New fundraising laws may be a boon for SME’s looking to undertake expansion but cannot borrow from banks without putting the family home at risk.
Equity crowdfunding laws are likely to be in force later this year which allows a company to raise up to $5m in any 12 month period. Popular thinking is that these arrangements are only for technology or innovation based companies or for very large companies. However these platforms may be used in an innovative way for more traditional businesses.
When a large amount of capital is needed, there is no reason why a local business owner could not access these rights to:
- Expand the existing store or construct a new or expensive fit-out;
- Commit to a new and more expensive leased or owned premises;
- Commit to new projects and to seek commitment from local customers for its success.
For example, a restaurant may seek to expand its floorplan, hire a new chef and staff, develop and introduce a new menu and concept. The cost may be $1m which can then be wholly or partly raised through the crowd source funding platform and targeted at customers in the local area or beyond. In addition to the offer of equity in the business and therefore a potential share in profits, it could also include discounted meals and other benefits. It creates real incentive for the participating members to make the business a success and promote the business to others. The raising of equity capital does not necessarily need to impose restrictions on the general governance, management and operation of the business.
Businesses could include cafes, grocery stores, general retailers, domestic cleaners, car repairers, car washes, child care and education services, and so on.
In order to access this funding arrangement, the company will:
- need to be a public company rather than a proprietary company;
- have annual turnover or gross assets of less than $25m;
- only raise a maximum of $10,000 per subscriber and a maximum of $5m per year;
- utilise a licensed crowd funding platform willing to offer the service;
- issue only fully paid ordinary shares;
- be required to include certain information when communicating with potential investors;
- be required to have audited annual accounts.
These requirements are not too onerous and could be prove to be a new alternative for business funding whilst also creating customer loyalty.
Director – Corporate and Commercial
A+F Commercial Lawyers offers specialist legal advice to assist in the establishment, expansion, operation and divestment and acquisition of businesses and corporate groups.