Innovation & Corporations Law Amendments & CrowdFunding

Archaic laws and legislation have systematically hindered innovation. The Government’s ability to adapt quickly and efficiently to innovation strongly influences the economy’s wellbeing and success.

One example of this is the insurgence of ride-sharing technology, specifically Uber, in Australia. Uber’s cheaper fares, convenience, and reliability outshone taxis in almost every conceivable way. Ride-share legalization is inevitable, and it has occurred in several states in Australia already. Will this demonstration set a precedent for the amendment of legislation to facilitate innovations within financial technology?

The most relevant developments within financial technology are the rise of Crowd-sourced funding facilitators in Australia. Crowd-sourced funding provides an opportunity for companies to raise large amounts of funds quickly. The marketplace environment allows transparent and well-performing companies to easily raise equity. It rewards companies that emphasize transparency, and punishes companies that are opaque.

The Government can easily see the benefits of Crowd-Sourced Funding, and they have taken action. In December 2015, an amendment of the Corporations Act 2001 allowed the establishment of a framework to facilitate crowd-sourced funding offers by small-unlisted public companies.

It allowed new public companies that are eligible to crowd-fund with temporary relief from reporting and corporate governance requirements that would typically apply in these circumstances.

These are positive developments within the field of financial technology, but will it make a substantial difference to the industry?

Well, the first point to consider is that financial technology is not as simple as ride sharing. In the ACT, Ride-sharing was regulated by ensuring every affiliated driver holds a full drivers license, the vehicles are registered, and all details of the ride-sharing details are kept on file.

However, the Government actively making an amendment and acknowledging CSF demonstrates that CSF is a legitimate way of sourcing equity. It is a promising industry, and the Government is acknowledging it. Similar to how the Government couldn’t simply ignore Uber or Ride-sharing.

For CSF, every change that positively benefits CSF can also create adverse effects within the business landscape. One of the largest changes that would benefit crowd-sourced funding infinitely would be the amendment of Section 113 of the Corporations Act:

“A company must have no more than 50 non-employee shareholders if it is to:

(a) Be registered as a proprietary company; or
(b) Change to a proprietary company; or
(c) Remain registered as a proprietary company.”

Why does this clause hinder the CSF industry?



One of the strengths of crowd-sourced funding is the ability for hundreds of investors to contribute small amounts of money. Smaller companies not be attractive for angel or institutional investors to pour money into, but on a smaller scale investors are not risking as much, and might reap rewards for their smaller investments.

However, by removing this 50 non-employee shareholder requirement for proprietary companies, it could lead to adverse outcomes within the business landscape. Firstly, proprietary companies are simply not held to the same compliance and regulatory standards as public companies. In crowd-sourced funding this is an issue that is endognized.

The marketplace system of CSF will ensure that companies with poor reporting standards and poor transparency will simply not be funded and become obscure. However, this is not always the case, as crowd-sourced funding is not the only form of raising equity.

Hence, the Government walks a tightrope when legislating financial technology. Every change is not isolated, amendments resonate through the entire financial industry and it is important to develop legislature that is not prone to widespread failure.

If you want to see more about the legislation changes or Marketlend’s submission and suggested changes go to