Fundraising by selling securities is generally regulated by the Corporations Act, depending on the nature and number of investors, the amount raised and what is being offered by the promoter.
ASIC has been monitoring increasing use of “crowd funding” for investment purposes to identify any arrangements, or aspects of those arrangements, that may be regulated by ASIC.
‘Crowd funding’ involves the use of the internet and social media to raise funds in support of a specific project or business idea. Project sponsors or pledgers typically receive some reward in return for their funds. In some cases, the reward expected may be of minor value and is merely incidental rather that the purposes of the contribution.
ASIC has issued guidance to promoters of ‘crowd funding’ to clarify arrangements which may be regulated by ASIC under the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001.
ASIC has also highlighted some risks for operators of crowd funding websites and people considering participating in crowd funding projects.
ASIC’s view is that some types of crowd funding could involve offering or advertising a financial product, providing a financial service or fundraising through securities requiring a complying disclosure document.
Depending on the type of ‘reward’ offered by the project creator to those giving funding, crowd funding could involve a managed investment scheme under Chapter 5C of the Corporations Act, provision of a financial services requiring an Australian financial services (AFS) licence or a fundraising under Chapter 6D of the Corporations Act.
There are also advertising and publicity restrictions that apply to advertising and publicising an offer of financial products or securities, in certain circumstances.
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Posted 14th August 2012 by David Jacobson in Corporations Act, Financial Services, Web/Tech