfunding source. The first thing that needs to be understood is the meaning of crowdfunding. Crowdfunding is new method of raising capital which is internet based, where small amount of money is pooled by individuals. This approach is quite attractive for entrepreneurs like the Client since it allows not only to raise the capital for a small business which have very limited options when it comes to financing, but it also helps as an essential tool in testing the marketability of the idea.[1] The possibility of contributing to an idea that they have faith in is enjoyed by the individuals, even if it is a small amount that they are able to invest. This effect also has a positive effect on the economy by way of creating new jobs, fostering recovery of the economy and innovations, due to which this approach is appreciated by the government. The benefit for crowdfunding can be explored by musicians, artists, not for profit organizations or businesses like the Client. Crowdfunding functions by possible fundraising through various small donations from a crowd or a large group of people. For the Clients business management crowdfunding can be used as a platform for raising funds at various stages. From the seed phase where the viability of the idea is being investigated to the capital seeking stage for expansion to support in manufacturing. The activities of crowdfunding take place through websites and there are various websites that can be accessed for this.[3] Particularly for the entrepreneurs like the Client and SMEs as discussed above crowdfunding can prove to be extremely attractive as apart from raising capital and acting as a market viability tool, unlike a debt financing traditionally, it does not require generally: detailed due diligence or credit assessment; a securable asset base that is underlying; or formal execution of documents for finance or negotiation with the financiers. There four types of crowdfunding which are accepted generally, first being the reward-based crowdfunding wherein the contributions are made financially with the expectation of benefit in the future or current good. Second being the donation based crowdfunding wherein for a social cause the contributions are pooled in. Third is equity based crowdfunding, wherein the contributions made are in anticipation that there would be a stake in the company growing. Finally there is the lending based crowdfunding where the financial contributions made are discrete which are collected and offered as a debt that is to be repaid with interest.[4] To reiterate, the Client via crowdfunding business platform will be able to raise finance from the people or the crowd. A platform is provided by the crowdfunding business online frown which the client will be able to showcase its product and idea to the audience online. In its simplest form the Client would be required to create the content which would be pitched as an idea on crowdfunding business platform and financial contribution be asked for the same (Arts Law, 2014; Gerber 2014). There have been various examples of successful crowdfunding, on a particular platform one of the division that is principal is regarding the project type. One of the most prominent platform for crowdfunding Kickstarter is dedicated to projects that are creative. On the other hand sites like Indiegogo is more general in nature and allows campaigns of any type. There are various crowdfunding which concentrate only on social causes and still others for scientific research, healthcare, startups, small businesses and research. A popular category on both gaming focused and general platforms is Gaming. Focus of crowdfunding commentary and activity has also been on Citizen Journalism, however this is not an exhaustive list. The crowdfunding world is diverse and there are various crowdfunding activities similar to that of the Client that have been successful. This model can be used by the Client for raising finances for his (legal) enterprise. The mode of cultural production can be circumvented and supplemented by way of crowdfunding management. For example the video game Double Fine Adventure the fundraising conducted provides an explicit and useful example. It was explained by the producer of the game as a part of the pitch for Kickstarter that: Big games cost big money ... To finance the production, promotion, and distribution of these massive undertakings, companies like Double Fine have to rely on external sources like publishers, investment firms, or loans. And while they fulfill an important role in the process, their involvement also comes with significant strings attached that can pull the game in the wrong directions or even cancel its production altogether This situation and pitch is important to understand for the Client as for a start-up it is important to be able to control the development and proceed without hindrance. Websites like Kickstarter which are for raising crowdfunding will prove to be essential for raising fund for the implementation of the idea and its development of the Client. Like the crowdfunding for the game, they help in democratizing the process by allowing the consumers to be able to support the project, they want to see the development and freedom is given to the developers for experimenting, design, taking of risk without their being a compromise by anyone else on the vision. This is the type of luxury that is not available with most of the established studios. It is also important to note the various relationship in this setting between the producer and the consumer. There were some 87,0000 backers for the Double Fine Adventure who were curious to see the ability of the producer of the game. A website Double Fine Adventure was established by the producers in which a detailed information about the project was given which included where the finance was spent and updates regarding the storyboard, character, programming and art. There was also access given to the backers on private where interaction could be made with producers and they could comment on the development of the game. This was a deliberate building of a community by the producer. Apart from commercial crowdfunding examples of which have been discussed above, there is another subset of crowdfunding which has emerged that is of civic crowdfunding which provides the community with public service. An element of public good is involved, though this concept in itself is heavily contested. There is a multi-billion dollar market of crowdfunding, there is already one major example that Australia has seen which may be described as civic crowdfunding.[5] The Climate Commission, which is an independent advisory body on change in climate, in 2013 was dismantled by the Australian government that was newly elected. The organization was re-launched not long after through an initiative of crowdfunding. Now it is called as the Climate Council and is said to be the largest initiative of crowdfunding in Austrlia and an operation budget of $1 million has been raised by it. It was remarked by the Commonwealth Environment Minister at the launch of the Council that: thats the great thing about democracy, its a free country and it proves our point that the [climate] commission didnt have to be a taxpayer funded body [6] Wherever there is public interest that is involved as in this case meaning thereby that they related to ethical, intellectual property, human rights, human health and ecology. Thus considering the nature of the initiative of the client it could principally fall under the category of civic funding as well, as it concerns the ecology as well as betterment of human health and thus there is involved public interest in the development of his idea.[7] The legislative framework that has been enacted for crowdsource funding is by way of amending the The Corporations Act, 2001 by The Corporations Amendment (Crowd-sourced Funding) Act 2017 and also making minor amendments in the Australian Securities and Investments Commission Act 2001.[8] The CSG regime in general has reduced the regulatory requirement for fundraising by the public while at the same time it has maintained the protection measures with respect to appropriate investor. An Australian Financial Services (AFS) is required to be held by the CSF provider.[9] Royal Assent was received by this Act on 28 March 2017 and shall come into effect from 29th of September 2017. Once this comes into effect the ASIC will be able to accept: intermediary applications for AFS License with authority to provide services relating to CFS post this date; and application for registering new public companies or for the conversion of existing proprietary companies for being eligible for exemptions of corporate governance under the regime of CFS. The two bills which have come into effect and which need to be regarded for the CFS are as mentioned below: Corporations Amendment (Crowd-Sourced funding) Act [11], this Act has been introduced for establishing a regulatory framework for facilitation of CSF by unlisted small public companies. It includes, requirement of eligibility for company to be able to raise fund via CFS which include for CSF offers disclosure requirement (Chapter 2). Obligation of the CSF intermediaries for facilitation of offers of CSF (Chapter 3). the process on how the offer of CSF management is to be made (Chapter 4), rules with respect to defective disclosure as CSF offers part (Chapter 5) and provisions with respect to protection of investors. There are consequential amendment that have been made by Schedule I of the Act to the Australian Securities and Investments Commission Act 2001 (ASIC Act) for including services related to crowdfunding as defined in the Act, in the various financial services that the ASIC Act covers. Schedule 2 provides for the new public companies which are eligible for crowdfunding with temporary relief from the requirement of corporate governance and reporting (Chapter 7). For supporting regime of CSF temporary relief is provided to these companies by way of concessions. This can prove beneficial for the Client for starting up his venture. There is also greater flexibility which is provided under the Schedule 3 for settlement and clearing facility of licenses. Corporations amendment (crowd-sourced funding for proprietary companies) Regulations 2017, this bill is introduced for the extension to proprietary companies the regime of CSF, making available for small businesses funding source, while maintaining the protection that is adequate for the investors through placing on companies additional obligations.[12] The guidance of ASIC as the regulator which is responsible for financial service and fundraising activity it is involved with the Government and the treasury for the development of a regime for CSF.[13] They are at the moment for being able to assist further with the development of industry of CSG in consultation on drafting a regulatory guidance for intermediaries that are seeking to provide services relating to CSF and drafting of regulatory guidance that will aid in the assistance of the companies which are seeking to raise funds on a intermediary CSF platform. The various developed markets across the globe such as Italy, New Zealand and United, have acknowledge the crowdfundings arrival as a source that is genuine for finance to complement the traditional equity and debt financing.[14] These jurisdictions have rather than attempting to reconcile crowdfunding with the regulatory requirements that are already in existence, been proactively discussing, developing and implementing laws for the regulation of the financing from crowd source. New Zealand introduced a comprehensive CSEF regime in the mid of 2014 and have proved to be particularly essential as a point of reference for the debate in Australia with respect to crowdfunding.[15] In the regime in New Zealand all the entities that are incorporated are allowed to raise capital via CSEF.[16] Though CSEF is capped at a period of 12 months for an amount of $2 million, which will not include contributions made by wholesale investors, however this amount may be raised.[17] It is required that the investors sing a risk acknowledgment statement[18] and that there are only recommended caps on investors[19]. There has been significant approval which has been received by this rather liberal regime by the Australian Governments members. A key feature in the legislation of Australia is that there is a restriction of CSF to only public unlisted companies which have been limited by shares and which have in annual revenue and gross assets less that A$25 million.[21] This criteria excludes by itself many public companies as well as proprietary companies. Approximately more than 99.7% of the companies will not be able to raise capital by way of CSF. Further foreign companies are also excluded by the legislation to be able raise in Australia CSF. Also companies and related parties excluded are those from CSF if the main objective is that of investment. This is in contrast with countries like New Zealand where every company is allowed to access CSF. There is only a small portion of companies in Canada, United Kingdom and United States who are excluded. There are already few required financial service license in Australia for Crowdsourcing platforms. The range of obligations that have been specified in the 2016 are required to be complied with by the platforms, such as the vetting of the companies which through CSF are seeking capital. Thus allowing the intermediary to act as a gatekeeper however making an onerous compliance. There will be ferocious competition due to the fact that there is only a small number of companies that will be able to access CSF, it would be quite challenging for these platforms to be able to generate profits. There were number intermediaries that were established in New Zealand who are retracting providing an excellent example of intermediaries in this sphere. There is no general cap that has been imposed in Australia as it has been done in other countries. The investment cap in US is within a 12-month period less than net worth to US$2,000 or US$100,000 of income or 5% of the net worth or annual income (whichever is more). Bibliography Belleflamme, Paul, Thomas Lambert and Armin Schwienbacher, "Crowdfunding: Tapping The Right Crowd" (2014) 29(5) Journal of Business Venturing Bull, James and Harry New, "New Equity Crowd-Sourced Funding (CSF) Legislation" (Lexis Nexis, 2015) Dresner, Steven, Crowdfunding: A Guide To Raising Capital (John Wiley Sons, Inc., 2014) Hamman, Evan, "Save The Reef! Civic Crowdfunding And Public Interest Environmental Litigation" (2015) 15(1) QUT Law Review Parliament of Australia Corporations and Markets Advisory Committee, "Crowd Sourced Equity Funding: Report" (2014) Powell, Rose, "Malcolm Turnbull Says Australia Could Follow New Zealand Crowdfunding Laws" [2015] The Australian Financial Review Productivity Commission, "Business Set-Up, Transfer And Closure Draft Report" (2015) Schulz, Leigh and Domenic Mollica, "ASK THE EXPERT The Regulation Of Crowdfunding In Australia: Where Are We And WhatS To Come?" [2015] Australian Banking Finance Law Bulletin Valan?ien?, Loreta and Sima Jegelevi?i?t?, "Valuation Of Crowdfunding: Benefits And Drawbacks" (2013) 18(1) Economics and Management Vitins, Matt, "Crowdfunding And Securities Laws: What The Americans Are Doing And The Case For An Australian Crowdfunding Exemption" (2013) 22(2) Journal of Law, Information and Science Corporations Amendment (Crowd-Sourced Funding For Proprietary Companies) Regulations2017 Corporations Amendment (Crowd-Sourced Funding) Act 2017 Borrello, Eliza, Scrapped Climate Commission Relaunched As Community-Funded Body (2017) ABC News https://www.abc.net.au/news/2013-09-24/tim-flannery-to-relaunch-climate-commission/4976608 Crowdfunding Sourcing Financial Backing To Drive Digital Innovation (2014) Digital Innovation https://www.digitalinnovation.pwc.com.au Crowd-Sourced Funding | ASIC - Australian Securities And Investments Commission (2017) Asic.gov.au https://asic.gov.au/regulatory-resources/financial-services/crowd-sourced-funding/ Heber, Alex, A Crowdfunding Revolution Is Coming To Australia: Here's What You Need To Know (2017) Business Insider Australia https://www.businessinsider.com.au/a-crowdfunding-revolution-is-coming-to-australia-heres-what-you-need-to-know-2015-4