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What is crowd funding?

Discuss about the Business Laws Crowd Funding.

As provided by Jozefien Daelemans “Crowd funding isn’t about collecting money. It’s about makig something happen with a crowd of people who believe in something. Normal people, not rich people with a lot of power, just people like you and me”. “I find crowd funding to be one of the most ethical ways to continue doing the work that we do because the idea is that I want my videos to be free and available to everybody, and that's why I use YouTube and online platforms” as provided by Anita Sakeesian. The purpose of this paper is to discuss the provisions related to Crowd funding. The paper describes what I crowd funding, talks about successful crowd funding in Australia ad compares the Australian law on crowd funding with international standards.

Crowd funding is the utilization of capital collected in small amounts from many individuals in order to support a new business plan. The concept of crowd funding uses simple accessibility to a large number of people through various platforms like social media and other websites for crowd funding to bring together entrepreneurs and investors. The concept has the power to enhance entrepreneurship through the expansion of the pool of the investors who can be utilized to raise funds outside the traditional circle of relative, venture capitalists and owners[1].

Crowd funding provides opportunity to the entrepreneurs to expand and bring into existence their business idea by raising large amount of money from anyone who has money and is willing to invest. Most of the crowds finding projects are based on rewards which investors are entitled to for participating in the project. Another form of crowd funding is which is also popular is the equity based crowd finding project. This project has become popular as startup companies are making money without having to give the control of the project to capital investors by given them equity position in the project[2].

Another form of crowd-funding is the donation based crowd funding project. In this kind of crowd funding ask the investors to donate a small amount where the number of investors are large. In consideration the investors are only entitled to token rewards along with increase in the popularity[3].

This process is a very useful method of raising capital especially for a startup venture. Crowd funding works best for startup businesses which need control over their activities and do not want to lose out on the control their have over the idea. The fund raisers do not have to follow strict process which is required to raise find from the public by the formation of a public company. Through the use of Crowd funding a sole proprietor of a business may also raise fund and does not have to meet the minimum seven directors required for the formation of a public company[4].

Successful crowd funding projects in Australia

There have been several successful crowd funding projects in Australia in the past few years. However thus part of the paper only discusses about two successful crowds funding projects one in the commercial context and other for the purpose of charity and social fund raising.

The Flow hive is now a very popular phrase in Australia. The owners of the company have become millionaires from mere bee keepers by using brining in their idea to existence through the help off crowd finding. An Australian beekeeper provided an idea which changed the way in which the extraction of honey was assumed by the people and generated over $16 million of profit. Cedar Anderson along with his father Stuart Anderson discovered the “Flow hive” which ultimately became the dream of the bee keepers. The million dollar idea of the flow hive is made up of a plastic frame having honeycomb dimensions where the bees work and fill up every cell with fresh honey. Once the cells are full, the honey can be extracted through a liver outside the hive. The honey is extracted directly into a container outside which leaves the bees to make more honey and fill the cells again.  The owners of the company did not have any idea that their idea would become so popular. The invention started to come into existence when they had placed it in a kick starter website for crowd funding for getting the product to fellow beekeepers and consumers. At the beginning of the project the entrepreneurs were looking to merely raise $96952 through the crowd funding project so that they could purchase a new tool to be used in the factory. However the campaign went viral and they had received over $2.7 Million in only a day. After eight weeks the entrepreneurs were able to raise a staggering $16.8 Million. They had received over 24000 orders which had to be supplied over 140 countries[5].


Another successful crowd funding project which has been carried Australia which is known as the CORENA (Citizen Own Renewable Energy Network Australia) the organization is funded totally through the process of crowd funding. It had initiated out of a sense of frustration as there are numerous people who want to make contribution towards the betterment of the climate by reducing carbon emission and promoting renewable energy. Such people did not have the money to fund a project on their own however they want to make a contribution towards climate change. It was realized by the chairman of CORENA that if these people pool up individually they would be able to add up enough money to achieve tangible results. Currently the organization is raising funds for a project known as “quick win”. The project is in relation to funding installation of solar panels for various nonprofit organizations. Another project which has been initiated by the organization is the “Big win” project which aims to fund a project for developing solar-thermal power plants from community funding.

Comparison of Australian crowd funding law with international standards

Both the projects had been offered by the organization to national as well as international donors and had also established a sub-community which would be able to handle situations outside the state. The organization two years latter has almost received $60000 in relation to the quick win project and $41000 with respect to the big win project. The organization till date has been able to use crowd funding to fund solar installation for Gawler Community House, Tulgeen Disability Services, Camden Community House and Tulgeen Disability Services[6].


This part of the paper compares the Australian approach in relation crowd funding through Corporations Amendment (Crowd-sourced Funding) Act 2017 and few other approaches of international jurisdiction in relation to crowd funding.

Following the United States, New Zealand and the United Kingdom Australia has also enacted a legislation in order to set a proper Framework for crowd funding in the country. The new legislation came into effect in Australia in March 2017 and is known as the Corporation Amendment Crowd sourced Funding Act 2017. The new law applies to small proprietary companies to raise public funds from a large number of investors by issuing them with equity shares. Certain barriers which start ups and small businesses face when wanting to raise capital including corporate governance and onerous disclosure requirement under the Corporation Act 2001 have been removed by the new amendment. It is predicted that the new amendment is going to open up innovative and new sources of capital funding with respect to Australian small businesses.


A company is enabled by the crowd funding sources to raise funds with respect to a huge number of investors by providing them consideration in form of equity in the company. Small business and start-ups in Australia presently face difficulties of making offers in relation to equity to investors. This was because compliance under the onerous fundraising laws with respect to Chapter 6D of the Corporation Act 2001 along with other reporting obligations which are required for making such types of offer. It is not easy for small businesses to comply with requirements as they are too restrictive and prohibitively expensive for them. This feature leads to finding up with respect to small business in Australian start-up. There is a legislative framework supporting crowd source equity funding which already exists in over 10 countries which include USA, UK and New Zealand. While the Framework in Australia is increasingly restrictive with respect to type of businesses gaining access to crowd source equity funding it is anticipated by the Federal government that such rules would be able to reduce competitive disadvantage which is faced by Australian start-ups as compared to the international counterparts in relation to funding. It is also hope by the Federal government that the new legislation would be able to figure Innovation and growth for small businesses in Australia. The crowd funding in UK is governed by the UK Crowd funding association and Financial Conduct Authority.

The bill is applicable on companies which are not listed and have an annual turnover along with gross assets of less than 25 million. Such companies must also not be subsidiary of any listed public company. Up to $5 million can be raised through crowd funding within a period of 12 months by an eligible company. New disclosure regimes has been established by the amendment which may be used by the companies to offer shares to the investors. The new requirements are certainly less restrictive and less onerous than the previous requirements related to disclosure under the Corporation Act such as issuing prospectus along with other disclosure documents.

There are a few challenges which have been proposed by the bill in relation to crowd funding in Australia. Only proprietary companies having two or more directors can use the provisions of CSF. In addition a proprietor company unlike previously can now have more than 50 shareholders and there is no prescribed limit set on the number of members being a part of such company through the new enactment. The proprietary companies who have CSF shareholders will now have to make annual financial reports along with director’s reports in compliance with the accounting standards. The annual financial reports of those proprietary companies who have more than $1 million from CSF would be audited.

The new legislation have specific provisions for the protection of investors in relation to crowd funding. The provision prescribe rules that an investor is only allowed to invest up to $10000 in an offer in a period of 12 months with respect to crowd sourced equity funding. Investors also have to abide by the obligation to accept a risk acknowledgement before they make and crowd sourced equity funding application. Cooling off period of 5 days is also applicable with respect to each investment made by an investor. Just like in the case of USA and UK the bill only restrict the amount one person can invest with respect to the crowd source equity funding however it does not put any restriction on the total amount which an investor can make in relation to search funding every year. And there are no small caps start-ups in small businesses would have a very good access to funding.

However unlike USA, UK and New Zealand the new Australian region excludes private companies from the advantages of the legislation[8]. The decision of the Parliament to limit the resign only to unlisted public companies has been subjected to high criticism by stating that it is an additional administrative burden and unnecessary restriction on small businesses.

In order to address these concerns the bill attempts to provide temporary relief to the newly established public companies which are eligible companies with respect to corporate government requirements and reporting requirements in relation to the Corporation Act 2001. For the purpose of being eligible for such concessions an organization has to complete a crowd sourced equity funding transaction within 12 months of registration all been converted from a proprietary company to a public company.

An offer document has to be published by an organization for the purpose of taking advantage of crowd funding source which would comply with all requirements prescribed in the legislation. It would be done that an offer document is effective for instance it has a receipt about misleading statement. Criminal sanctions are also applicable to the companies under the bill offering securities in relation to a defective of a document in case there's a material that was defect with respect to the investors. This feature is also similar to that of UK and us with respect to crowd funding resigns.

Thus it can be said that the legislation has similar features as compared to its international counter parts. The contrary features have been added to suit the business situation of Australia. It can therefore be conceded that in spite of its criticism the legislation and the new legal regime in relation to crowd funding in Australia is going to be successful. There have been various projects which have been successfully carried on in Australia. However the concept would be more beneficial if the law would be able to prevent any fraud in relation to crowd funding. “Success yourself with people who believe in your dream”- Wade Dokken.

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[1] Fitzpatrick J, Symes C, Veljanovski A, Parker D. (2017) Business and Corporations Law, (3nd Ed., Lexis Nexis Butterworths. Chapter)

[2] Bennett, Lucy, Bertha Chin, and Bethan Jones. "Crowdfunding: A new media & society special issue." (2015): 141-148.

[3] Ralcheva, Aleksandrina, and Peter Roosenboom. "On the road to success in equity crowdfunding." (2016).

[4] Moritz, A., & Block, J. H. (2014). Crowdfunding: A literature review and research directions.

[5] 'The Flow On Effect': Flow Hive Founders Talk About Their Success (2017) ABC News <https://www.abc.net.au/news/2016-09-12/australian-story-flow-hive-family.../7828436>.

[6] Citizens Own Renewable Energy Network Australia Inc (CORENA) Media Releases | CORENA Fund (2017) Corenafund.org.au <https://corenafund.org.au/media/>.

[7] Corporation Act 2001 (Cth)

[8] Moritz, Alexandra, and Joern H. Block. "Crowdfunding: A literature review and research directions." Crowdfunding in Europe. Springer International Publishing, 2016. 25-53.

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