In September 2018, the Senate passed the Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Act 2018 which allows private companies with less than $25 million in consolidated gross assets and less than $25 million in consolidated annual revenue (including from related parties) to be able to use crowd-sourced funding to raise up to $5 million per year.
Small proprietary companies that have raised funds below the ‘CSF audit threshold’ of $3 million are required to:
Once the ‘CSF audit threshold’ of $3 million has been reached (this is a cumulative amount, not an annual limit), an audit is also required (s301(2)(b)).
Small proprietary companies looking to take advantage of these changes to raise capital need to be aware that financial statements will have to be prepared in accordance with Australian Accounting Standards.
Given that the nature of crowd-sourced funding is likely to result in a large number of disparate shareholders who are likely to rely on financial statements for information to make and evaluate decisions about whether to invest in these companies and to assess their performance, in our view such financial statements will most likely need to be general purpose financial statements (including comparatives). This could prove to be a time-consuming and costly exercise for small proprietary companies, particularly those with complex transactions and balances.