New capital markets for Australian small businesses and start-ups

Rainy Melbourne — Women cover themselves from the rain as they walk through the paddock area before the first practice session of the Australian F1 Grand Prix at the Albert Park circuit in Melbourne March 16, 2012. Reuters/Daniel Munoz

The Turnbull government has taken another step to extend crowd-sourced equity funding to proprietary companies by introducing legislation. The extended crowd funding framework builds on the government’s support for Australia’s start-up and FinTech sector. These include improvements to the ASIC regulatory sandbox as well as tax incentives for investors in innovative start-ups.

According to a media release published at ministers.treasury.gov.au, the government understands that various forms of finance are specifically important for early-stage businesses that may find it challenging to access funds from traditional sources. “As part of this Bill, proprietary companies wanting to access equity crowd funding will no longer have to convert to a public company entity. Instead founders will be able to crowd fund while retaining the greater flexibility of the proprietary model,” the release reads.

The extension will boost retail investors’ ability to access early-stage investment opportunities. These companies, however, must comply with further obligations to protect investors including a minimum of two directors. It also includes financial reporting in accordance with accounting standards, audited financial statements once the company has already more than $3 million from crowd funding offers and restrictions on related party transactions.

Meanwhile, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has welcomed the government’s recent move to establish a new one-stop-shop that aims to resolve small business disputes with banks. According to Ombudsman Kate Carnell, the initiative addressed a recommendation from ASBFEO’s Small Business Loans Inquiry.

It means improved access to justice, specifically for capital-intensive enterprises. A media release published at asbfeo.gov.au states that the AFCA will consolidate the existing Financial Ombudsman Service (FOS), the Superannuation Complaints Tribunal (SCT) and the Credit and Investments Ombudsman (CIO).

A small business can seek resolution of a dispute where the credit facility is up to $5 million and potentially obtain compensation up to $1 million. Carnell said the FOS was currently limited to considering disputes of not more than $500,000 arising from a credit facility no higher than $2 million.

“Small businesses do not have the financial capacity to hire expert legal advice to help them overcome this disadvantage,” Carnell said. She believes that the government’s proposed model will provide a genuine alternate dispute resolution option in a forum where the needs of small businesses are understood.

It will also save money and time as the need for litigation is reduced. Carnell also welcomed the government’s commitment to consult on AFCA’s terms of reference and the proposed transitional arrangements.