CAMAC Report: CSEF Report 21may2014

Corporations and Markets
Advisory Committee
Crowd sourced equity
funding
Report
May 2014
Corporations and Markets Advisory Committee 2014
ISBN 978-0-9871!9-7-
"#is $ork is %opyri&#t' Apart (rom any )se permitted )nder t#e Copyright Act 1968* no part may
+e reprod)%ed +y any pro%ess $it#o)t attri+)tion'
Disclaimer. "#is do%)ment s)mmarises in(ormation and makes &enera, statements a+o)t t#e ,a$'
-o$ever* it #as not +een prepared (or t#e p)rpose o( providin& ,e&a, advi%e' In a,, %ases* yo)
s#o),d re,y on yo)r o$n ,e&a, advi%e to determine #o$ t#e ,a$ may app,y in parti%),ar
%ir%)mstan%es'
"#is do%)ment is avai,a+,e* e,e%troni%a,,y on,y* at.
www.camac.gov.au
CAMAC/s %onta%t detai,s are.
emai,. camac@camac.gov.au
(a0. 1022 9911 29
p#one. 1022 9911 290
mai,. Corporations and Markets Advisory Committee
345 Bo0 !967
Sydney NS7 2001
21 May 2014
Senator t#e -on' Mat#ias Cormann
Minister (or 8inan%e
A%tin& Assistant "reas)rer
4ar,iament -o)se
CANB9::A AC" 2600
;ear Senator Cormann
I am p,eased to present CAMAC/s report on %ro$d so)r%ed e<)ity ()ndin& 1CS982'
"#e report re%o&nises t#e key ro,e t#at CS98 may p,ay in t#e deve,opment o( innovative
start-)p and ot#er sma,, enterprise %ompanies'
CAMAC #as p)t (or$ard proposa,s (or a +a,an%ed ,e&is,ative (rame$ork (or CS98 t#at
seeks to promote t#is se%tor o( t#e A)stra,ian e%onomy'
=o)rs sin%ere,y
>oanne :ees
Convenor
?eve, * 100 Market Street* Sydney 345 Bo0 !967 Sydney NS7 2001
"e,ep#one. 1022 9911 290 8a%simi,e. 1022 9911 29
9mai,. %ama%@%ama%'&ov'a) 7e+site. $$$'%ama%'&ov'a)
iv Crowd sourced equity funding
Contents
Contents
1 The CAMAC review................................................................................................
1'1 :e(eren%e to CAMAC''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
1'2 S%ope o( t#e revie$''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
1'! "#e revie$ pro%ess'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
1'4 Internationa, %onte0t'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
1' CAMAC position''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
1'6 CAMAC'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
2 Looking ahead..........................................................................................................
2'1 Introd)%tion''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
2'2 In prin%ip,e* s#o),d CS98 +e (a%i,itated in A)stra,iaA''''''''''''''''''''''''''''''''''''''''''''
2'! ;oes t#e e0istin& ,a$ (a%i,itate CS98A'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
2'4 7#at po,i%y option to (a%i,itate CS98 s#o),d +e adoptedA'''''''''''''''''''''''''''''''''''
2' 7#at iss)es arise in imp,ementin& t#e re%ommended po,i%y optionA'''''''''''''''''''
2'6 5vervie$ o( t#e proposed re&),atory str)%t)re'''''''''''''''''''''''''''''''''''''''''''''''''''''
2'7 4)+,i% interest enterprises'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
3 The corporate form to facilitate CS!................................................................
!'1 5vervie$''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
!'2 Be%omin& an e0empt p)+,i% %ompany''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
!'! Comp,ian%e e0emptions''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
!'4 S#are#o,der ri&#ts'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
!' 90piration o( t#e e0empt stat)s'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
" The crowdf#nding process$ iss#ers......................................................................
4'1 5vervie$''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
4'2 4ermitted iss)ers'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
4'! 4ermitted se%)rities'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
4'4 Ne$ e<)ity'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
4' Iss)er %ap''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
4'6 5t#er e<)ity iss)es''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
4'7 ;is%,os)res in t#e o((er do%)ments'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
4'8 Contro,s on advertisin&'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
4'9 5vers)+s%ription'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
4'10 ?endin& to %ro$d investors'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
4'11 Materia, adverse %#an&e %on%ernin& t#e iss)er'''''''''''''''''''''''''''''''''''''''''''''''''''''
4'12 Comp,etin& t#e o((er'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
4'1! 8ees paid +y iss)ers''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
4'14 ?ia+i,ity''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
4'1 Comm)ni%ation +et$een %ro$d investors''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
Crowd sourced equity funding v
Contents
% The crowdf#nding process$ intermediaries.........................................................
'1 5vervie$''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
A &ermitted t'pes of intermediar'........................................................................
'2 So,e-intermediary and on,ine-on,y re<)irement''''''''''''''''''''''''''''''''''''''''''''''''''''
'! ?i%ensin&''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
'4 Capa%ity to %ond)%t ro,e'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
' 4ro%esses to (),(i, ro,e''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
'6 ;isp)te reso,)tion'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
( )ntermediar' matters related to iss#ers............................................................
'7 90%,)ded iss)ers'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
'8 ;)e di,i&en%e on iss)ers and t#eir mana&ement'''''''''''''''''''''''''''''''''''''''''''''''''''
'9 ;)e di,i&en%e on t#e +)siness o( iss)ers'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
'10 ?ia+i,ity (or mis,eadin& iss)er in(ormation'''''''''''''''''''''''''''''''''''''''''''''''''''''''''
'11 ?ia+i,ity $#ere (ra)d invo,ved''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
'12 Con(,i%t o( interest''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
'1! A%%ess to %ro$d investor ()nds'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
C )ntermediar' matters related to investors.......................................................
'14 S%reenin& o( %ro$d investors''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
'1 :isk dis%,os)re''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
'16 Comp,ian%e $it# investor %aps'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
'17 Investment advi%e'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
'18 So,i%itin& s#are a%<)isitions'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
'19 ?endin& to %ro$d investors'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
'20 -o,din& %ro$d investor ()nds'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
'21 Comm)ni%ation (a%i,ities''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
'22 ;isp)te reso,)tion and indemnity ins)ran%e dis%,os)re''''''''''''''''''''''''''''''''''''''
'2! 8ees %#ar&ed +y intermediaries'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
'24 Can%e,,ed o((ers''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
'2 4riva%y''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
* The crowdf#nding process$ investors................................................................
6'1 5vervie$''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
6'2 9,i&i+,e %ro$d investors'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
6'! Sop#isti%ated investor t#res#o,d'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
6'4 Investor %aps on %ro$d investors''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
6' :isk a%kno$,ed&ement'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
6'6 Coo,in&-o(( ri&#ts'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
6'7 5t#er $it#dra$a, ri&#ts''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
6'8 :esa,e o( s#ares''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
6'9 5n&oin& reportin&'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
6'10 :emedies''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
vi Crowd sourced equity funding
Contents
Appendi+ 1 ,nline f#ndraising............................................................................................
Appendi+ 2 A#stralia............................................................................................................
Appendi+ 3 -nited States and Canada................................................................................
Appendi+ " #rope...............................................................................................................
Appendi+ % .ew /ealand......................................................................................................
Appendi+ * 0espondents......................................................................................................
1 The CAMAC review
This chapter provides background information on the nature and scope of the CAMAC
review and the review process!
1.1 Reference to CAMAC
In Advancing Austra"ia as a #igita" $conomy% An &pdate to the 'ationa" #igita"
$conomy (trategy 1>)ne 201!2* re(eren%e $as made to #o,din& an independent revie$ o(
t#e re&),ation o( %ro$d so)r%ed e<)ity ()ndin& 1CS982' CAMAC $as asked to %ond)%t
t#at revie$'
CS98 1a,ternative,y des%ri+ed as Be<)ity %ro$d()ndin&/ or Binvestment-+ased
%ro$d()ndin&/2 is a ne$ and sti,, evo,vin& %on%ept o( %orporate %apita, raisin&' Broad,y* it
%ontemp,ates a %ompany 1t#e iss)er2 seekin& ()nds* parti%),ar,y initia, 1Bseed/2 or ear,y-
sta&e %apita,* +y o((erin& its e<)ity to internet )sers 1t#e %ro$d2 in ret)rn (or %as#' Iss)ers
$o),d p)+,is# t#eir e<)ity o((ers t#ro)&# a $e+site 1sometimes re(erred to as an Bon,ine
porta,/ or a B()ndin& porta,/2* t#e operator o( $#i%# $o),d serve as t#e intermediary
+et$een t#e %ro$d investors and t#e iss)er* (or t#e p)rpose o( t#e e<)ity transa%tions'
1.2 Scope of the review
3iven t#e +order,ess nat)re o( t#e internet* CS98 %o),d invo,ve o((ers o( e<)ity in iss)ers
t#at are in%orporated in any %o)ntry* mediated t#ro)&# $e+sites +ein& operated (rom any
%o)ntry* and open to investors in any %o)ntry'
"#is report (o%)ses on t#e re&),atory <)estions t#at $o),d arise in (a%i,itatin& CS98
$#ere.
an iss#er t#at is re&istered as a %ompany )nder t#e Corporations A%t $is#es to o((er
its e<)ity t#ro)&#
an online intermediar' t#at $o),d %ome $it#in t#e C)risdi%tion o( t#e A)stra,ian
Se%)rities and Investments Commission 1ASIC2* $it# t#e e<)ity o((er to +e made on
t#e intermediary/s $e+site to
crowd investors* $#et#er resident in A)stra,ia or e,se$#ere' In t#is respe%t* t#e &,o+a,
rea%# o( t#e internet means t#at t#is revie$ #as an app,i%ation $#i%# is +roader t#an
C#apter 6; 18)ndraisin&2 o( t#e Corporations A%t* $#i%# app,ies on,y to investors in
t#is C)risdi%tion'
"#is report dea,s $it# e<)ity o((ers in t#e (orm o( s#ares in a %ompany' ;e+t se%)rities
invo,ve di((erent investor e0pe%tations and #ave some important di((eren%es in re&),atory
arran&ements* $#i%# $o),d add ()rt#er ,ayers o( %omp,e0ity in t#e A)stra,ian %onte0t'
CS98 is C)st one (orm o( on,ine ()ndraisin&' A &enera, dis%)ssion o( %ro$d()ndin& is
(o)nd in Appendi0 1* $#i%# a,so dis%)sses t#e parti%),ar (eat)res o( CS98'
"#e report notes* +)t does not seek to revie$* some o+,i&ations on iss)ers* intermediaries
and investors t#at may +e imposed +y A)stra,ian ,a$s ot#er t#an t#e Corporations A%t*
2 Crowd sourced equity funding
The CAMAC review
s)%# as t#e anti-money ,a)nderin& and %o)nter-terrorism (inan%in& ,e&is,ation* as $e,, as
priva%y ,e&is,ation'
"#e re&),ation o( CS98 may invo,ve vario)s trans-C)risdi%tiona, iss)es* in%,)din& a%%ess
+y A)stra,ian investors to e<)ity o((ers made +y overseas in%orporated iss)ers and
intermediated on overseas-+ased $e+sites' 7#i,e t#e A)stra,ian ,e&is,ation #as an
e0tended C)risdi%tion in t#is re&ard* t#ese sit)ations primari,y invo,ve matters %on%ernin&
t#e internationa, re%o&nition and %oordination o( %orporate ()ndraisin& re&),ation in
vario)s C)risdi%tions' "#e deve,opment o( a re&),atory (rame$ork (or CS98 in A)stra,ia
and t#e deve,opment o( internationa, standards +y t#e Internationa, 5r&aniDation o(
Se%)rities Commissions 1I5SC52 may provide s%ope (or t#e m)t)a, re%o&nition o( CS98
o((ers +y (orei&n C)risdi%tions and A)stra,ia'
1. The review process
CAMAC (ormed a s)+%ommittee* %omprisin& 3re& Ei%kery 1%#air2* "eresa -andi%ott* Ian
:amsay* Brian Sa,ter and Maan Beydo)n 1ASIC2* in %onC)n%tion $it# t#e CAMAC
90e%)tive' CAMAC a%kno$,ed&es* $it# appre%iation* t#e %ontri+)tion o( ea%# o( t#ose
persons to t#e o)t%ome o( t#is revie$'
CAMAC p)+,is#ed a dis%)ssion paper in Septem+er 201!* and a,so p)+,is#ed on,ine
)pdates to t#e dis%)ssion paper in 5%to+er 201! and ;e%em+er 201!'
CAMAC invited s)+missions on any aspe%t o( t#is revie$* in%,)din& t#e <)estions raised
in t#e dis%)ssion paper' A ,ist o( respondents is set o)t in Appendi0 6' "#e s)+missions
re%eived #ave +een p)+,is#ed on t#e CAMAC $e+site' CAMAC $as &reat,y assisted in its
%onsideration o( t#e iss)es re,ated to CS98 +y t#e in(ormation and vie$s provided +y
respondents' "#e Committee t#anks a,, $#o parti%ipated in t#is $ay in t#e revie$ pro%ess'
1.! "nternationa# conte$t
"#e CAMAC revie$ took p,a%e in t#e %onte0t o( %onsidera+,e* and %ontin)in&*
deve,opments %on%ernin& CS98 in a n)m+er o( overseas C)risdi%tions'
In t#e interests o( mana&ea+i,ity* CAMAC revie$ed deve,opments in some on,y o( t#ese
C)risdi%tions* +ein& t#e Fnited Gin&dom 1FG2* t#e FSA 1FS2* Ne$ Hea,and and Canada*
$#i,e a,so in%,)din& deve,opments at t#e 9)ropean Fnion ,eve, and $it# I5SC5' "#e
in(ormation on ea%# o( t#ese C)risdi%tions is set o)t in (),, in Appendi%es ! to * $#i,e a
(),, ana,ysis o( t#e %)rrent A)stra,ian position is set o)t in Appendi0 2'
"#ro)&#o)t t#is report* CAMAC sets o)t re,evant approa%#es in ea%# o( t#ese C)risdi%tions
to t#e CS98 iss)es t#at $ere raised (or %onsideration' :e(eren%e %an +e made to t#e same
1+)t (),,y (ootnoted2 in(ormation in t#e Appendi%es'
5( t#e C)risdi%tions revie$ed* t#e FG and Ne$ Hea,and imp,emented t#eir positions on
CS98 in Apri, 2014* Canada is sti,, at t#e proposa,s sta&e and CS98 $i,, not +e&in in t#e
FS )nti, t#e Se%)rities and 90%#an&e Commission 1S9C2 #as sett,ed its r),es'
1.% CAMAC position
"#is report proposes a $ay (or$ard (or t#e introd)%tion o( CS98 in A)stra,ia'
Crowd sourced equity funding 3
The CAMAC review
C#apter 2 sets o)t t#e CAMAC position on t#e +road po,i%y iss)es in t#is revie$* %entred
on $#et#er CS98 s#o),d +e (a%i,itated in A)stra,ia* and possi+,e met#ods o(
imp,ementation'
C#apters ! to 6 dea, $it# t#e spe%i(i% imp,ementation iss)es t#at $o),d arise i( CS98 is to
+e (a%i,itated in A)stra,ia'
"#e imp,ementation proposa,s in t#is report are dere&),atory in t#at t#ey seek to over%ome
%)rrent ,e&a, impediments to t#e )se o( CS98 in A)stra,ia' -o$ever* (or t#is (orm o(
%orporate ()ndraisin& to operate in t#e +est interests o( a,, invo,ved parties* a re&),atory
str)%t)re spe%i(i%a,,y desi&ned (or CS98 needs to +e deve,oped' "#e e,ements o( t#is
proposed str)%t)re are set o)t in t#is report'
Eario)s proposa,s in t#is report invo,ve monetary ma0im)ms or %aps' 8or instan%e*
CAMAC proposes ,imits on #o$ m)%# an iss)er may raise* or a %ro$d investor may
e0pend* t#ro)&# CS98 in any 12 mont# period' "#e spe%i(ied (i&)res #ave +een %#osen
(rom t#e perspe%tive o( CS98 +ein& prin%ipa,,y desi&ned (or* and to +e )ti,ised +y* t#e
innovative start-)p and ot#er sma,,-s%a,e enterprise se%tor o( t#e A)stra,ian e%onomy'
-o$ever* any monetary %ap %an +e ar+itrary in some respe%t* and t#ere is a,$ays room (or
dis%)ssion on $#ere %aps s#o),d +e set' A,so* %aps %o),d +e adC)sted in ,i&#t o( e0perien%e
$it# CS98* i( introd)%ed'
1.& CAMAC
CAMAC $as esta+,is#ed in 1989 and is %)rrent,y %onstit)ted )nder 4art 9 o( t#e
Austra"ian (ecurities and )nvestments Commission Act *++1' Its ()n%tions in%,)de* on its
o$n initiative or $#en re<)ested +y t#e Minister* to provide advi%e to t#e Minister* and
make s)%# re%ommendations as it t#inks (it* a+o)t %orporations and (inan%ia, servi%es ,a$
and pra%ti%e'
"#e mem+ers o( CAMAC are se,e%ted +y t#e Minister* (o,,o$in& %ons),tation $it# t#e
States and "erritories* in t#eir persona, %apa%ity on t#e +asis o( t#eir kno$,ed&e o(* or
e0perien%e in* +)siness* t#e administration o( %ompanies* (inan%ia, markets* (inan%ia,
prod)%ts and (inan%ia, servi%es* ,a$* e%onomi%s or a%%o)ntin&'
"#e mem+ers o( CAMAC are.
>oanne :ees 1Convenor2IC#ie( 90e%)tive 5((i%er* A,,y&ro)p* Sydney
;avid 3omeDIC#ie( 8inan%ia, 5((i%er* ?and ;eve,opment Corporation* ;ar$in
"eresa -andi%ott 1Bris+ane2I4artner* Corrs C#am+ers 7est&art#
A,i%e M%C,earyICompany ;ire%tor* Ade,aide
;enise M%Comis#I4artner* G4M3* 4ert#
Mi%#ae, M)rrayI?e&a, ;ire%tor* A)stra,ian :estr)%t)rin& Inso,ven%y J ")rnaro)nd
Asso%iation 1A:I"A2 1(ormer,y t#e Inso,ven%y 4ra%titioners Asso%iation2* Sydney
3eo((rey Ni%o,,ICo-;ire%tor* Nationa, Centre (or Corporate ?a$ and 4o,i%y
:esear%#* Fniversity o( Can+erra
The CAMAC review
>o#n 4ri%eICommissioner* A)stra,ian Se%)rities and Investments Commission
1nominee o( t#e ASIC C#airman2
Ian :amsayI4ro(essor o( ?a$* Fniversity o( Me,+o)rne
Brian Sa,terI3enera, Co)nse,* AM4* Sydney
3re& Ei%kery A5ISpe%ia, Co)nse,* Norton :ose A)stra,ia* Bris+ane'
"#e 90e%)tive %omprises.
>o#n G,)verI90e%)tive ;ire%tor
Ein%ent >e$e,,I;ep)ty ;ire%tor
"#a)mani 4arrinoI5((i%e Mana&er'
2 'oo(ing ahead
This chapter discusses the key questions concerning crowd sourced equity funding in the
Austra"ian conte,t and out"ines the CAMAC proposa"s for its faci"itation!
2.1 "ntroduction
"#e e0ponentia, and %ontin)in& &ro$t# o( t#e internet* $it# its &,o+a, rea%#* provides ne$
opport)nities (or persons to seek ()nds (rom t#e %ro$d* $it# $e+sites* %#at rooms* +),,etin
+oards* +,o&s and ot#er so%ia, media +ein& avai,a+,e to %omm)ni%ate $it# internet )sers in
$ays previo)s,y )n(oreseen'
Cro$d so)r%ed e<)ity ()ndin& 1CS982 is one s)%# met#od o( on,ine ()ndraisin&* pit%#ed
prin%ipa,,y at sma,, investors and o((erin& t#em a s#are#o,din& in a %ompany in ret)rn (or
providin& %as# to t#e %ompany'
"#e potentia, o( CS98* its ,ike,y +ene(its and risks* $#et#er it s#o),d +e (a%i,itated in
A)stra,ia* and* i( so* #o$* are t#e s)+Ce%t matter o( t#is report'
2.1.1Concept of CS)*
"#ere is no ,e&a, de(inition o( CS98' -o$ever* in pra%ti%e* t#e %on%ept re(ers to a (orm o(
%orporate ()ndraisin& t#at envisa&es start-)p or ot#er sma,,er %ompanies 1iss)ers2
o+tainin& seed or ot#er %apita, t#ro)&# sma,, e<)ity investments (rom re,ative,y ,ar&e
n)m+ers o( investors* $it# on,ine porta,s 1intermediaries2 p)+,i%isin& and (a%i,itatin& t#ese
e<)ity o((ers to on,ine )sers 1t#e %ro$d2'
"ypi%a,,y* t#e amo)nt o( e<)ity %apita, to +e so)&#t +y an iss)er in a parti%),ar period
t#ro)&# CS98 $o),d +e re,ative,y modest' CS98 does not %over ,ar&e-s%a,e p)+,i% o((ers
+y ,ar&er %orporations'
"#e terms o( t#e e<)ity o((er may permit a%%eptan%es +y potentia,,y #)ndreds o( investors*
or more* $#o may #ave t#e %#oi%e o( %ontri+)tin& very sma,, amo)nts in ret)rn (or e<)ity'
8)rt#er detai,s on t#e %on%ept o( CS98* $it#in t#e +roader %onte0t o( on,ine ()ndraisin&*
its e,ements* potentia, +ene(its and ran&e o( risks* are set o)t in Appendi0 1 o( t#is report'
2.1.2The economic conte$t
Amon&st t#e on&oin& %#a,,en&es (a%in& t#e A)stra,ian e%onomy is #o$ to en%o)ra&e and
(a%i,itate $ort#$#i,e innovation* $it# its si&ni(i%an%e (or prod)%tivity* %ompetitiveness
and &ro$t#'
Innovation t#at deserves to s)%%eed may take many (orms* in%,)din& start-)ps or ot#er
ear,y-sta&e enterprises $it# %reative ideas* e0pertise and ener&y +)t in need o( t#e money
to +rin& t#ese proCe%ts to (r)ition'
Some $ort#$#i,e start-)ps do s)%%eed* on t#e stren&t# o( t#eir vision and %ommitment*
a%%ess to a ran&e o( ()nds 1s)%# as persona, savin&s and %redit %ards* ,oans or donations
(rom (ami,ies and (riends and %ontri+)tions (rom Ban&e, investors/* vent)re %apita,* or
-ooking ahead
ot#er (orms o( e0terna, (inan%e2 and t#e prod)%tive )se o( advi%e and ot#er (orms o(
mentorin& and assistan%e (rom entities kno$n as Bin%)+ators/ or Ba%%e,erators/'
Some ot#er $ort#$#i,e start-)ps do not make t#is transition to &ro$t#* despite t#e <)a,ity
o( t#eir ideas and t#e dedi%ation o( t#eir promoters* res),tin& in )n(),(i,,ed ideas +ein&
eit#er ,ost or taken )p +y ot#ers* $#et#er in A)stra,ia or e,se$#ere' 4art o( t#e reason (or
t#is (ai,)re may +e $#at is re(erred to as t#e B%apita, &ap/* $#ere an enterprise is in need o(
(inan%e to %ontin)e to its ne0t sta&e o( deve,opment* +)t %annot attra%t ()rt#er ()ndin&
(rom traditiona, (inan%in& so)r%es and is not yet a+,e to %ond)%t an initia, p)+,i% o((er o(
its se%)rities'
5t#er start-)ps (ai, +e%a)se t#ey are (,a$ed in some respe%t* eit#er $it# t#e proCe%t idea or
#o$ it is mana&ed* or s)((er (rom )n(oreseen e0terna, (a%tors* s)%# as t#e emer&en%e o( a
+etter %ompetitor' Some start-)ps (ai, (or reasons o)tside t#eir %ontro, or despite t#eir +est
endeavo)rs' 5t#ers* in #indsi&#t* may not #ave $arranted t#e ()nds* and tr)st* &iven to
t#em +y t#eir investors'
7#i,e t#e eviden%e in A)stra,ia 1as in ot#er %o)ntries2 indi%ates a #i&# (ai,)re rate o(
start-)ps* it is di((i%),t to di((erentiate +et$een t#ose t#at (ai,ed +)t nevert#e,ess deserved
to s)%%eed in t#e interests o( innovation and prod)%tivity* and t#ose t#at did not'
CS98 o((ers t#e potentia, to +rid&e t#e %apita, &ap (or some start-)ps and ot#er sma,,-s%a,e
enterprises* and a,so #e,p t#em move )p t#e B()ndin& es%a,ator/ as t#eir proCe%ts* and
()t)re prospe%ts* stren&t#en' "o t#at e0tent* %ro$d investors* %o,,e%tive,y* #ave t#e
potentia, to p,ay an important* sometimes de%isive* ro,e in (inan%in& an enterprise at its
%r)%ia, ear,y sta&e* $#i%# may promote prod)%tivity and e%onomi% &ro$t# and (oster
emp,oyment* $#i,e* idea,,y* ret)rnin& (inan%ia, or ot#er +ene(its to t#e %ro$d'
"#e potentia, impa%t o( t#is (orm o( %apita, mo+i,isation on %ompetition +et$een %apita,
providers a,so needs to +e %onsidered' 5n one vie$* t#e avai,a+i,ity o( CS98 as a
(inan%in& option %o),d in%rease %ompetition amon& s)pp,iers o( %apita, to start-)p and
ot#er sma,, enterprises* res),tin& in a potentia,,y ,o$er %ost o( %apita, (or t#ese %orporate
iss)ers* in%,)din& t#ose not )ti,isin& CS98' "#is mi&#t a,so #e,p red)%e t#e %apita, &ap
$it#in t#is %orporate se%tor' 7#et#er* #o$ever* a %ompetitive ()ndin& environment o( t#is
nat)re deve,ops remains to +e seen* +ein& dependant on t#e stren&t# and s)staina+i,ity o(
CS98 as an a,ternative so)r%e o( ()ndin& (or iss)ers'
"#e possi+,e ne&ative impa%t o( CS98 on prod)%tivity m)st a,so +e a%kno$,ed&ed' "#e
(a%t t#at t#is (orm o( ()ndin& may +rid&e t#e %apita, &ap (or some s)%%ess(), innovative
start-)ps needs to +e $ei&#ed a&ainst t#e possi+i,ity t#at it may a,so divert ()ndin& (rom
ot#er $ort#$#i,e e%onomi% vent)res and savin&s to$ards a ,ar&e n)m+er o( start-)ps t#at
event)a,,y (ai,' "#is diversion o( ()nds* i( it o%%)rs* represents potentia,,y a #i&#
opport)nity %ost (or t#e %apita, +rid&e CS98 seeks to +)i,d* and %o),d red)%e or e,iminate
any net +ene(its CS98 may #ave on t#e e%onomy overa,,' At t#is sta&e* #o$ever* in t#e
a+sen%e o( e0perien%e $it# CS98 in A)stra,ia* t#ere is no eviden%e to determine any s)%#
e((e%t'
CS98 a,so %arries potentia, (inan%ia, risk (or %ro$d investors* &iven t#at in many instan%es
t#ey* in e((e%t* are +ein& asked to (inan%e innovative proCe%ts t#at do not #ave t#e ,eve, o(
mat)rity t#at traditiona, (inan%ia, market so)r%es re<)ire' It may invo,ve retai, investors*
in%,)din& t#ose $it# ,o$ (inan%ia, ,itera%y or %apa%ity* makin& investments in %ompanies*
many o( $#i%# may (ai,* ,eadin& to t#e tota, ,oss o( t#e ()nds invested' 9ven (or on&oin&
proCe%ts* any ret)rn on an e<)ity investment may +e $e,, into t#e ()t)re or never
event)ate* and t#ere may +e no pra%ti%a, means in t#e meantime to rea,ise t#e investment'
-ooking ahead
S)%# an o)t%ome* i( it +e%omes %ommonp,a%e* may not on,y #arm individ)a, investors +)t
a,so )ndermine t#e %on(iden%e o( %ro$d investors* %o,,e%tive,y* in t#is (orm o( investment'
7it#o)t t#eir parti%ipation* CS98 %annot s)%%eed as a so)r%e o( %orporate ()ndin&'
2.1.The CAMAC review
In %onsiderin& t#e ro,e and possi+,e re&),ation o( CS98 in A)stra,ia $it#in t#is e%onomi%
%onte0t* CAMAC #as %onsidered t#e (o,,o$in& <)estions.
in prin%ip,e* s#o),d CS98 +e (a%i,itated in A)stra,iaA
1i( so2 does t#e e0istin& ,a$ (a%i,itate CS98A
1i( not2 $#at po,i%y option to (a%i,itate CS98 s#o),d +e adoptedA
$#at iss)es arise in imp,ementin& t#e re%ommended po,i%y optionA
In t#is %#apter* CAMAC sets o)t its positions in re&ard to t#e (irst t#ree <)estions* $#i%#
in s)mmary are.
CS98 s#o),d +e (a%i,itated in A)stra,ia
t#e e0istin& ,a$ does not (a%i,itate CS98
t#e pre(erred po,i%y option is to introd)%e a re&),atory re&ime spe%i(i%a,,y desi&ned
(or CS98'
"#is %#apter a,so makes a n)m+er o( &enera, o+servations on t#e (o)rt# <)estion* and
provides an overvie$ o( t#e spe%i(i% imp,ementation iss)es* $#i%# are dea,t $it# in detai,
in C#apters ! to 6 o( t#is report'
2.2 "n princip#e+ shou#d CS)* ,e faci#itated in
Austra#ia-
2.2.1Summary of the CAMAC position
8or t#e reasons set o)t +e,o$* CAMAC is o( t#e vie$ t#at CS98 s#o),d +e (a%i,itated in
A)stra,ia* t#o)&# t#ere are ar&)ments a&ainst* as $e,, as in (avo)r o(* t#is %o)rse and
many o( t#e ar&)ments p)t (or$ard eit#er $ay %an on,y +e spe%),ative at t#is sta&e'
2.2.2.ther /urisdictions
In %onsiderin& t#is <)estion* CAMAC #as revie$ed t#e approa%#es in vario)s overseas
C)risdi%tions t#at #ave moved* or are movin&* to (a%i,itate CS98 in some (orm'
New Zealand
"#e 8inan%ia, Markets Cond)%t A%t 201! 1t#e A%t2 and t#e 8inan%ia, Markets Cond)%t
14#ase 12 :e&),ations 2014 %ontain provisions t#at are desi&ned to (a%i,itate CS98' "#ey
%ame into (or%e in Apri, 2014' "#ese provisions* in t#e CS98 %onte0t* s)+stit)te (or t#e
re&),atory re&ime ot#er$ise pertainin& to e<)ity-raisin& +y %orporate entities'
-ooking ahead
In imp,ementin& t#is initiative* t#e Ne$ Hea,and 3overnment stated t#at ne$ (orms o(
intermediated ()ndraisin& s)%# as CS98.
ena+,e ()nds (or sma,, +)sinesses and individ)a,s to +e raised in internet-+ased market
p,a%es* potentia,,y more e((i%ient,y t#an t#ro)&# traditiona, p)+,i% or private o((erin&s'
A,so.
9na+,in& %ro$d-()ndin& $as #i&#,i&#ted in t#e 3overnment/s B)siness 3ro$t#
A&enda as an initiative to s)pport ear,y-sta&e and &ro$t# %ompanies to a%%ess t#e
risk-%apita, t#ey need to &ro$ K 4ermittin& %ro$d-()ndin& p,at(orms $i,, open )p
si&ni(i%ant ne$ opport)nities (or sma,, +)sinesses to raise &ro$t# %apita,'
4art 6 o( t#e A%t and t#e asso%iated :e&),ations provide (or app,i%ations to +e made to t#e
8inan%ia, Markets A)t#ority 18MA2 to +e ,i%ensed to provide a B%ro$d ()ndin& servi%e/ (or
t#e p)rposes o( CS98' 8or t#is p)rpose* t#e 8MA #as p)+,is#ed Crowd funding .art /1%
0our guide to app"ying for a market service "icence 1Apri, 20142 18MA Cro$d ()ndin&
&)ide2'
Iss)ers makin& CS98 o((ers t#ro)&# ,i%ensed CS98 intermediaries $i,, +e e0empt (rom
t#e norma, re<)irement to re&ister a 4rod)%t ;is%,os)re Statement'
Ne$ Hea,and CS98 o((ers $o),d not <)a,i(y (or m)t)a, re%o&nition in A)stra,ia* and
t#ere(ore some adC)stment to t#ese arran&ements may +e ne%essary'
USA
"#e >)mpstart o)r B)siness Start)ps 1>5BS2 A%t* ena%ted in Apri, 2012* is intended to
en%o)ra&e e%onomi% &ro$t# in t#e FS +y vario)s means* in%,)din& &reater a%%ess to
e<)ity ()ndin& (or emer&in& and ot#er %ompanies'
"it,e III o( t#e >5BS A%t dea,s $it# CS98 o((ers to investors &enera,,y' It is intended to
a,,o$ a start-)p or ot#er %ompany to raise modest amo)nts o( e<)ity %apita, +y o((ers to
investors t#ro)&# an on,ine intermediary' Fnder "it,e III* <)a,i(yin& CS98 transa%tions
$i,, +e e0empt (rom t#e re&istration and prospe%t)s de,ivery re<)irements o( t#e FS
Se%)rities A%t' "it,e III app,ies to a,, investors* in%,)din& persons o( modest means*
t#ere+y &ivin& t#em a &reater ran&e o( investment options'
As stated +y t#e S9C.
"o t#e e0tent t#at %ro$d()ndin& r),es are s)%%ess(),,y )ti,iDed* t#e %ro$d()ndin&
provisions o( t#e >5BS A%t s#o),d provide start)ps and sma,, +)sinesses $it# t#e
means to raise re,ative,y modest amo)nts o( %apita,* (rom a +road %ross se%tion o(
potentia, investors* t#ro)&# se%)rities o((erin&s t#at are e0empt (rom re&istration
)nder t#e Se%)rities A%t' "#ey a,so s#o),d permit sma,, investors to parti%ipate in a
$ider ran&e o( se%)rities o((erin&s t#an may +e avai,a+,e %)rrent,y'
"#e S9C p)+,is#ed proposed r),es in 5%to+er 201!* $it# re<)ests (or %omment' In p)ttin&
(or$ard t#ese proposed r),es* t#e S9C o+served t#at.
:),es t#at are )nd),y +)rdensome %o),d dis%o)ra&e parti%ipation in %ro$d()ndin&'
:),es t#at are too permissive* #o$ever* may in%rease t#e risks (or individ)a,
investors* t#ere+y )nderminin& t#e (a%i,itation o( %apita, raisin& (or start)ps and sma,,
+)sinesses'
-ooking ahead
In t#e same vein* t#e S9C #as %ommented t#at.
(or %ro$d()ndin& to #ave a positive impa%t on t#e sma,, +)siness ()ndin& pro+,em* it
m)st $ork (or +ot# iss)ers and investors' In parti%),ar* it is vita,,y important t#at
investors #ave %on(iden%e in t#e %ro$d()ndin& pro%ess - or t#ey $i,, stay a$ay'
A,so.
LAnyM pro+,ems t#at arise (rom t#e a%tions o( %ro$d()ndin& iss)ers or LintermediaryM
porta,s %o),d &enera,,y a((e%t investor %on(iden%e in t#e %apita, markets and #ave an
adverse e((e%t on %apita, (ormation'
Sett,ement o( t#e S9C :),es 1e0pe%ted d)rin& 20142 is a prere<)isite to permittin& CS98
)nder "it,e III'
Canada
"#e 5ntario Se%)rities Commission 15SC2 Sta(( Cons),tation 4aper 4-710
Considerations for new capita" raising prospectus e,emptions 1;e%em+er 20122 in%,)ded
t#e e,ements o( a possi+,e CS98 e0emption (rom t#e prospe%t)s provisions to (a%i,itate
%apita,-raisin& (or sma,,er +)siness enterprises'
In A)&)st 201!* t#e 5SC re,eased 5SC Noti%e 4-712 .rogress report on review of
prospectus e,emptions to faci"itate capita" raising* $#i%# in%,)ded ()rt#er deve,opment o(
its ear,ier CS98 proposa,s'
"#e A)&)st 201! 4aper indi%ated t#at $ork on a possi+,e CS98 re&),atory (rame$ork (or
Canada $as %ontin)in&' In t#at %onte0t* t#e 4aper stated.
7e are mind(), o( stake#o,der %on%erns t#at i( t#e %osts asso%iated $it# investor
prote%tion are e0%essive* %ro$d()ndin& may not +e a %ost-e((e%tive %apita, raisin&
met#od' At t#e same time* t#e Investor S)rvey s)&&ests t#at investors $o),d +e
%on%erned a+o)t t#e risks o( %ro$d()ndin& and mi&#t not +e prepared to invest
t#ro)&# %ro$d()ndin& i( t#ey do not t#ink t#ere are ade<)ate prote%tions in p,a%e'
In Mar%# 2014* t#e 5SC p)+,is#ed dra(t proposa,s (or CS98* $#i%# $o),d provide an
e0emption (rom t#e prospe%t)s re<)irements' "#e proposa,s #ave a 90-day p)+,i%
%omment period 1as re<)ired +y ,a$2' "#ey $o),d* s)+Ce%t to %ertain %onditions* a,,o$
iss)ers to raise money (rom t#e %ro$d +y o((erin& se%)rities t#ro)&# on,ine porta,s
1intermediaries2' "#e proposa,s in%,)de dra(t provisions'
"#e 5SC %ommented t#at.
In a re,ative,y s#ort period o( time* %ro$d()ndin& #as +e%ome an important ne$
met#od o( raisin& %apita, t#ro)&# t#e internet (or a +road ran&e o( p)rposes' "o date* it
#as +een )sed to raise money (or a spe%i(i% proCe%t and does not &enera,,y invo,ve t#e
iss)an%e o( se%)rities' -o$ever* in some (orei&n C)risdi%tions* %ro$d()ndin& is
emer&in& as a $ay (or +)sinesses* parti%),ar,y start-)ps and SM9s* to raise %apita,
t#ro)&# t#e iss)an%e o( se%)rities'
7e t#ink t#at %ro$d()ndin& t#ro)&# an appropriate,y re&),ated %ro$d()ndin& porta,
%an +e a via+,e met#od (or start-)ps and SM9s to raise %apita,'
European Union
"#e 9)ropean Fnion 19F2 approa%# to %ro$d()ndin& &enera,,y* in%,)din& CS98* #as +een
in(,)en%ed to a %onsidera+,e de&ree +y t#e &,o+a, (inan%ia, %risis* $#i%# red)%ed t#e
,endin& a%tivities o( +anks in 9)rope* makin& a%%ess to (inan%e +y 9)ropean +)sinesses
more di((i%),t'
-ooking ahead
8or instan%e* t#e stated aim o( t#e $ntrepreneurship *+*+ Action ."an 1 2eigniting the
entrepreneuria" spirit in $urope 1201!2 is to in%rease t#e ,eve, o( emp,oyment t#ro)&#
rein(or%in& entreprene)rs#ip a%ross 9)rope' It invites 9F Mem+er States to.
assess t#e need o( amendin& %)rrent nationa, (inan%ia, ,e&is,ation $it# t#e aim o(
(a%i,itatin& ne$* a,ternative (orms o( (inan%in& (or start-)ps and SM9s Lsma,, to
medi)m enterprisesM in &enera,* in parti%),ar as re&ards p,at(orms (or %ro$d ()ndin&'
"#e 9)ropean Commission Cons),tation 4aper Crowdfunding in the $&3$,p"oring the
added va"ue of potentia" $& action 15%to+er 201!2 pointed o)t t#at.
9)ropean SM9s ,ar&e,y depend on +ank (inan%in&* +)t sin%e t#e (inan%ia, %risis +anks
are m)%# more restri%tive in t#eir ,endin&'
In %onse<)en%e.
In t#e %onte0t o( SM9/s (inan%e e%osystem* it appears t#at %ro$d()ndin& may respond
to t#e needs o( many sma,, start-)ps t#at do not mana&e to a%%ess +ank (inan%e*
vent)re %apita, or rea%# t#e sta&e o( initia, p)+,i% o((erin& 1I452' Cro$d()ndin& %o),d
t#)s %ontri+)te to +rid&in& t#e (inan%e &ap (or sma,, (irms and innovative proCe%ts' It
%o),d %omp,ement ot#er so)r%es o( (inan%e' Better a%%ess to (inan%e (or sma,,
+)sinesses $o),d promote entreprene)rs#ip and ),timate,y %ontri+)te to &ro$t# and
Co+ %reation'
Cro$d()ndin& %reates opport)nities to t)rn ,ar&er &ro)ps o( peop,e* $#o ot#er$ise
$o),d not #ave a%%ess to traditiona, %#anne,s o( (inan%e* into sma,,-s%a,e
entreprene)rs'
"#e Cons),tation 4aper identi(ied a ran&e o( opport)nities* risks and %#a,,en&es $it#
%ro$d()ndin&'
In a %omm)ni%ation &n"eashing the potentia" of Crowdfunding in the $uropean &nion
127 Mar%# 20142* $#i%# re(ers to vario)s types o( %ro$d()ndin&* in%,)din& CS98* t#e
9)ropean Commission proposed vario)s steps to s)pport t#e &ro$t# o( %ro$d()ndin& in
t#e 9F* in%,)din& t#e (ormation o( an 90pert 3ro)p and Stake#o,der 8or)m to provide
advi%e and e0pertise to t#e Commission in t#is area' "#e Commission a,so noted t#at as
%ro$d()ndin& is a &,o+a, a%tivity* t#e Commission $i,, %,ose,y (o,,o$ internationa,
deve,opments and $i,, s)pport e((orts to promote re&),atory %onver&en%e o( approa%#es at
t#e internationa, ,eve,'
"#e 9)ropean Commission intends to report on pro&ress $it# t#ese matters in 201'
UK
In A)&)st 2012* t#e 8inan%ia, Cond)%t A)t#ority 18CA2 p)+,is#ed a %ons)mer in(ormation
+),,etin %a,,ed Crowdfunding% is your investment protected4 "#e +),,etin $arned investors
t#at many %ro$d()ndin& opport)nities are #i&#-risk and %omp,e0 and are s)ited to
sop#isti%ated investors on,y' "#e do%)ment a,so pointed o)t t#at t#ese types o(
investments are &enera,,y i,,i<)id and t#at investors s#o),d +e %are(), a+o)t investin& over
t#e internet +e%a)se o( t#e risk o( (ra)d'
"#e 8CA +),,etin a,so stated t#at.
7e +e,ieve most %ro$d()ndin& s#o),d +e tar&eted at sop#isti%ated investors $#o
kno$ #o$ to va,)e a start)p +)siness* )nderstand t#e risks invo,ved and t#at investors
%o),d ,ose a,, o( t#eir money'
-ooking ahead
S)+se<)ent,y* t#e 8CA a)t#orised some intermediaries* $#i%# it %onsidered #ad t#e
ne%essary ski,,s and e0pertise* to %ond)%t ,imited CS98' "#is (orm o( CS98 $as %on(ined
to a re,ative,y sma,, &ro)p o( investors* name,y t#ose persons $#o se,(-%erti(ied t#at t#ey
%ame $it#in pres%ri+ed tests o( +ein& #i&# net $ort# or sop#isti%ated investors
1sop#isti%ated investors2'
"#e 8CA p)+,is#ed a Cons),tation 4aper* The 5CA6s regu"atory approach to crowdfunding
7and simi"ar activities8 15%to+er 201!2 1t#e Cons),tation 4aper2* dea,in&* amon& ot#er
t#in&s* $it# t#e ()t)re re&),ation o( CS98'
"#e 8CA s)+se<)ent,y iss)ed a 4o,i%y Statement 4S14N4 The 5CA6s regu"atory approach
to crowdfunding over the internet and the promotion of non1readi"y rea"isab"e securities
by other media 1Mar%# 20142 14S14N42* $#i%# %on(irmed and o)t,ined its approa%# to t#e
re&),ation o( CS98 in t#e FG'
"#e re,evant r),es to imp,ement 4S14N4 %ommen%ed in Apri, 2014'
IOSCO
I5SC5 #as +e&)n %onsideration o( CS98* $it# t#e p)+,i%ation o( an in(ormation paper
Crowd1funding% An )nfant )ndustry 9rowing 5ast in 8e+r)ary 2014'
2.2.Su,missions
:espondents to t#e CAMAC dis%)ssion paper over$#e,min&,y s)pported t#e (a%i,itation
o( CS98 in A)stra,ia* in some (orm at ,east' -o$ever* it m)st +e noted t#at none o( t#e
respondents des%ri+ed t#emse,ves as potentia, %ro$d investors* +)t predominant,y 1+)t not
in a,, instan%es2 $ere more asso%iated $it# t#e perspe%tive o( iss)ers or intermediaries'
Many respondents envisa&ed CS98 as a ve#i%,e (or stim),atin& e%onomi% &ro$t# and
innovation in t#e A)stra,ian e%onomy +y #e,pin& to +rid&e $#at t#ey %onsidered $as t#e
%apita, &ap (or innovative and ot#er start-)p or sma,,-s%a,e proCe%ts +et$een t#e amo)nt
re<)ired to %ontin)e t#e proCe%t and t#e ()nds avai,a+,e' It $as pointed o)t* (or instan%e*
t#at traditiona, (inan%e prod)%ts o(ten mana&e risk +y re<)irin& a Btra%k re%ord/ o( simi,ar
a%tivity* makin& it very di((i%),t (or innovative proCe%ts and or&aniDations to o+tain
()ndin&'
I( s)%%ess(),* it $as ar&)ed* CS98 1to&et#er $it# ot#er po,i%ies to en%o)ra&e innovation2
may (a%i,itate a vi+rant and t#rivin& A)stra,ian innovation and te%#no,o&y se%tor* $it#
(,o$-on ,on&er term e%onomi% +ene(its' "#e %reation o( ne$ aven)es (or ()ndin& t#ese
innovative ind)stries* $#i%# o(ten #ave re,ative,y modest %apita, needs* o((ers t#e prospe%t
o( (a%i,itatin& a ran&e o( emer&in& te%#no,o&ies* $#i,e keepin& pa%e $it# internationa,
peers and %ompetitors'
7it#in t#is %onte0t* t#e vie$ $as e0pressed t#at t#e %)rrent %apita, raisin& provisions o(
t#e Corporations A%t $ere desi&ned (or more s)+stantive %apita, raisin& a%tivities and t#at
t#e %omp,ian%e %osts asso%iated $it# t#ose re<)irements may +e pro#i+itive (or very sma,,
%apita, raisin&s t#ro)&# %ro$d()ndin& porta,s'
It $as ar&)ed t#at t#e pro+,em t#at many innovative start-)p and ot#er sma,, +)sinesses
(a%e is t#e ,a%k o( a%%ess to e<)ity or de+t %apita, to deve,op t#eir +)sinesses at a %riti%a,
ear,y sta&e' 5ne respondent re(erred to A)stra,ian B)rea) o( Statisti%s data 1ABS
Cata,o&)e 8167'0 - (e"ected Characteristics of Austra"ian /usiness *+1111*2 s)&&estin&
t#at ,a%k o( a%%ess to (inan%e is t#e primary +arrier to innovation (or A)stra,ian +)sinesses'
-ooking ahead
Anot#er respondent des%ri+ed t#e (inan%in& pro+,ems (or t#ese enterprises in terms o( t#e
Bva,,ey o( deat#/.
"#e va,,ey o( deat# represents t#e sta&e in t#e &ro$t# %y%,e o( an ear,y sta&e +)siness at $#i%#
t#ose ear,y sta&e +)sinesses #ave* on +a,an%e* not yet mat)red in t#eir net$orks and risk pro(i,e
to identi(y and attra%t s)((i%ient %apita, (rom e0terna, so)r%es to ena+,e t#em to %ommer%ia,ise
t#eir prod)%ts and servi%es to a ,eve, at $#i%# t#e risk pro(i,e is s)((i%ient,y improved to ena+,e
sop#isti%ated investors and pro(essiona, investors to risk t#eir %apita, in s)%# %ompanies'
CS98* it $as ar&)ed* %o),d +e one means (or dea,in& $it# $#at $as %,aimed to +e t#is
systemi% market (ai,)re to ()nd ear,y sta&e %ompanies +y $idenin& t#e investor +ase to
in%,)de t#e retai, %ro$d' A,so* a s)%%ess(), initia, ()ndraisin& %ampai&n t#ro)&# CS98
may assist in any s)+se<)ent ()rt#er (inan%in& (rom more traditiona, so)r%es* s)%# as
vent)re %apita, or +)siness an&e, investin&* i( t#is is ne%essary' 8)rt#ermore* i( t#is initia,
()ndin& yie,ds positive res),ts* t#en t#e %ompanies t#at &ain tra%tion in t#e market may
event)a,,y &rad)ate to ,istin& t#eir se%)rities on p)+,i% e0%#an&e markets to raise more
s)+stantia, s)ms o( %apita,'
"#e point $as made in s)+missions t#at t#e (),, e0tent o( t#is potentia, to s)%%ess(),,y
()nd and deve,op innovative start-)ps and ot#er enterprises $i,, on,y +e%ome %,earer over
time as t#e market deve,ops and responds to t#e ne$ investment opport)nities'
Anot#er ar&)ment $as t#at* +y en&a&in& $it# t#e %ro$d via so%ia, media* CS98 may
provide ear,y market testin& o( $#et#er a prod)%t or idea #as a mass appea,* C)d&ed +y t#e
n)m+er o( persons $#o respond positive,y and t#e n)m+er o( %ro$d investors $#o are
s)((i%ient,y attra%ted to t#e proCe%t to %ommit t#eir ()nds' Market va,idation in t#is manner
may a,so assist in attra%tin& investors in any s)+se<)ent ro)nd o( CS98 or ot#er ()ndin&'
In a simi,ar vein* it $as ar&)ed t#at t#e %o,,e%tive B$isdom o( t#e %ro$d/ $o),d +e a
means (or investors to identi(y t#e more via+,e +)siness vent)res t#at s#o),d +e s)pported'
A n)m+er o( s)+missions a,so made t#e o+servation t#at overseas CS98 proCe%ts may +e
open to A)stra,ian investors* &iven t#at %ro$d()ndin& trans%ends &eo&rap#i% and
C)risdi%tiona, +orders* as it essentia,,y e0ists t#ro)&# t#e internet' "o in#i+it CS98 in
A)stra,ia* $#i,e ot#er C)risdi%tions are movin& to (a%i,itate it* may res),t in A)stra,ian
%ro$d investors p)ttin& t#eir ()nds into o((s#ore %on%erns* rat#er t#an s)pportin&
A)stra,ian-+ased enterprises' ?ike$ise* $it#o)t s)ita+,e CS98 provisions in A)stra,ia*
,o%a, innovators and ot#er entreprene)rs may need to set )p in ot#er C)risdi%tions to &ain
a%%ess to t#e %ro$d to (inan%e t#eir +)sinesses'
A dissentin& vie$ $as t#at t#e risks invo,ved (or %ro$d investors o)t$ei&#ed t#e possi+,e
+ene(its o( (a%i,itatin& CS98' It $as ar&)ed t#at CS98 provides a s)+stantia, monetary risk
(or persons $#o may #ave ,o$ (inan%ia, ,itera%y or $#o may +e %arried a$ay $it# $#at
appears to +e an e0%itin& idea' 8)rt#er* t#e (a%t t#at t#ey are investin& sma,, amo)nts o(
money does not C)sti(y dere&),ation' I( a s%am o%%)rs* it $as ar&)ed* %on(iden%e in t#e
system $i,, +e s#aken and #onest entreprene)rs $i,, +e adverse,y a((e%ted'
2.2.!CAMAC position
As a pre,iminary point* CAMAC %onsiders t#at a rationa,e (or CS98 o(ten p)t (or$ard in
ot#er C)risdi%tions* name,y t#at t#is (orm o( ()ndraisin& may #e,p over%ome some o( t#e
dama&e to t#eir e%onomies %a)sed +y t#e &,o+a, (inan%ia, %risis o( a (e$ years a&o* does
not %arry e<)a, $ei&#t in A)stra,ia* $#i%# (ared reasona+,y $e,, +y %omparison'
-ooking ahead
In re&ard to $#et#er CS98 s#o),d* in prin%ip,e* +e (a%i,itated* CAMAC sees t#e potentia,
(or CS98 to en%o)ra&e t#e A)stra,ian start-)p entreprene)ria, se%tor* espe%ia,,y in t#e
%r)%ia, ear,y sta&es o( proCe%t and prod)%t deve,opment' A,so* enterprises t#at are ()nded
t#ro)&# CS98 and prove to +e %ommer%ia,,y s)%%ess(), may provide meanin&(), ret)rns to
t#eir %ro$d investors* as $e,, as %reatin& emp,oyment and ot#er %onse<)entia, e%onomi%
+ene(its'
CS98 a,so #as t#e potentia, to (inan%e ot#er %orporate entities* s)%# as so%ia, enterprises or
%reative* %),t)ra, or p#i,ant#ropi% proCe%ts* t#at ot#er$ise may #ave di((i%),ties in
o+tainin& s)((i%ient (inan%e to deve,op or %ontin)e'
CAMAC is a,so a$are o( t#e possi+,e e%onomi% detriment t#at may arise i( CS98 is
(a%i,itated in ot#er C)risdi%tions 1$#i%# is in%reasin&,y t#e %ase2* +)t not in A)stra,ia' ?a%k
o( a s)pportive ,o%a, re&),atory environment may res),t in $ort#$#i,e A)stra,ian
entreprene)rs in%orporatin& in ot#er %o)ntries* or movin& t#eir +)sinesses o((s#ore* to
ena+,e t#eir ideas or proCe%ts to +e ()nded +y t#e %ro$d'
CAMAC re%o&nises* #o$ever* t#at statements a+o)t t#e possi+,e e%onomi% %onse<)en%es
i( CS98 is* or is not* (a%i,itated in A)stra,ia* and t#e ,ike,y impa%t o( CS98 on %apita,
a,,o%ation in t#e A)stra,ian e%onomy* %an on,y +e spe%),ative at t#is sta&e' 8or instan%e*
t#ere is a possi+i,ity t#at CS98 may ,ead to some ,eve, o( misa,,o%ation o( reso)r%es in t#e
e%onomy* $it# si&ni(i%ant investor ()nds +ein& dire%ted to$ards #i&#-risk and event)a,,y
)ns)staina+,e vent)res' "#is may #ave a ne&ative e((e%t on t#e a,,o%ation o( %apita, to
ot#er (orms o( prod)%tive and s)staina+,e deve,opment' A,so* ,osses to %ro$d investors
%o),d red)%e %on(iden%e in %orporate investment more &enera,,y* parti%),ar,y i( t#ose
,osses are %ommonp,a%e'
CAMAC a,so notes t#at as CS98 is sti,, in its in(an%y $or,d-$ide* %omparative
in(ormation on t#e e%onomi% si&ni(i%an%e o( t#is (orm o( ()ndraisin& does not yet e0ist' It
is not possi+,e at t#is sta&e to o+tain any meanin&(), %omparison in any C)risdi%tion
+et$een t#e s)%%ess rates o( enterprises seed-()nded t#ro)&# CS98 and vent)res )ti,isin&
more traditiona, ()ndin& mode,s'
8)rt#ermore* t#e ,ike,y ,eve, o( investor parti%ipation in CS98* +ein& t#e key e,ement on
$#i%# t#e s)%%ess o( t#is (orm o( ()ndraisin& (or iss)ers depends* %annot yet +e &a)&ed*
t#o)&# i( CS98 is (a%i,itated in A)stra,ia* %ro$d investors $i,, not ne%essari,y +e ,imited
to A)stra,ian residents' "o date* t#e interest in CS98 in A)stra,ia appears to +e ,ar&e,y
s)pp,y-driven* as eviden%ed +y most respondents to t#e CAMAC dis%)ssion paper +ein&
potentia, iss)ers or intermediaries* or parties s)pportin& t#e ro,e o( iss)ers* $it# no
s)+missions (rom potentia, %ro$d investors' It is )n%,ear #o$ m)%# demand* or interest*
t#ere $i,, +e (rom %ro$d investors (or t#is (orm o( ()ndraisin&* i( (a%i,itated* and $#et#er
any initia, ent#)siasm $i,, +e s)stained over time* parti%),ar,y &iven t#e ,osses o( invested
%apita, ,ike,y to +e e0perien%ed +y many %ro$d investors'
CAMAC is a,so a$are o( t#e potentia, (inan%ia, and ot#er risks to %ro$d investors posed
+y CS98 and t#e possi+i,ity o( (ra)d +y some ()ndraisers' 8or instan%e* t#e so-%a,,ed
B$isdom o( t#e %ro$d/* a %on%ept o(ten re(erred to in s)pport o( CS98* #as not +een
independent,y veri(ied' In addition* t#ere is t#e possi+i,ity o( a B#erdin& e((e%t/ $it#
)nsop#isti%ated %ro$d investors* $#o may +e in%,ined to invest in a proCe%t simp,y
+e%a)se ot#er %ro$d investors #ave a,ready done so* and $it#o)t any %onsidered
)nderstandin& or assessment o( t#e ()ndamenta,s o( t#e proCe%t' "#e (a%t t#at CS98 re,ies
#eavi,y on t#e internet and its asso%iated (orms o( so%ia, media may a%%ent)ate t#at
#erdin& e((e%t* %ompared $it# traditiona, se%)rities markets'
-ooking ahead
CAMAC %onsiders t#at t#e e0tent to $#i%# &en)ine investor %on%erns mi&#t +e addressed
$o),d part,y depend on t#e nat)re o( any re&),atory str)%t)re emp,oyed (or t#is (orm o(
()ndraisin&* i( (a%i,itated* in%,)din& appropriate investor sa(e&)ards' CAMAC #as
%are(),,y %onsidered t#ese matters in s)+se<)ent %#apters o( t#is report'
2. 0oes the e$isting #aw faci#itate CS)*-
2..1Summary of the CAMAC position
8or t#e reasons set o)t +e,o$* CAMAC is o( t#e vie$ t#at t#e %)rrent ,a$ presents
()ndamenta, di((i%),ties (or t#e )se o( CS98 +y proprietary or p)+,i% %ompanies' C#an&es
$o),d #ave to +e made to t#e Corporations A%t i( CS98 is to +e (a%i,itated in A)stra,ia'
2..21roprietary companies
Current barriers
As e0p,ained in detai, in Appendi0 2 o( t#is report* t#e %)rrent +arriers to t#e )se o( CS98
+y proprietary %ompanies are.
t#e s#are#o,der %ap 1s)%# %ompanies may #ave no more t#an 0 non-emp,oyee
s#are#o,ders2* and
t#e pro#i+ition on p)+,i% o((ers o( e<)ity in t#ese %ompanies 1$it# ,imited e0%eptions2'
"#e ,imited e0%eptions (rom t#e o((er restri%tions in%,)de t#e sma,,-s%a,e persona, o((ers
e0emption and o((ers to sop#isti%ated investors 1in%,)din& very ,ar&e minim)m
s)+s%ription o((ers2' -o$ever* s)%# o((ers do not %ome $it#in t#e &enera, %on%ept o(
CS98* as t#ey ,a%k t#e ne%essary e,ement o( o((ers to t#e %ro$d'
Some o( t#e +arriers to t#e )se o( CS98 +y proprietary %ompanies %o),d +e a,,eviated +y
interposin& a mana&ed investment s%#eme +et$een t#e %ompany and its %ro$d investors*
t#o)&# t#is $o),d a,so attra%t %omp,ian%e re<)irements (or t#e s%#eme' "#ere is a,so t#e
<)estion $#et#er o((erin& )nits in a s%#eme* even t#o)&# ,inked to an iss)er* $o),d +e
s)((i%ient,y attra%tive (or %ro$d investors in ,ie) o( a%<)irin& s#ares in t#e iss)er itse,('
Submissions
Many respondents sa$ t#e proprietary %ompany str)%t)re as t#e most s)ita+,e (or t#e type
o( start-)p or ot#er sma,,-s%a,e enterprise t#at %o),d +ene(it (rom CS98' -o$ever* t#e
&enera, vie$ $as t#at CS98* $#i%# may invo,ve sma,, e<)ity %ontri+)tions (rom many
investors 1potentia,,y #)ndreds or more2* %o),d not +e satis(a%tori,y a%%ommodated $it#in
t#e %)rrent re&),atory (rame$ork (or proprietary %ompanies'
"#e predominant vie$ in s)+missions $as t#at )sin& a mana&ed investment s%#eme as an
interposed entity +et$een a proprietary %ompany iss)er and t#e investor $o),d &enera,,y
+e )nattra%tive to %ro$d investors and $o),d not +e %ommer%ia,,y (easi+,e in many
instan%es* &iven t#e possi+,e administrative %omp,e0ity and %omp,ian%e %osts in operatin&
t#e s%#eme 1even $#ere one s%#eme $as t#e interposed entity (or a n)m+er o( iss)ers2'
-avin& to )ti,ise t#is arran&ement %o),d deter many start-)p or ot#er proprietary
%ompanies (rom seekin& ()nds t#ro)&# CS98'
CAMAC position
At present* proprietary %ompanies $o),d not +e a+,e to en&a&e in CS98 to any si&ni(i%ant
de&ree* &iven t#e s#are#o,der %ap o( no more t#an 0 non-emp,oyee s#are#o,ders and t#e
-ooking ahead
pro#i+ition on proprietary %ompanies makin& p)+,i% e<)ity o((ers 1$it# ,imited
e0%eptions2'
Any start-)p enterprise )sin& a proprietary %ompany to seek ()nds (rom t#e %ro$d $o),d
+e ,imited to )ti,isin& t#e sma,,-s%a,e persona, o((ers e0emption 1no more t#an 20
investors in 12 mont#s %ontri+)tin& no more t#an O2 mi,,ion* or O mi,,ion in some
%ir%)mstan%es2 or t#e e0emptions (or o((ers to sop#isti%ated* e0perien%ed* pro(essiona, or
overseas investors' "#ese options* #o$ever* are sti,, s)+Ce%t to t#e s#are#o,der %ap and
$o),d not permit t#e s%ope o( ()ndraisin& %ontemp,ated +y CS98'
In t#eory* t#ese re&),atory o+sta%,es %o),d +e over%ome +y interposin& a mana&ed
investment s%#eme +et$een a start-)p proprietary %ompany and its %ro$d investors' Fnder
t#is approa%#* investors $o),d +)y )nits in t#e s%#eme* $it# t#e ()nds raised +ein& )sed to
a%<)ire s#ares in t#e proprietary %ompany* $#i%# $o),d +e s%#eme property' -o$ever*
CAMAC is o( t#e vie$ t#at t#is approa%# may invo,ve a %omp,e0 e0er%ise* in%,)din&
%omp,ian%e $it# t#e dis%,os)re o+,i&ations t#at $o),d atta%# to t#e o((ers made to %ro$d
investors in re,ation to t#e s%#eme' A,so* t#is indire%t (orm o( e<)ity o$ners#ip may +e
)nattra%tive to many %ro$d investors'
2..1u,#ic companies
Current barriers
As e0p,ained in more detai, in Appendi0 2* t#e %)rrent +arriers to t#e )se o( CS98 +y
p)+,i% %ompanies are t#e %omp,ian%e re<)irements (or s)%# %ompanies and t#e ()ndraisin&
dis%,os)re re<)irements in C#apter 6; o( t#e Corporations A%t'
Submissions
:espondents stron&,y ar&)ed t#at t#e %)rrent p)+,i% %ompany str)%t)re $as not a s)ita+,e
ve#i%,e (or start-)p and ot#er sma,, enterprises seekin& ()nds t#ro)&# %ro$d so)r%in&'
"#ere $as a &enera, vie$ t#at t#e %)rrent %omp,ian%e o+,i&ations (or p)+,i% %ompanies
$o),d deter most start-)p and ot#er sma,,-s%a,e enterprises (rom in%orporatin& as t#is type
o( %ompany' In addition* t#e p)+,i% ()ndraisin& dis%,os)re o+,i&ations (or p)+,i%
%ompanies )nder C#apter 6; o( t#e Corporations A%t $ere )ns)ita+,e (or CS98'
CAMAC position
Fnder t#e %)rrent ,e&is,ation* it is open to entreprene)rs to in%orporate as a p)+,i%
%ompany and make o((ers to t#e %ro$d p)rs)ant to t#e prospe%t)s or o((er in(ormation
statement 15IS2 re<)irements (or s)%# %ompanies in C#apter 6; o( t#e Corporations A%t'
Iss)ers %o),d emp,oy on,ine intermediaries to p)+,i%ise t#eir o((ers* s)+Ce%t to t#ose
intermediaries %omp,yin& $it# app,i%a+,e ,i%ensin& and ot#er ,e&a, re<)irements'
;is%,os)re do%)ments* in%,)din& prospe%t)ses or 5ISs* %an +e made avai,a+,e
e,e%troni%a,,y* in%,)din& via t#e internet'
5n one vie$* a start-)p or ot#er entity $it# a simp,e +)siness mode, %o),d prepare a
prospe%t)s or an 5IS re,ative,y easi,y and ine0pensive,y* dependin& on t#e type o( start-)p
a%tivity invo,ved' A,so* $#i,e t#e additiona, %osts o( on&oin& %omp,ian%e as a p)+,i%
%ompany may +e &reater (or t#e iss)er* t#e stri%ter %orporate &overnan%e re<)irements (or
a p)+,i% %ompany provide a %#e%k and +a,an%e t#at %o),d assist in prote%tin& %ro$d
investors* $#o $o),d most ,ike,y +e minority retai, investors'
CAMAC is e<)a,,y mind(),* #o$ever* t#at t#e p)+,i% %ompany str)%t)re invo,ves
%omp,ian%e re<)irements t#at may dis%o)ra&e many start-)p or ot#er sma,,-s%a,e
enterprises (rom )sin& t#at %orporate (orm* $#et#er or not t#ey are %ontemp,atin& raisin&
-ooking ahead
()nds t#ro)&# CS98' A,so* t#e set-)p and on&oin& %omp,ian%e %osts o( a p)+,i% %ompany
%o),d a+sor+ a si&ni(i%ant proportion o( any ()nds raised (rom t#e %ro$d' "#ose %osts
$o),d +e in addition to t#e %osts invo,ved in an iss)er makin& o((ers to t#e %ro$d t#ro)&#
an on,ine intermediary'
2.! 2hat po#icy option to faci#itate CS)* shou#d
,e adopted-
"#e a,ternative po,i%y options to (a%i,itate CS98 %onsidered +y CAMAC are.
,ption 1 adC)st t#e re&),atory str)%t)re (or proprietary %ompanies
,ption 2 %on(ine CS98 o((ers to a ,imited %,asses o( investors
,ption 3 amend t#e ()ndraisin& provisions (or p)+,i% %ompanies
,ption " introd)%e a re&),atory re&ime spe%i(i%a,,y desi&ned (or CS98'
2.!.1Summary of the CAMAC position
8or t#e reasons set o)t +e,o$* CAMAC s)pports 5ption 4 as t#e +est means to (a%i,itate
CS98 in A)stra,ia'
2.!.2.ther /urisdictions
New Zealand, USA and Canada
"#ese C)risdi%tions #ave adopted 5ption 4* t#o)&# t#e Ne$ Hea,and B,i&#t to)%#/
re&),atory re&ime (o%)ses on t#e ,i%ensin& o( intermediaries* and does not (),,y dea, $it#
t#e ran&e o( iss)es %on%ernin& iss)ers* intermediaries and investors )nder %onsideration in
t#e FSA and Canada'
UK
"#e FG #as adopted 5ption 21 name,y to %on(ine CS98 to sop#isti%ated investors and
,imited %,asses o( retai, investors* +ein&.
retai, %,ients $#o are %erti(ied or se,(-%erti(y as sop#isti%ated investors
retai, %,ients $#o are %erti(ied as #i&# net $ort# investors
retai, %,ients $#o %on(irm +e(ore a promotion is made t#at* in re,ation to t#e
investment promoted* t#ey $i,, re%eive re&),ated investment advi%e or investment
mana&ement servi%es (rom an a)t#orised person* or
retai, %,ients $#o %erti(y t#at t#ey $i,, not invest more t#an 10P o( t#eir net investi+,e
port(o,io 1i'e' e0%,)din& t#eir primary residen%e* pensions and ,i(e %over2 in )n,isted
s#ares or )n,isted de+t se%)rities'
"#e re,evant r),es %ommen%ed operation in Apri, 2014'
2.!.1o#icy .ption 13Ad/ust the regu#atory structure for
proprietary companies
"#is $o),d invo,ve s)+stantia,,y ,i+era,isin& t#e sma,,-s%a,e o((ers e0emption (or p)+,i%
o((ers +y proprietary %ompanies* as $e,, as s)+stantia,,y in%reasin& t#e n)m+er o(
-ooking ahead
permitted s#are#o,ders o( a proprietary %ompany* %)rrent,y %apped at 0 non-emp,oyee
s#are#o,ders* or dispensin& $it# t#at %ap a,to&et#er'
Submissions
"#ere $as s)pport in a n)m+er o( s)+missions (or ,i+era,isin& t#e sma,,-s%a,e o((ers
e0emption on p)+,i% o((ers +y proprietary %ompanies' -o$ever* it $as re%o&nised t#at t#e
n)m+er o( permitted o((ers $o),d #ave to +e in%reased s)+stantia,,y* possi+,y into t#e
#)ndreds or more* to permit an iss)er to raise s)((i%ient seed e<)ity (rom t#e %ro$d*
parti%),ar,y $#ere investors %o),d make sma,, investments 1a (e$ #)ndred do,,ars or ,ess2'
Eario)s respondents proposed a materia, in%rease in t#e 0 non-emp,oyee s#are#o,der
%ei,in& (or proprietary %ompanies* or remova, o( t#e s#are#o,der %ei,in& a,to&et#er* to
permit proprietary %ompanies to en&a&e (),,y in CS98' It $as ar&)ed t#at ,i+era,isin& t#e
sma,,-s%a,e o((ers e0emption* +)t $it#o)t %#an&in& t#e s#are#o,der %ap* may res),t in
proprietary %ompanies +ein& a+,e to %#oose (rom $it#in t#e poo, o( $i,,in& %ro$d
investors* +)t sti,, not +ein& a+,e to a&&re&ate s)((i%ient amo)nts o( %apita,'
CAMAC position
"o a%%ommodate CS98 )nder t#is po,i%y option* t#e n)m+er o( permitted o((ers )nder t#e
sma,,-s%a,e o((er e0emption $o),d #ave to +e )n%apped to a,,o$ (or a meanin&(), ,eve, o(
%apita, to +e raised t#ro)&# t#is pro%ess' -o$ever* any s)%# %#an&e $o),d not +e e((e%tive
$it#o)t s)+stantia,,y in%reasin& t#e 0 non-emp,oyee s#are#o,der %ap (or proprietary
%ompanies* or dispensin& $it# t#e %ap a,to&et#er'
CAMAC is mind(), t#at a %onse<)en%e o( s)%# %#an&es* i( app,i%a+,e to a,, proprietary
%ompanies* $o),d +e to move a$ay (rom t#e %on%ept o( proprietary %ompanies +ein&
%,ose,y-#e,d entities* not &enera,,y open to p)+,i% parti%ipation' "#is %#an&e may %a,, into
<)estion t#e %)rrent red)%ed ,eve, o( re&),ation o( proprietary %ompanies* %ompared $it#
p)+,i% %ompanies' CAMAC does not %onsider it $orka+,e to divide proprietary %ompanies
a%%ordin& to $#et#er or not t#ey intend to en&a&e in CS98* and app,y a di((erent
re&),atory str)%t)re on t#is +asis'
2.!.!1o#icy .ption 23Con4ne CS)* to a #imited c#asses of
investors
Submissions
"#ere $as %onsidera+,e opposition +y respondents to adoptin& t#is option* $it# some
ar&)in&* (or e0amp,e* t#at it $o),d not ena+,e CS98 in t#e manner envisa&ed in ot#er
C)risdi%tions' It $as a,so ar&)ed t#at restri%tin& t#e poo, o( potentia, investors to* say*
sop#isti%ated* e0perien%ed or pro(essiona, investors may not a,,o$ (or a meanin&(), ,eve,
o( %apita, to +e raised and $o),d %ontin)e to e0%,)de t#e maCority o( A)stra,ians (rom
investment opport)nities in A)stra,ian start-)ps or ot#er sma,,-s%a,e iss)ers' "#e %omment
$as a,so made t#at restri%tions o( t#is nat)re $o),d severe,y ,imit t#e possi+i,ity o( a
%omm)nity s)pportin& a ,o%a, so%ia, enterprise'
Some s)+missions s)pported %#an&es to t#e sop#isti%ated investor test* to make it
essentia,,y a se,(-%erti(i%ation system more in ,ine $it# t#e 8CA approa%# in t#e FG*
t#ere+y avoidin& any o+,i&ation on iss)ers or intermediaries to %#e%k t#e e,i&i+i,ity o(
t#ose investors' -o$ever* t#ere $as no s)pport (or ,imitin& CS98 investors to
sop#isti%ated investors'
-ooking ahead
CAMAC position
7#i,e ,imitin& t#e %,ass o( permitted investors* as )nder t#e FG approa%#* may prote%t
many retai, investors (rom some o( t#e possi+,e risks o( CS98* it $o),d not (a%i,itate
CS98 in t#e tr)e sense +)t B$i,, de,iver %ro$d ()ndin& $it#o)t t#e %ro$d/' It is a,so
ar&)a+,e t#at restri%tin& t#e poo, o( potentia, investors in t#is manner may not a,,o$ (or a
meanin&(), ,eve, o( %apita, to +e raised t#ro)&# CS98 in many instan%es'
2.!.%1o#icy .ption 3Amend the fundraising provisions
for pu,#ic companies
Submissions
Many respondents $ere o( t#e vie$ t#at t#e )n,isted p)+,i% %ompany str)%t)re is
inappropriate (or t#e types o( start-)p and ot#er sma,, enterprises t#at $o),d seek to raise
%apita, t#ro)&# CS98* &iven t#e %)rrent &overnan%e and %omp,ian%e re<)irements (or s)%#
%ompanies' In %onse<)en%e* t#e po,i%y option o( adC)stin& t#e ()ndraisin& provisions
$o),d +e irre,evant $it#o)t s)+stantia, %#an&es to t#e %omp,ian%e re<)irements on p)+,i%
%ompanies to a%%ommodate s)%# enterprises'
CAMAC position
3rantin& some re,ie( (rom t#e ()ndraisin& provisions (or p)+,i% %ompanies seekin& to raise
%apita, t#ro)&# CS98 may not s)((i%e $it#o)t a,so makin& some adC)stment to t#e
%omp,ian%e re<)irements (or t#ose %ompanies' "#ese matters are %onsidered )nder 4o,i%y
5ption 4* +e,o$'
CAMAC/s proposa, to %reate a ne$ %ate&ory o( Be0empt p)+,i% %ompany/ to a%%ommodate
CS98 is dis%)ssed more (),,y in C#apter ! o( t#is report'
2.!.&1o#icy option !3"ntroduce a new regu#atory regime
for CS)*
Submissions
A n)m+er o( respondents s)pported a se,(-%ontained re&),atory str)%t)re (or CS98* $#i%#
may invo,ve %reatin& a ne$ type o( %orporate entity as $e,, as desi&nin& spe%i(i%
re&),atory arran&ements (or t#e ()ndraisin& pro%ess'
5ne %on%ern raised $as t#at a se,(-%ontained re&),atory str)%t)re s#o),d not %reate
dis%repan%ies in t#e re&),atory environment (or %apita, raisin& t#at %o),d +e e0p,oited to
t#e detriment o( $#at is ar&)a+,y a s)%%ess(), e<)ity o((er dis%,os)re re&ime )nder
C#apter 6; o( t#e Corporations A%t in its app,i%ation to more deve,oped +)sinesses'
CAMAC position
CAMAC/s re%ommended approa%# is to %reate a spe%i(i% re&),atory str)%t)re (or CS98*
invo,vin& t$o key e,ements.
corporate form. t#e %reation o( a ne$ %ate&ory o( p)+,i% %ompany* to +e kno$n as an
Be0empt p)+,i% %ompany/* $#i%# %o),d +e adopted (or a ,imited period +y entities
$is#in& to raise e<)ity (inan%e (rom t#e %ro$d' In deve,opin& its approa%#* CAMAC
$as a$are o( t#e need to make t#e %orporate (orm s)((i%ient,y $orka+,e (or iss)ers*
$#i,e a,so s)ita+,y prote%tin& t#e position o( %ro$d s#are#o,ders'
"#is matter is ()rt#er o)t,ined in Se%tion 2'6'2* +e,o$* and is (),,y dis%)ssed in
C#apter ! o( t#is report'
-ooking ahead
f#ndraising$ t#e re&),ation o( t#e o((er pro%ess to t#e %ro$d t#ro)&# spe%i(i%a,,y
tai,ored provisions app,i%a+,e to iss)ers* intermediaries and %ro$d investors' In
deve,opin& its approa%#* CAMAC re%o&nised t#e need to ens)re t#at a re&),atory
str)%t)re (or on,ine ()ndraisin& does not %reate dis%repan%ies in t#e A)stra,ian
re&),atory environment (or %orporate %apita, raisin& t#at %o),d +e e0p,oited to t#e
detriment o( investors &enera,,y or ot#er iss)ers'
"#ese matters are ()rt#er o)t,ined in Se%tions 2'6'! to 2'6'* +e,o$* and are (),,y
dis%)ssed in C#apters 4 to 6 o( t#is report'
"#is po,i%y approa%# provides t#e ne%essary (,e0i+i,ity to desi&n a spe%i(i% str)%t)re (or
CS98 $it#o)t t#e s#ort%omin&s o( t#e ot#er po,i%y options dis%)ssed a+ove'
2.% 2hat issues arise in imp#ementing the
recommended po#icy option-
In %onsiderin& t#is <)estion* CAMAC #as taken into a%%o)nt t$o overar%#in& (a%tors t#at
#ave a dire%t si&ni(i%an%e in t#e %onte0t o( CS98.
a%#ievin& a proper re&),atory +a,an%e t#at a%%ommodates t#e ,e&itimate interests o(
iss)ers* intermediaries and %ro$d investors
a%#ievin& a s)ita+,e ,eve, o( re&),atory #armoniDation $it# approa%#es in ot#er
C)risdi%tions* &iven t#e +order,ess nat)re o( CS98'
2.%.1Regu#atory ,a#ance
"#e prod)%tivity and %ompetitiveness o( start-)ps and ot#er sma,,-s%a,e enterprises may +e
assisted to t#e e0tent t#at t#ey %an )ti,ise CS98 )nder a re&),atory str)%t)re t#at
en%o)ra&es* or at ,east does not %reate )nne%essary +arriers to* its )se.
8rom one perspe%tive* t#is may %a,, (or a &enera,,y ,i&#t re&),atory to)%#* takin& into
a%%o)nt t#at many start-)p iss)ers may +e dis%o)ra&ed +y any ,e&a, %omp,e0ity asso%iated
$it# ()ndraisin&' A,so* (or proCe%ts to stand a reasona+,e %#an%e o( s)%%ess* and to re$ard
t#eir %ro$d 1and ot#er2 investors* promoters and %ontro,,ers s#o),d prin%ipa,,y (o%)s on
)sin& t#eir time and ski,,s to deve,op t#e proCe%t* not disproportionate,y on ,e&a,
%omp,ian%e' Any ne$ re&),atory re&ime (or CS98 $i,, not +e e((e%tive i( t#e %omp,ian%e
%osts (or iss)ers or intermediaries are pro#i+itive'
-o$ever* t#e s)%%ess o( CS98 (or iss)ers rests on one key (a%tor* $#i%# is o)tside t#eir
%ontro, or t#e %ontro, o( advo%ates o( CS98 or o( intermediaries* name,y* t#e ,eve, o(
take-)p o( e<)ity o((ers +y %ro$d investors' S)staina+,e &ro$t#* prod)%tivity and
%ompetitiveness t#ro)&# CS98 are on,y possi+,e i( investors #ave %on(iden%e in investin&
t#ro)&# t#at pro%ess'
In t#e %onte0t o( investor %on(iden%e* %ro$d investors are not entit,ed to any &)arantee o(
(inan%ia, s)%%ess t#ro)&# t#eir CS98 investments and it is #i&#,y )n,ike,y t#at many o(
t#em $o),d #ave s)%# an e0pe%tation' -o$ever* i( %ro$d investors &ain ,itt,e or no ret)rn
(rom t#eir investments* see t#eir investments +ein& ,ost or )na+,e to +e ,i<)idated* or
$itness +ene(its (rom t#e (inan%ia, s)%%ess o( enterprises &oin& e0%,)sive,y* or
disproportionate,y* to ot#ers $it#in t#e %ompany* t#ey may +e%ome disen%#anted' CS98
may t#)s deve,op a +ad rep)tation $it#in t#e %ro$d' As %an +e seen in ot#er %onte0ts*
so%ia, media may +e )sed to %riti%ise as $e,, as to praise'
-ooking ahead
In e((e%t* t#e %o,,e%tive B$isdom o( t#e %ro$d/* a %on%ept so o(ten emp,oyed +y s)pporters
o( CS98* may +e%ome t#e adverse BC)d&ment o( t#e %ro$d/ and t)rn a&ainst t#is (orm o(
()ndraisin&' "#is may a%t to t#e detriment o( +ona (ide and potentia,,y via+,e sma,,
enterprises* $#i%# %o),d #ave +ene(ited (rom t#e (inan%ia, s)pport o( t#e %ro$d and %o),d
#ave ret)rned rea, +ene(its to t#ose $#o ot#er$ise may #ave invested'
In t#e vie$ o( CAMAC* prod)%tivity and %ompetitiveness are +est promoted t#ro)&# a
re&),atory +a,an%e t#at takes into a%%o)nt t#e ,e&itimate perspe%tives o( iss)ers* %ro$d
investors and intermediaries' A &ood )nderstandin& +y a,, t#ese parties o( #o$ CS98
$orks* $#at it is intended to a%#ieve and $#at risks are invo,ved $o),d +e essentia, in
esta+,is#in& m)t)a, tr)st'
5n some matters a (irmer to)%# o( re&),ation may +ene(it a,, parties in t#e CS98 pro%ess'
8or instan%e* a str)%t)red re&),atory approa%# to t#e %ontent o( an e<)ity o((er do%)ment
$o),d +etter &)ide iss)ers in preparin& t#eir dis%,os)re materia,* in%rease t#e %on(iden%e
o( intermediaries t#at t#e o((ers t#ey p)+,is# on t#eir $e+sites provide t#e ne%essary
in(ormation to internet )sers* and a,so assist potentia, %ro$d investors +y a,,o$in& t#em
more easi,y to %ompare di((erent o((ers'
Moreover* it is in t#e interests o( +ona (ide iss)ers (or intermediaries to %ond)%t some
,imited d)e di,i&en%e %#e%ks on app,i%ant iss)ers seekin& to a%%ess t#eir $e+sites* to #e,p
avoid a ,oss o( investor %on(iden%e i( CS98 is seen as +ein& emp,oyed +y ,ess rep)ta+,e
entreprene)rs'
Converse,y* iss)ers may +e $ary o( t#is (orm o( ()ndraisin& i( t#ey #ave no e0terna,
disp)te reso,)tion +ody to $#i%# t#ey %an t)rn in t#e event o( disa&reement $it# t#e
intermediary' ?ike$ise* %ro$d investors may +e deterred (rom investin&* despite t#e merits
o( an iss)er/s o((er* i( t#ey do not #ave %on(iden%e in t#e pro(essiona, and ne)tra, ro,e o(
t#e intermediary %ond)%tin& t#at o((er'
CAMAC does not %onsider t#at a ,i&#ter re&),atory re&ime (or CS98 is C)sti(ied simp,y
+e%a)se on,y sma,, amo)nts o( ()nds (rom ea%# %ro$d investor may +e invo,ved' "#ese
investors are entit,ed to some ,eve, o( prote%tion $#atever t#eir ,eve, o( %ontri+)tion* and
t#e a%%)m),ated amo)nt o( ()nds raised (rom t#e %ro$d may +e s)+stantia,' 8)rt#ermore*
it is essentia, to #ave appropriate sa(e&)ards to miti&ate attempted (ra)d* $#i%# is
)na%%epta+,e in prin%ip,e* as $e,, as dis%o)ra&in& %ro$d investors' A,so* an appropriate
re&),atory re&ime is more ,ike,y to &ive %ro$d investors &reater %on(iden%e to invest*
$#i%# $i,, in%rease t#e ,ike,i#ood o( t#e s)%%ess o( CS98 as an additiona, met#od o(
()ndraisin&'
In s)mmary* t#e re&),ation o( CS98 m)st en&ender a ,eve, o( %ons)mer %on(iden%e and
tr)st in its )se* as $e,, as avoid stymiein& t#e deve,opment o( t#is (orm o( %orporate
()ndraisin& in A)stra,ia'
CAMAC $o),d a,so %a)tion a&ainst an over,y pre%ipito)s Br)s# to C)d&ment/ on $#et#er
CS98* i( introd)%ed* en#an%es prod)%tivity' It may $e,, +e t#at as CS98 &ets )nder $ay*
t#ere may +e a s)r&e o( initia, interest' -o$ever* t#is may +e in(,)en%ed to some e0tent +y
t#e Bnove,ty/ e((e%t o( t#is internet-+ased means o( +e%omin& a s#are#o,der $it#o)t )nd)e
%ost to t#e individ)a,' 9<)a,,y* #o$ever* some ear,y (ai,)res +y iss)ers may <)i%k,y erode
investor interest and %on(iden%e in CS98' "#e pro%ess o( CS98 $o),d need some time to
deve,op +e(ore any (irmer %on%,)sions on t#is matter %an +e rea%#ed'
-ooking ahead
2.%.25armoni6ation with other /urisdictions
CS98 is a $or,d-$ide p#enomenon* &iven t#e &,o+a, rea%# o( t#e internet and t#e %apa%ity
o( iss)ers to make o((ers to %ro$d investors $#erever ,o%ated' -o$ vario)s C)risdi%tions
#ave %#osen to respond to* and re&),ate* t#is a%tivity is t#ere(ore dire%t,y re,evant to any
%onsideration o( its re&),ation in A)stra,ia'
In %onsiderin& t#e spe%i(i% e,ements o( a re&),atory str)%t)re (or CS98 in A)stra,ia*
CAMAC takes t#e vie$ t#at t#ere is va,)e in endeavo)rin& to #ave a de&ree o( re&),atory
%onsisten%y $it# ot#er C)risdi%tions %on%ernin& t#is (orm o( ()ndraisin&' "#is may +etter
ens)re t#at t#e %ro$d #as a %ompara+,e ,eve, o( prote%tion (or a,, internet-+ased e<)ity
o((ers* $#erever t#e iss)er is ,o%ated* $#i,e avoidin& )nd)e C)risdi%tion-s#oppin& +y
iss)ers seekin& to )se CS98 on,ine p,at(orms to se%)re ()nds (or t#eir vent)res'
8or t#ese reasons* CAMAC #as %,ose,y revie$ed t#e imp,emented or proposed re&),atory
approa%#es to CS98 in t#e FG* t#e FSA* Canada and Ne$ Hea,and* $#i,e a,so notin&
deve,opments in Ita,y* at t#e 9)ropean Fnion ,eve,* and $it# I5SC5'
At t#e time o( %omp,etion o( t#is report* t#e FG and Ne$ Hea,and #ave imp,emented t#eir
approa%#es to CS98* $#i,e t#e positions in Canada* t#e FSA and t#e 9F are not yet
sett,ed' A s)mmary o( t#e approa%# in ea%# C)risdi%tion is set o)t in Appendi%es ! to o(
t#is report'
Nonet#e,ess* $#i,e CAMAC a%kno$,ed&es t#e merits o( #armoniDation* ea%# C)risdi%tion*
in%,)din& A)stra,ia* is entit,ed to (or&e its o$n re&),atory pat#' A,so* it is not possi+,e to
a%#ieve %omp,ete #armoniDation as* on vario)s key matters 1as o)t,ined in Se%tion 2'6'1*
+e,o$2* t#e C)risdi%tions revie$ed materia,,y di((er in t#eir approa%#es' "#ere appears no
rea, prospe%t o( a Bone temp,ate/ $or,d$ide re&),atory approa%# to CS98' -o$ever* t#ere
is sti,, a stron& +ene(it in seekin& +road %ross-C)risdi%tiona, re&),atory &)ide,ines* to $#i%#
A)stra,ia %an make a )se(), %ontri+)tion'
2.& .verview of the proposed regu#atory
structure
2.&.1Comparison with other /urisdictions
In (orm),atin& its advi%e to t#e 3overnment* CAMAC #as %are(),,y %onsidered t#e key
(eat)res o( t#e re&),atory str)%t)res (or CS98 adopted or proposed in t#e overseas
C)risdi%tions revie$ed'
5( t#ese C)risdi%tions* t#e +asi% approa%# taken in Ne$ Hea,and* Canada and t#e Fnited
States is to esta+,is# a re&),atory str)%t)re permittin& start-)p and ot#er sma,,-s%a,e iss)ers
to make o((ers o( t#eir e<)ity to t#e %ro$d* )sin& on,ine intermediaries (or t#is p)rpose'
Some key %ommon re&),atory (eat)res in t#ese C)risdi%tions are.
t#e o((ers are e0empt (rom t#e prospe%t)s provisions
t#e o((ers %an +e made to anyone in t#e %ro$d
t#e o((ers %an on,y +e made t#ro)&# on,ine ,i%ensed intermediaries
t#ere are %aps 1re,ative,y ,o$2 on t#e ()nds t#at an iss)er %an raise (rom t#e %ro$d in a
12 mont# period'
-ooking ahead
"#e FG %omes (rom a di((erent re&),atory dire%tion' 7#ereas t#e ot#er C)risdi%tions treat
t#e possi+,e ,a%k o( a se%ondary market in e<)ity +ein& o((ered to t#e %ro$d as a risk to +e
dis%,osed* t#e FG treats t#is as its re&),atory startin& point'
"#e FG seeks to re&),ate t#e pro%ess o( makin& o((ers* t#ro)&# intermediaries* o( any
se%)rities t#at ,a%k a se%ondary market 1Bnon-readi,y rea,isa+,e se%)rities/2' In %ontrast to
t#e ot#er C)risdi%tions.
t#e o((ers are s)+Ce%t to t#e prospe%t)s provisions
t#e o((ers are ,imited to part o( t#e %ro$d 1+ein& sop#isti%ated investors and some
%,asses o( retai, investors2
t#e o((ers %an +e made t#ro)&# eit#er on,ine or o((,ine ,i%ensed intermediaries
1s)+Ce%t to %omp,ian%e $it# t#e prospe%t)s provisions2 t#ere are no %aps on t#e ()nds
an iss)er %an raise (rom e,i&i+,e mem+ers o( t#e %ro$d in any time period'
CAMAC a%kno$,ed&es t#e +readt# o( t#e re&),atory approa%# adopted in t#e FG* $#i%#
invo,ves Bmedia-ne)tra,/ re&),ation o( t#e sa,e o( a,, se%)rities* in %ompanies o( any nat)re
or siDe* t#at ,a%k a se%ondary market' "#e s#ares t#at typi%a,,y $o),d +e o((ered to t#e
%ro$d +y t#e types o( iss)ers %ontemp,ated in t#e ot#er C)risdi%tions $o),d* a,most
a,$ays* ,a%k a se%ondary market' "#e FG approa%# $o),d t#ere(ore %over $#at is
&enera,,y %onsidered to +e CS98* +)t $it#in a +roader re&),atory (rame$ork'
5ne di((i%),ty CAMAC #as $it# t#e app,i%ation o( t#e FG approa%# to A)stra,ia %on%erns
t#e retention o( t#e prospe%t)s provisions' "#e FG prospe%t)s provisions #ave e0emptions
(rom t#eir operation $#i%# #ave no e<)iva,ent in A)stra,ia' As previo)s,y indi%ated
1Se%tion 2'!'!2* t#e A)stra,ian prospe%t)s provisions #ave +een identi(ied as one o( t#e
(a%tors in#i+itin& t#e (a%i,itation o( CS98 in A)stra,ia' :e<)irin& a,, iss)ers to %omp,y
$it# t#em $o),d ,ike,y dis%o)ra&e t#e &ro$t# o( CS98 in t#is C)risdi%tion'
Ita,y #as a,so introd)%ed CS98 provisions* t#o)&# t#ey are parti%),ar,y tai,ored to t#at
C)risdi%tion' 8or instan%e* t#at C)risdi%tion re<)ires an iss)er to o+tain prior approva, +y
t#e C#am+er o( Commer%e +e(ore it %an en&a&e in CS98' "#ere is no e<)iva,ent
%ompara+,e +ody in A)stra,ia'
"#e re&),atory str)%t)re proposed +y CAMAC is* at a &enera, ,eve,* %onsistent $it# t#e
Ne$ Hea,and provisions and t#e Canadian and FS proposa,s* t#o)&# t#ere are some very
si&ni(i%ant di((eren%es +et$een t#ese C)risdi%tions* and $it# t#e CAMAC proposa,s* on
vario)s po,i%y iss)es'
8or instan%e* in t#ree key respe%ts* t#e CAMAC proposa,s di((er (rom t#e approa%# taken
in Ne$ Hea,and.
iss#ers$ offer disclosure' Ne$ Hea,and #as adopted a partia, am+),atory approa%# to
t#e o((er dis%,os)re re<)irements o( iss)ers* $#ereas CAMAC proposes a standard
temp,ate dis%,os)re str)%t)re* intended to +ene(it iss)ers as $e,, as investors
1Se%tion 4'72
intermediaries$ conflict of interest' Ne$ Hea,and permits an intermediary to invest in
an o((er %ond)%ted on its $e+site* or ot#er$ise #ave an interest in t#at o((er* provided
t#at t#e interest is dis%,osed* $#ereas CAMAC %onsiders t#at any s)%# interest may
%reate %on(,i%ts o( interest and s#o),d +e pro#i+ited 1Se%tion '122
-ooking ahead
investors$ investor caps. Ne$ Hea,and #as no investor %ap* $#ereas CAMAC
proposes %aps on t#e ()nds a %ro$d investor %an invest $it# ea%# iss)er* and iss)ers
%o,,e%tive,y* in a 12 mont# period 1Se%tion 6'42' 7it#o)t any %ap* %ro$d investors
%o),d p,a%e m)%# o( t#eir net $ort# in #i&# (inan%ia, risk vent)res* many o( $#i%#
may (ai,'
In(ormation on re,evant approa%#es proposed or adopted in t#ese ot#er C)risdi%tions is
in%,)ded* )nder t#e #eadin& ,ther 2#risdictions1 in ea%# o( t#e re&),atory matters
%onsidered in t#e s)+se<)ent %#apters o( t#is report' In t#e interests o( simp,i%ity* (ootnote
detai,s re,ated to t#e in(ormation %ontained )nder t#is #eadin& #ave not +een in%,)ded'
-o$ever* t#ey are in%,)ded in t#e same materia, in t#e re,evant Appendi0'
2.&.2The corporate form
8or a start-)p or ot#er sma,,-s%a,e enterprise to raise ()nds t#ro)&# CS98* CAMAC is o(
t#e vie$ t#at it s#o),d +e re<)ired to +e a p)+,i% %ompany* &iven t#at it $i,, +e makin&
o((ers to t#e p)+,i%* in t#e (orm o( t#e on,ine %ro$d'
-o$ever* to over%ome t#e %)rrent disin%entives on promoters o( t#ese enterprises to (orm
a p)+,i% %ompany* a ne$ %,assi(i%ation o( Be0empt p)+,i% %ompany/ s#o),d +e %reated'
A %ompany seekin& to en&a&e in CS98 %o),d.
+e in%orporated as an e0empt p)+,i% %ompany* or
%#an&e (rom +ein& a proprietary or p)+,i% %ompany to an e0empt p)+,i% %ompany in
some %ir%)mstan%es* or
+e in%orporated as a p)+,i% %ompany $it#o)t t#is e0empt stat)s'
Some o( t#e key imp,i%ations o( t#ese proposed options in%,)de.
an iss)er t#at is an e0empt p)+,i% %ompany s#o),d +e re,ieved (rom some o( t#e initia,
and on&oin& %omp,ian%e re<)irements (or p)+,i% %ompanies (or t#e ,imited period t#at
it is so %,assi(ied
(or a,, iss)ers 1$#et#er e0empt or non-e0empt p)+,i% %ompanies2* t#ere s#o),d +e
en#an%ed dis%,os)re re<)irements a+o)t t#e ri&#ts t#at $i,, atta%# to t#e s#ares o((ered
to %ro$d investors
t#e e0empt p)+,i% %ompany stat)s s#o),d a)tomati%a,,y +e removed in %ertain
%ir%)mstan%es or ot#er$ise at t#e e0piration o( a pres%ri+ed period' "#erea(ter* t#e
iss)er $i,, +e re&),ated as a p)+,i% %ompany'
"#ese* and ot#er* matters a((e%tin& t#e p)+,i% %ompany stat)s o( an iss)er are dis%)ssed in
C#apter !'
2.&."ssuers
"#e essentia, p)rpose o( CS98 is to ena+,e start-)p and ot#er sma,,-s%a,e enterprises to
re%eive ()ndin& (rom sma,, investors to assist in t#e deve,opment o( t#eir proCe%ts' 3iven
t#at iss)ers* in e((e%t* are askin& %ro$d investors (or t#eir %as# in ret)rn (or some interest
in t#e %ompany* t#ey s#o),d +e o+,i&ed to provide t#e %ro$d $it# appropriate in(ormation
a+o)t t#emse,ves and t#eir proCe%ts and s#o),d +e pro#i+ited (rom seekin& to )nd),y
in(,)en%e t#e %ro$d in t#eir investment de%isions'
-ooking ahead
Some o( t#e key imp,i%ations o( t#ese proposed re<)irements (or iss)ers in%,)de.
t#is (orm o( ()ndraisin& s#o),d (o%)s on start-)ps and ot#er sma,, enterprises*
e0%,)din& %ommer%ia,,y or (inan%ia,,y %omp,e0 %orporate entities* ,isted entities or
%ompanies t#at #ave a,ready en&a&ed in a (orma, o((er to t#e p)+,i%
in o((erin& its s#ares to t#e %ro$d* an iss)er s#o),d provide in(ormation t#ro)&# one
on,ine intermediary and p)rs)ant to a standard o((er dis%,os)re temp,ate
an iss)er s#o),d +e s)+Ce%t to restri%tions on promotin& its o((er ot#er$ise t#an
t#ro)&# t#e o((er dis%,os)re do%)ment
an iss)er s#o),d +e pro#i+ited (rom raisin& more t#an O2 mi,,ion t#ro)&# CS98 in any
12 mont# period
an iss)er s#o),d +e s)+Ce%t to %on(,i%t o( interest pro#i+itions* in%,)din& a +an on
,endin& ()nds to a %ro$d investor to take )p an e<)ity interest in t#e iss)er'
"#ese* and ot#er* matters a((e%tin& iss)ers are dis%)ssed in C#apter 4'
2.&.!"ntermediaries
5n,ine intermediaries p,ay t#e %entra, ro,e in +rin&in& to&et#er iss)ers and %ro$d
investors' It is ()ndamenta, to t#e %ontin)ed %on(iden%e o( t#ese parties in t#e CS98
pro%ess t#at intermediaries a%t at a,, times in a pro(essiona, manner and are (ree o( any
possi+,e %on(,i%t o( interest t#at may %a,, into <)estion t#eir ne)tra, ro,e' CAMAC a,so
+e,ieves t#at intermediaries are t#e parties +est p,a%ed to )ndertake some vettin& o(
iss)ers* $#i,e ens)rin& t#at %ro$d investors are made a$are o( t#e risks asso%iated $it#
CS98 and o( t#e monetary %aps t#at s#o),d app,y to %ro$d investors in t#is (orm o(
%orporate ()ndraisin&'
"#e re&),atory imp,i%ations o( t#ese proposed re<)irements (or intermediaries %an +e
divided into.
o+,i&ations
pro#i+itions
,ia+i,ities'
Obliations
"#ese in%,)de.
an intermediary m)st +e ,i%ensed +y ASIC to operate an on,ine CS98 porta, and m)st
%omp,y $it# t#e terms o( t#e ,i%en%e
an intermediary m)st %ond)%t some ,imited d)e di,i&en%e %#e%ks on an iss)er and its
mana&ement +e(ore p)+,is#in& t#e iss)er/s e<)ity o((er on its porta,
an intermediary m)st provide a &eneri% CS98 risk $arnin& to %ro$d investors* $it# a
risk a%kno$,ed&ement spe%i(i%a,,y provided +y ea%# investor* +e(ore any s#are
a%<)isition +y t#at investor t#ro)&# t#e intermediary porta, %an take p,a%e
-ooking ahead
an intermediary m)st re%eive se,(-%erti(i%ation (rom ea%# %ro$d investor t#at t#e
investor #as not +rea%#ed any investment %ap* +e(ore any s#are a%<)isition +y t#e
investor t#ro)&# t#e intermediary porta, %an take p,a%e
an intermediary s#o),d +e re<)ired to provide means to a,,o$ %ro$d investors to
%omm)ni%ate $it# ea%# ot#er and $it# an iss)er d)rin& s)%# time as t#e iss)er is
)ti,isin& its $e+site'
!ro"ibitions
"#ese in%,)de.
an intermediary s#o),d +e s)+Ce%t to vario)s pro#i+itions to avoid a %on(,i%t o(
interest* in%,)din& a &enera, pro#i+ition on #avin& a (inan%ia, interest in any iss)er
$#ose o((er is p)+,is#ed on its porta,* in%,)din& a%%eptin& e<)ity in an iss)er as
payment +y t#e iss)er o( its (ees
an intermediary s#o),d +e pro#i+ited (rom o((erin& investment advi%e to a %ro$d
investor* or so,i%itin& transa%tions on its $e+site
an intermediary s#o),d +e pro#i+ited (rom ,endin& ()nds to a %ro$d investor to take
)p an e<)ity interest in an iss)er $#ose o((er is p)+,is#ed on its $e+site'
#iabilities
An intermediary s#o),d +e ,ia+,e (or investor ,osses on,y $#ere it #ad a%t)a, kno$,ed&e
o(* or $as party to* some (ra)d or ot#er $ron&doin& +y t#e iss)er'
"#ese* and ot#er* matters a((e%tin& intermediaries* in%,)din& some %ontro,s on #o,din& t#e
()nds o( %ro$d investors* are dis%)ssed in C#apter '
2.&.%Crowd investors
Cro$d investors are t#e ,in%#pin o( CS98* +ot# as a me%#anism (or ()ndin& parti%),ar
iss)ers and as a means o( a%#ievin& some o( t#e +roader e%onomi% %onse<)en%es t#at may
(,o$ (rom t#is (orm o( %orporate (inan%in&' Fn,ess s)((i%ient persons in t#e %ro$d are
$i,,in& to provide t#eir money to a s)((i%ient n)m+er o( s)ita+,e iss)ers* CS98 $i,, ,ar&e,y
(ai, as a prod)%tive %orporate ()ndin& me%#anism'
Some o( t#e key imp,i%ations o( CAMAC/s proposa,s (or %ro$d investors in%,)de.
to prote%t a&ainst )nd)e (inan%ia, e0pos)re and ens)re some ,eve, o( diversi(i%ation* a
%ro$d investor may not invest more t#an O2*00 in any parti%),ar CS98 iss)er in any
12 mont# period* and may not invest more t#an O10*000* in tota,* in a,, CS98 iss)ers
in t#at period
a %ro$d investor m)st si&n an a%kno$,ed&ement o( risk* and a,so %erti(y t#at #e or s#e
is $it#in t#e investor %aps* +e(ore +ein& permitted to a%<)ire s#ares t#ro)&# t#e CS98
pro%ess
a %ro$d investor s#o),d #ave some %oo,in& o(( and ot#er $it#dra$a, ri&#ts a(ter
enterin& into an a%<)isition a&reement'
"#ese* and ot#er* matters a((e%tin& %ro$d investors are dis%)ssed in C#apter 6'
-ooking ahead
2.7 1u,#ic interest enterprises
Eario)s %ommentators #ave o+served t#at CS98 may o((er ne$ (inan%in& opport)nities (or
%orporate entities operatin& in t#e not-(or-pro(it* %omm)nity interest and p#i,ant#ropi%
se%tors'
"#e <)estion t#at (o,,o$s is $#et#er t#e re&),atory str)%t)re (or CS98* o)t,ined in
Se%tion 2'6 1and ()rt#er dis%)ssed in t#e remainin& %#apters o( t#is report2* s#o),d +e
adC)sted in some manner (or p)+,i% interest enterprises in seekin& e<)ity investments (rom
t#e %ro$d'
2.7.1Charities
Cro$d()ndin& (or %#arita+,e investment p)rposes %an +e %ond)%ted )nder t#e e0emptions
in ASIC C,ass 5rder 02N184 Charitab"e investment schemes 3 fundraising i( t#e (o,,o$in&
%onditions are met.
t#e or&aniDation seekin& t#e ()nds is a B%#arity/ as de(ined in ASIC 2egu"atory
9uide 8:% Charities
investment in t#e or&aniDation is desi&ned (or investors $#o $is# to promote t#e
%#arita+,e p)rposes o( t#e or&aniDation and (or $#om t#e %onsideration o( pro(it is not
t#e primary %onsideration in t#e investment de%ision
t#e or&aniDation ()ndraises +y t#e iss)e o( de+ent)res or interests in a mana&ed
investment s%#eme
t#e o((er do%)ments satis(y %ertain dis%,os)re re<)irements* in%,)din& %ontainin& a
statement to t#e e((e%t t#at t#e norma, ()ndraisin& prote%tions )nder t#e Corporations
A%t do not #ere app,y
t#e or&aniDation meets ot#er stip),ated re<)irements* in%,)din& in re,ation to
,od&ement o( (inan%ia, in(ormation'
5r&aniDations t#at meet t#ese %riteria are %onditiona,,y e0empt (rom %ertain ()ndraisin&*
mana&ed investment* de+ent)re and ,i%ensin& provisions o( t#e Corporations A%t' Broad,y*
t#is means t#ey are not re<)ired to iss)e a prod)%t dis%,os)re statement or prospe%t)s in
order to ()ndraise* to #ave %ertain &overnan%e str)%t)res* or to #ave an A8S?'
Intermediaries arran&in& t#is type o( investment* say (or e0amp,e a %ro$d()ndin& $e+site*
$i,, a,so +e e0empt (rom re<)irin& an A8S? to %arry o)t t#is a%tivity'
CAMAC notes t#at t#ese re<)irements are %)rrent,y )nder revie$ in ASIC Cons),tation
4aper 207 Charitab"e )nvestment 5undraisers $#i%# may res),t in some adC)stment to
t#is re&),atory str)%t)re'
2.7.2Socia# enterprises
Submissions
A n)m+er o( s)+missions des%ri+ed CS98 as o((erin& opport)nities (or individ)a,s* +y
takin& )p B%omm)nity s#are o((ers/* to provide a va,)a+,e so)r%e o( %apita, (or so%ia,
enterprises* in%,)din& %omm)nity-o$ned +)sinesses* $orkin& (or t#e %omm)na, or
+roader p)+,i% +ene(it' 8or instan%e* CS98 $as des%ri+ed as presentin&.
-ooking ahead
an opport)nity to stren&t#en %omm)nity parti%ipation in ,o%a, deve,opment +y
ena+,in& s#ared o$ners#ip* stren&t#enin& so%ia, %apita,* and ens)rin& a stron&er ,ink
+et$een investment and ,o%a, priorities'
It $as s)+mitted t#at a spe%i(i%a,,y desi&ned B,i&#t to)%#/ re&),atory re&ime s#o),d +e
adopted in re&ard to CS98 (or so%ia, enterprises* on t#e +asis t#at any re&),atory re&ime
s#o),d not #ave t#e )nintended %onse<)en%e o( dis%o)ra&in& parti%ipation in t#ese entities'
In s)pport o( t#is approa%#* respondents ar&)ed* (or instan%e* t#at.
t#e so%ia, p)rpose o( %omm)nity s#are o((ers* in%,)din& t#eir ro,e in +)i,din& so%ia,
%apita, and %omm)nity $e,,-+ein&* needs to +e #i&#,i&#ted' "#ese matters are not
spe%i(i%a,,y dea,t $it# in t#e re&),ation o( ()ndraisin& )nder t#e Corporations A%t
t#ere s#o),d +e no restri%tions on B%omm)nity s#are o((ers/ ot#er t#an per#aps a
minim)m B%omm)nity +ene(its test/
t#e most si&ni(i%ant (o%)s o( %omm)nity s#are investors may not +e on any prospe%t o(
a (inan%ia, ret)rn on t#eir investment +)t on its so%ia, ret)rn* in terms o( ens)rin& t#at
a so%ia, &ood is &enerated or maintained' In t#ese %ir%)mstan%es* it $as ar&)ed* most
B%omm)nity investors/ are ,ike,y to +e B+)y and #o,d/ s#are#o,ders and t#e eviden%e
(rom B%omm)nity s#are o((ers/ overseas is t#at most peop,e invo,ved $is# any
Bdividends/ to +e re-invested in t#e %omm)nity +)siness
t#e net e((e%t o( Bdense so%ia, re,ations/ in so%ia, enterprises Bpotentia,,y s)+stit)tes in
%omm)nity-+ene(it CS98 (or any need to &enerate a ,e&a, response to many o( t#e
risks asso%iated $it# &enera, CS98/' :at#er* it $as ar&)ed* investment in so%ia,
enterprises is typi%a,,y ,o$ riskN,o$ ret)rn and o(ten (a%i,itates %#eaper and +etter
servi%es (or investors $#o are a,so %ons)mers o( t#e prod)%t &enerated +y t#e so%ia,
enterprise' Stated anot#er $ay* %omm)nity s#are o((ers are )s)a,,y kept B#onest/
t#ro)&# t#e operation o( nei&#+o)r#ood s%r)tiny and Bkno$,ed&e net$orks/
t#ere s#o),d +e no restri%tions on intermediaries advertisin& in &enera, terms $#at are
t#e +ene(its to investors* as $e,, as t#e %omm)nity* o( parti%),ar so%ia, enterprise
o((ers
in %ertain %onditions* t#e re&),atory re&ime s#o),d a,,o$ t#e %ro$d investors to +)y
o)t t#e iss)er/s remainin& stake in t#e CS98-derived %omm)nity +)siness or ot#er
so%ia, enterprise' "#is mi&#t +e parti%),ar,y appea,in& to ,o%a, in(rastr)%t)re
+)sinesses $#ere t#e %omm)nity $ants ,itera,,y and metap#ori%a,,y to o$n t#e
proCe%t* res),tin& in &rad)a, trans(er o( e<)ity in a CS98-derived +)siness (rom t#e
iss)er to t#e investors'
"#e vie$ $as a,so e0pressed in s)+missions t#at CS98 (or %ooperatives in A)stra,ia
s#o),d +e en%o)ra&ed.
Cooperatives ad#ere to t#e internationa, %ooperative prin%ip,es K $#i%# re<)ire t#em
to +e open to any person $#o is a+,e to )se t#eir servi%es and to $ork to$ards t#e
s)staina+,e deve,opment o( t#eir %omm)nities' "#ese prin%ip,es make %ooperatives a
&ood (it (or %ro$d so)r%ed or %omm)nity e<)ity ()ndin& mode,s t#at ,ook to t#e +road
%omm)nity (or sma,, investments and o((er eit#er sma,, ret)rns in kind or to satis(y
desires to #e,p deve,op ne$ or %omm)nity enterprises'
A %on%ern $as e0pressed t#at any move to introd)%e a ,ess re&),atory re&ime (or CS98
)nder t#e Corporations A%t* $it#o)t re%o&nition o( t#e e0istin& ()ndin& restri%tions on
%ooperatives 1$#i%# are one (orm o( so%ia, enterprise and are %)rrent,y re&),ated )nder
-ooking ahead
State ,a$s2* may res),t in si&ni(i%ant,y in%reased %ompetitive disadvanta&es (or
%ooperatives in &ainin& e<)ity ()ndin& (rom t#e %ro$d'
CAMAC position
"#ere are %ompetin& %onsiderations to take into a%%o)nt' 5n t#e one #and* t#e p)+,i%
interest &oa,s o( vario)s so%ia, enterprises* +ot# (or persons dire%t,y invo,ved and (or
so%iety &enera,,y* may +e parti%),ar,y %ommenda+,e and s#o),d not +e dis%o)ra&ed' 5n
t#e ot#er #and* %ons)mer prote%tion iss)es sti,, remain* &iven t#at CS98 invo,ves an
investment-+ased approa%# to %ro$d parti%ipation* as opposed to seekin& %apita, t#ro)&#
donation-+ased %ro$d()ndin& or re$ards-+ased %ro$d()ndin&'
CAMAC notes t#at t#e FG 8inan%ia, Cond)%t A)t#ority* in 4o,i%y Statement 14S14N42
The 5CA6s regu"atory approach to crowdfunding over the internet and the promotion of
non1readi"y rea"isab"e securities by other media 1Mar%# 20142* e0pressed reservations
a+o)t providin& ,esser re&),atory arran&ements (or so%ia, enterprises t#at %ome $it#in its
re&),atory re&ime.
Severa, respondents s)&&ested t#at it $as not appropriate to restri%t promotions (or
Bso%ia, investments/ t#at raise money (or a &ood %a)se in t#e same $ay as promotions
(or ot#er investments' "#ey noted t#at app,yin& restri%tions %o),d a%t as a disin%entive
and ,imit &ro$t# in t#is se%tor' "#ey a,so ar&)ed t#at so%ia, investors are not primari,y
(o%)sed on monetary pro(it and are more $i,,in& to a%%ept t#e risk o( %apita, ,oss'
L5)r responseM At present* i( an investment a%tivity (a,,s $it#in 8CA s%ope* o)r r),es
app,y to (irms %arryin& on re&),ated a%tivities or %omm)ni%atin& promotions in
re,ation to investments ,a+e,,ed as Bso%ia, investments/* Bet#i%a, investments/ and
Benvironmenta, investments/* C)st as t#ey $o),d in re,ation to any ot#er desi&nated
investment' 7e do not %onsider an investment/s so%ia, or ot#er non-(inan%ia, o+Ce%tive
to +e a reason to red)%e %ons)mer prote%tion $#en t#e same risks o( potentia, %apita,
,osses and i,,i<)idity %an app,y' K 7e %onsider it possi+,e (or so%ia, investments to +e
promoted and so,d to retai, investors in $ays t#at %omp,y $it# o)r %ond)%t o(
+)siness r),es'
CAMAC %onsiders t#at any adC)stment to t#e re&),ation o( CS98 (or so%ia, enterprises
in%orporated )nder t#e Corporations A%t* and its intera%tion $it# t#e re&),ation o(
%ooperatives )nder State ,a$s* %o),d +e %onsidered a(ter any &enera, re&),atory (rame$ork
(or CS98 is sett,ed'
The corporate form to faci#itate CS)*
This chapter sets out the e"ements of the proposed ;e,empt pub"ic company6 structure that
issuers cou"d adopt to undertake equity offers to the crowd!
.1 .verview
"#e %on%ept o( CS98 is aimed prin%ipa,,y at (a%i,itatin& ()ndraisin& +y start -)p and ot#er
sma,,-s%a,e enterprises' "ypi%a,,y* s)%# enterprises $o),d in t#e past #ave +een
in%orporated as proprietary* rat#er t#an p)+,i%* %ompanies' Nevert#e,ess* (or a start -)p or
ot#er sma,,-s%a,e enterprise to raise ()nds t#ro)&# CS98* CAMAC %onsiders t#at it s#o),d
+e in%orporated as a p)+,i% %ompany* &iven t#at it $i,, +e makin& an o((er to t#e p)+,i%* in
t#e (orm o( t#e on,ine %ro$d* and $i,, #ave t#ose mem+ers o( t#e p)+,i% $#o a%%ept t#e
o((er as its s#are#o,ders' -o$ever* to over%ome t#e %)rrent disin%entives on promoters to
(orm a p)+,i% %ompany* a ne$ %,assi(i%ation o( Be0empt p)+,i% %ompany/ s#o),d +e
%reated'
"#is %,assi(i%ation s#o),d app,y on,y (or a ,imited period* to provide an iss)er $it# t#e
opport)nity to raise ()nds (rom t#e %ro$d in t#e ear,y sta&es o( its deve,opment* (ree o(
t#e )s)a, &overnan%e and ot#er o+,i&ations o( a p)+,i% %ompany'
;)rin& t#is ,imited period* an e0empt p)+,i% %ompany s#o),d +e re,ieved (rom some o( t#e
%omp,ian%e provisions ot#er$ise app,i%a+,e to p)+,i% %ompanies' It %o),d en&a&e in CS98
)nder t#e terms o( t#e provisions re&),atin& t#is (orm o( ()ndraisin& 1as dis%)ssed in
C#apters 4 to 6 o( t#is report2* in ,ie) o( #avin& to %omp,y $it# t#e p)+,i% ()ndraisin&
dis%,os)re provisions in C#apter 6; o( t#e Corporations A%t'
An iss)er t#at %#ooses to +e a p)+,i% %ompany $it#o)t t#is e0empt stat)s* or a(ter t#at
stat)s #as e0pired* %o),d a,so seek to raise ()nds (rom t#e %ro$d )nder t#e CS98
provisions in ,ie) o( t#e C#apter 6; p)+,i% ()ndraisin& re<)irements* provided t#e iss)er
is e,i&i+,e to do so 1Se%tion 4'22'
"#e key re&),atory imp,i%ations o( t#e approa%# proposed +y CAMAC are.
3ecoming an e+empt p#3lic compan'$ an intendin& CS98 iss)er %o),d +e
in%orporated as an e0empt p)+,i% %ompany* or an e0istin& proprietary or p)+,i%
%ompany %o),d %#an&e to an e0empt p)+,i% %ompany in some %ir%)mstan%es
compliance e+emptions$ an e0empt p)+,i% %ompany $o),d +e re,ieved (rom some o(
t#e %omp,ian%e re<)irements (or p)+,i% %ompanies d)rin& t#e period o( e0emption
shareholder rights$ every CS98 iss)er 1$#et#er an e0empt or non-e0empt p)+,i%
%ompany2 $o),d +e s)+Ce%t to spe%i(i% dis%,os)re re<)irements %on%ernin& t#e ri&#ts
t#at it $i,, atta%# to t#e s#ares o((ered to t#e %ro$d and #o$ t#ose ri&#ts %ompare or
%ontrast $it# t#e ri&#ts atta%#ed to any ot#er s#ares t#at t#e %ompany #as iss)ed or %an
iss)e
e+piration of the e+empt stat#s$ t#e e0empt p)+,i% %ompany stat)s s#o),d
a)tomati%a,,y e0pire in %ertain %ir%)mstan%es or at t#e e0piration o( a pres%ri+ed
The corporate form to faci"itate C($5
ma0im)m period 1$it# a ,imited e0%eption2* a(ter $#i%# t#e iss)er $o),d +e%ome a
p)+,i% %ompany* s)+Ce%t to a,, t#e %omp,ian%e o+,i&ations o( t#at type o( %ompany'
9a%# o( t#ese matters is ()rt#er %onsidered in t#is %#apter'
.2 8ecoming an e$empt pu,#ic company
"#e p)rpose o( +e%omin& an e0empt p)+,i% %ompany $o),d +e to seek p)+,i% investment
t#ro)&# t#e CS98 pro%ess' An enterprise t#at intends to re,y on,y on private (orms o(
()ndraisin& 1in%,)din& t#e s 708 e0%eptions2 may +e +etter p,a%ed* in terms o( re,ative
%omp,ian%e o+,i&ations* to in%orporate as a proprietary %ompany and retain t#at stat)s'
.2.1"ncorporation
New companies
4rovision s#o),d +e made (or t#e in%orporation o( an entity as an Be0empt p)+,i%
%ompany/* s)+Ce%t to %omp,ian%e $it# t#e stat)tory re&istration re<)irements (or +ein& a
p)+,i% %ompany'
1
E$istin companies
An e0istin& proprietary or p)+,i% %ompany s#o),d +e entit,ed to %#an&e to an e0empt
p)+,i% %ompany i(.
it %omes $it#in t#e %apita, and t)rnover %aps (or +ein& an e0empt p)+,i% %ompany
1Se%tion !'2* and
it is e,i&i+,e to %ond)%t a CS98 o((er 1Se%tion 4'22' "#is re<)irement over%omes t#e
possi+i,ity o( an e0istin& %ompany t#at is ine,i&i+,e to %ond)%t a CS98 o((er seekin& to
red)%e its %omp,ian%e o+,i&ations* a,+eit temporari,y* simp,y +y %#an&in& to an e0empt
p)+,i% %ompany'
Some e0istin& Bsma,, proprietary %ompanies/
2
and some sma,, p)+,i% %ompanies may
satis(y +ot# %riteria* and %o),d %#an&e t#eir %orporate stat)s a%%ordin&,y'
By %ontrast* a B,ar&e proprietary %ompany/ $o),d not +e entit,ed to %#an&e to an e0empt
p)+,i% %ompany* &iven t#at t#e %)rrent reven)eNassets t#res#o,ds (or s)%# a proprietary
%ompany
!
e0%eed t#e proposed %apita, and t)rnover %aps o( an e0empt p)+,i% %ompany'
?ike$ise* a p)+,i% %ompany t#at #as a,ready made a re&),ated p)+,i% o((er )nder
C#apter 6; o( t#e Corporations A%t* and #en%e $o),d +e a dis%,osin& entity* %o),d not
%#an&e to an e0empt p)+,i% %ompany* as it $o),d +e ine,i&i+,e to %ond)%t a CS98 o((er
1Se%tion 4'2'!2'
A ,isted %ompany %o),d not +e%ome an e0empt p)+,i% %ompany* as ,isted entities %annot
en&a&e in CS98 1Se%tion 4'2'!2' ?ike$ise* an e0empt p)+,i% %ompany s#o),d not +e
entit,ed to +e ,isted'
1
s 117122* 1!2' "#e re<)irement in s 1171221#2 (or desi&nated openin& #o)rs $o),d +e e0%,)ded. see ()rt#er
Se%tion !'!'1 o( t#is report'
2
s 4A122' "#e (inan%ia, %ei,in&s in t#is provision are #i&#er t#an t#e proposed %apita, and t)rnover %aps (or
e0empt p)+,i% %ompanies' A%%ordin&,y* on,y some sma,, proprietary %ompanies $o),d +e e,i&i+,e to %#an&e to
an e0empt p)+,i% %ompany'
!
s 4A1!2'
%irectors
C)rrent,y* a p)+,i% %ompany m)st #ave at ,east t#ree dire%tors* t$o o( $#om m)st
ordinari,y reside in A)stra,ia'
4

ASIC s#o),d #ave t#e dis%retion to adC)st t#is re<)irement in some manner (or an e0empt
p)+,i% %ompany $#ere an app,i%ant #as provided &ood reasons (or so doin&'
.2.2'in(ed or phoeni$ companies
Fn,ess CS98 is proper,y re&),ated* its (a%i,itation mi&#t en%o)ra&e some individ)a,s to
attempt to o+tain s)+stantia, ()nds (rom t#e %ro$d t#ro)&# e<)ity o((ers +y a series o(
iss)ers* ea%# ostensi+,y independent and deve,opin& di((erent proCe%ts* +)t in rea,ity* and
)nkno$n to t#e investin& p)+,i%* ,inked to one person or &ro)p o( persons'
A,ternative,y* some individ)a,s may seek ()nds (rom t#e %ro$d t#ro)&# a series o( iss)ers
over time* $it#o)t dis%,os)re o( t#eir #istory in t#is re&ard* in%,)din& t#eir invo,vement in
any past (ai,ed CS98 iss)ers'
9it#er $ay* an individ)a, may seek to raise s)+stantia, ()nds (rom t#e %ro$d (ar in e0%ess
o( t#e %ap on $#at any individ)a, iss)er %o),d ot#er$ise raise'
E$empt public companies
"o red)%e t#e possi+i,ity o( individ)a,s attemptin& to )se m),tip,e iss)ers in t#is $ay*
sim),taneo)s,y or se<)entia,,y* t#e app,i%ation (orm (or in%orporation
as an e0empt p)+,i%
%ompany s#o),d re<)ire.
t#e dis%,os)re o( any previo)s or %)rrent e0empt p)+,i% %ompany* or any p)+,i%
%ompany t#at #as en&a&ed in a CS98 o((er* in $#i%# any intendin& dire%tor 1in%,)din&
a person $#o $o),d satis(y t#e test o( +ein& a Bs#ado$ dire%tor/
6
2* o((i%er* s#are#o,der
or asso%iate o( t#ose persons #as* or #ad* a dire%t or indire%t (inan%ia, interest o( any
nat)re* and
t#e provision o( (),, detai,s in t#at re&ard'
In(ormation on any %)rrent app,i%a+,e %ompany is dire%t,y re,evant to t#e amo)nt o( ()nds
t#at %an +e so)&#t (rom t#e %ro$d in any 12 mont# period* &iven t#at t#e iss)er %ap takes
into a%%o)nt t#e Biss)er &ro)p/1Se%tion 4''42'
In(ormation on any past app,i%a+,e %ompany may +e re,evant to t#e possi+,e
dis<)a,i(i%ation o( a person (rom mana&in& a %ompany'
7
8ai,)re to dis%,ose t#is in(ormation* as $e,, as +ein& an o((en%e* s#o),d +e a &ro)nd (or
ASIC to dere&ister t#e %ompany'
8
Non&e$empt public companies
"o %o)nter t#e possi+i,ity o( individ)a,s seekin& to )se a series o( non-e0empt p)+,i%
%ompanies in an inappropriate $ay* t#e pro%ed)re (or in%orporation o( t#is (orm o( p)+,i%
4
s 201A122'
"#e %ontents o( an app,i%ation (or re&istration are %ontained in s 117'

6
4)rs)ant to t#e de(inition o( a Bdire%tor/ in s 9* a s#ado$ dire%tor is any person in a%%ordan%e $it# $#ose
instr)%tions or $is#es t#e dire%tors o( t#e %ompany are a%%)stomed to a%t'
7
See 4art 2;'6 o( t#e Corporations A%t'
8
ASIC/s dere&istration po$er is in s 601AB'
%ompany s#o),d re<)ire t#e dis%,os)re o( t#e same type o( in(ormation* set o)t a+ove* t#at
app,ies to an e0empt p)+,i% %ompany* and $it# t#e same %onse<)en%es'
CAMAC a%kno$,ed&es t#at t#is additiona, dis%,os)re o+,i&ation $o),d need to app,y $it#
a,, app,i%ations to re&ister a p)+,i% %ompany' -o$ever* it $o),d on,y impose an additiona,
dis%,os)re +)rden to t#e e0tent t#at a re,evant person is* or #as +een* invo,ved in CS98'
Ot"er c"ec's
CAMAC e,se$#ere proposes t#at t#e iss)er %ap app,y to an Biss)er &ro)p/ 1Se%tion 4''42'
"#is is desi&ned to over%ome t#e possi+i,ity o( one or more parties settin& )p a series o(
re,ated iss)ers* ea%# seekin& to raise ()nds (rom t#e %ro$d )p to t#e iss)er %ap'
"#e proposed d)e di,i&en%e %#e%ks +y intermediaries on iss)ers 1Se%tions '8 and '92 are
a,so desi&ned to #e,p %o)nter attempts +y individ)a,s to manip),ate t#e CS98 pro%ess'
In addition* iss)ers $i,, +e re<)ired to dis%,ose in t#eir o((er dis%,os)re do%)ments
in(ormation a+o)t ,inked or past %ompanies t#at #ave en&a&ed in CS98 1Se%tion 4'7'!2'
.2.)#igi,i#ity to ,e a director
Any ad),t $#o is not dis<)a,i(ied (rom mana&in& a %ompany %an +e a dire%tor o( a p)+,i%
%ompany'
9
Some s)+missions ar&)ed t#at an individ)a,* as a pre%ondition to +ein& a dire%tor o( an
e0empt p)+,i% %ompany* s#o),d esta+,is# t#at #e or s#e is s)((i%ient,y kno$,ed&ea+,e in
t#e ,e&a, d)ties t#at arise in +ein& a %ompany dire%tor'
5ne respondent %ommented t#at* (rom past e0perien%e* many %ontro,,ers o( start-)p or
ot#er sma,,-s%a,e enterprises are ,ike,y to +e )na$are o( t#e app,i%a+,e prin%ip,es o(
%orporate &overnan%e* and t#eir d)ties to %ro$d s#are#o,ders* in %ond)%tin& t#e +)siness.
"oo many times #ave $e seen investors disre&arded +y iss)ers d)e to ,a%k o(
ed)%ation o( t#e ro,e o( dire%tor or an ina+i,ity (or t#e +)siness to per(orm res),tin& in
dire%tors $it##o,din& important in(ormation* $#i%# r)ns t#e risk o( ),timate,y erodin&
investor %on(iden%e in ne$ +)siness or t#e s#are market &enera,,y' Fn,ess ed)%ation is
em+ra%ed as a prere<)isite to CS98* t#e iss)es $e #ave $itnessed and many more*
$i,, %ontin)e'
Anot#er respondent ar&)ed t#at.
a,, dire%tors o( an iss)er s#o),d +e a%%redited 1via (orma, trainin&2 to ens)re t#ey
)nderstand t#eir (id)%iary and ot#er d)ties to$ards t#eir s#are#o,ders'
"#is raises %ompetin& %onsiderations' 5n t#e one #and* CS98 may invo,ve e<)ity o((ers
+ein& made t#ro)&# t#e internet to many persons $#o are ,e&a,,y and (inan%ia,,y
)nsop#isti%ated* and $#o t#ere(ore are dependent )pon t#e %ontro,,ers o( t#e enterprise to
(),(i, t#eir ,e&a, d)ties* $#i%# may dire%t,y impa%t on t#eir interests as s#are#o,ders'
5n t#e ot#er #and* t#ere is %)rrent,y no kno$,ed&e or ot#er prere<)isite test t#at
individ)a,s m)st pass to +e a dire%tor o( a proprietary or p)+,i% %ompany* $#et#er ,isted or
)n,isted' S)%# a re<)irement in t#e %onte0t o( CS98 $o),d +e t#e so,e e0%eption'
9
s 201B'
3iven t#is* CAMAC %onsiders t#at t#ere does not appear to +e a %ompe,,in& reason to
impose an o+,i&ation in t#e %onte0t o( CS98 $#i%# does not arise in ot#er sit)ations $#ere
t#e p)+,i% may +e invo,ved as s#are#o,ders o( a %ompany'
An intermediary t#at #as %on%erns a+o)t t#e a+i,ity o( one or more individ)a,s to (),(i, t#e
ro,e o( dire%tor %o),d %#oose to de%,ine to in%,)de t#e iss)er on its $e+site' In some
instan%es* an intermediary may de%ide to do so to preserve its %ommer%ia, rep)tation
%on%ernin& t#e iss)ers it is prepared to ,ist'
.2.!.ther forms of fundraising
CAMAC %onsiders t#at an e0empt p)+,i% %ompany s#o),d +e permitted to raise e<)ity
)nder t#e e0emptions in s 708 in addition to any ()ndraisin& it mi&#t )ndertake p)rs)ant to
t#e CS98 me%#anism'
"o %on(ine an e0empt p)+,i% %ompany to CS98 may )nd),y restri%t its s%ope (or raisin&
deve,opment ()nds* $#i%# mi&#t +e to t#e detriment o( t#ose mem+ers o( t#e %ro$d $#o
#ave a,ready invested in t#e enterprise'
"#e one <)a,i(i%ation on t#is ri&#t o( a,ternative ()ndraisin& is t#at ()nds raised )nder t#e
sma,,-s%a,e persona, o((ers e0emption in s 708 s#o),d +e in%,)ded in t#e iss)er %ap )nder
t#e CS98 proposa,s* (or reasons &iven e,se$#ere 1Se%tion 4''42'
-o$ever* an e0empt p)+,i% %ompany s#o),d not +e permitted to raise ()nds t#ro)&# t#e
prospe%t)s and ot#er p)+,i% o((er pro%esses )nder C#apter 6; o( t#e Corporations A%t'
"#is avoids t#e possi+i,ity o( a %ompany +ein& in%orporated as an e0empt p)+,i% %ompany
$it# t#e intention o( makin& a re&),ated p)+,i% o((er )nder C#apter 6; o( t#e Corporations
A%t +)t $it#o)t t#e ot#er %omp,ian%e o+,i&ations t#at atta%# to p)+,i% %ompanies makin&
s)%# o((ers' An e0empt p)+,i% %ompany t#at $is#ed to raise %apita, )nder a C#apter 6;
p)+,i% o((er %o),d %onvert to a non-e0empt p)+,i% %ompany (or t#at p)rpose'
. Comp#iance e$emptions
4)+,i% %ompanies are s)+Ce%t to a ran&e o( %omp,ian%e o+,i&ations* many o( $#i%# stem
(rom t#e (a%t t#at t#e p)+,i% may #ave invested in t#em'
CAMAC proposes t#at an e0empt p)+,i% %ompany s#o),d +e re,ieved o( some o( t#ese
%omp,ian%e o+,i&ations d)rin& t#e ,imited period t#at it #o,ds t#is stat)s' -o$ever* t#e (),,
p)+,i% %ompany %omp,ian%e re<)irements s#o),d app,y to a CS98 iss)er t#at %#ooses not
to +e an e0empt p)+,i% %ompany or (rom s)%# time as its stat)s as an e0empt p)+,i%
%ompany e0pires 1see ()rt#er Se%tion !' o( t#is report2'
7it#o)t seekin& to +e e0#a)stive* CAMAC #as identi(ied vario)s %)rrent %omp,ian%e
o+,i&ations (or p)+,i% %ompanies $#ere t#e <)estion o( possi+,e e0emptions mi&#t arise'
In %onsiderin& ea%# o( t#ese matters* CAMAC #as taken into a%%o)nt t#at t#e p)rpose o(
any e0emption is to red)%e t#e %omp,ian%e task (or start-)ps and ot#er sma,, enterprise
%ompanies in t#eir ear,y &ro$t# sta&es and t#at any e0emption &ranted is temporary on,y'
"#e e0emptions dis%)ssed +e,o$ are a,so set o)t in t#e ta+,e at t#e end o( t#is se%tion'
..1Registered o9ce requirements
A p)+,i% %ompany #as a series o( o+,i&ations re&ardin& its re&istered o((i%e and p,a%e o(
+)siness'
10
10
4art 2B' o( t#e Corporations A%t'
In t#e vie$ o( CAMAC* an e0empt p)+,i% %ompany %o),d +e re,ieved o( some o( t#ese
o+,i&ations* in parti%),ar.
t#e o+,i&ation to disp,ay t#e %ompany name
11
t#e o+,i&ation (or mandatory o((i%e openin& #o)rs'
12
-o$ever* t#e ot#er re&istered o((i%e o+,i&ations on p)+,i% %ompanies* in%,)din&
in(ormation on #o$ to %onta%t t#e %ompany*
1!
$o),d remain'
..2Appointment of an auditor
A p)+,i% %ompany m)st appoint an independent a)ditor o( t#e %ompany $it#in one mont#
o( its re&istration*
14
to +e %on(irmed at t#e (irst ann)a, &enera, meetin& 1A3M2 o( t#e
%ompany'
1
"#e +)siness o( t#e A3M may in%,)de t#e appointment o( t#e a)ditor and t#e
(i0in& o( t#e a)ditor/s rem)neration* even i( t#ose matters are not re(erred to in t#e noti%e
o( meetin&'
16
"#ere is a &enera, o+,i&ation (or %ompanies to #ave t#eir (inan%ia, reports
a)dited*
17
t#o)&# sma,, proprietary %ompanies on,y #ave to prepare a (inan%ia, report and
#ave it a)dited in %ertain %ir%)mstan%es'
18
CAMAC proposes s)spendin& t#e need (or an e0empt p)+,i% %ompany to appoint an
a)ditor* and #ave its ann)a, (inan%ia, report a)dited 1see ()rt#er +e,o$2* )nti, s)%# time as
it #as raised O1*000*000 t#ro)&# CS98 or any ot#er prospe%t)s e0emption 1t#e in%ome
t#res#o,d2 and* in addition* #as e0pended O00*000 1t#e e0pendit)re t#res#o,d2' "#e
p)rpose o( t#e t$o-(o,d test is to re<)ire an a)dit on%e a %ompany #as raised a si&ni(i%ant
amo)nt o( %apita, and #as dissipated a si&ni(i%ant proportion o( t#at %apita,' Canada #as a
%ompara+,e approa%#'
-o$ever* any s)spension (rom t#e a)ditin& re<)irements s#o),d not +e seen as red)%in&
t#e (inan%ia, a%%o)nta+i,ity o+,i&ations o( e0empt p)+,i% %ompanies' :at#er* t#ere s#o),d
+e a mandatory (),, a)dit o( t#e %ompany/s (inan%ia, a((airs $#en it %onverts to a p)+,i%
%ompany* %overin& any period $#en its (inan%ia, a((airs $ere not a)dited'
;ire%tors o( e0empt p)+,i% %ompanies s#o),d +e re<)ired d)rin& t#e e0emption period to
maintain a,, re,evant (inan%ia, and ot#er re%ords*
19
+ot# (or t#e p)rposes o( t#e s)+se<)ent
a)dit and to kno$ $#en t#e in%ome and e0pendit)re t#res#o,ds #ave +een rea%#ed
1t#ere+y ne%essitatin& t#e appointment o( an a)ditor2' "#at a)ditor $o),d t#en a%t and
report in t#e same manner as a,, ot#er p)+,i% %ompany a)ditors* in%,)din& +y t#e
preparation o( an ann)a, a)ditor/s report 1see ()rt#er +e,o$2'
In t#e event t#at an e0empt p)+,i% %ompany &oes into ,i<)idation $#i,e sti,, $it#o)t an
a)ditor* t#e ,i<)idator $o),d #ave a%%ess to t#e %ompany/s (inan%ia, statements and ot#er
re%ords* even t#o)&# t#ose statements are not a)dited'
7#ere it is ne%essary t#at an a)ditor +e appointed to an e0empt p)+,i% %ompany* t#e
dire%tors o( t#e %ompany s#o),d +e responsi+,e (or appointin& and (i0in& t#e rem)neration
o( t#at person* &iven t#e proposa, 1+e,o$2 t#at t#e A3M +e dispensed $it#' In so doin&*
11
s 144'
12
s 14'
1!
s 146A'
14
s !27A'
1
ss !27A122* !27B'
16
s 20:1121%2* 1d2'
17
s !01112'
18
ss 292122* !01122'
19
s 286'
t#e dire%tors o( t#e %ompany $o),d +e s)+Ce%t to t#e stat)tory d)ties to a%t $it# d)e %are
and di,i&en%e and in &ood (ait#'
20
..0isc#osing entity requirements
Fn,isted %ompanies t#at #ave raised ()nds (rom at ,east 100 persons )sin& a dis%,os)re
do%)ment ,od&ed $it# ASIC )nder C#apter 6; o( t#e Corporations A%t are dis%,osin&
entities'
21
Any %ompany t#at is a Bdis%,osin& entity/ )nder t#is test $o),d +e ine,i&i+,e to +e an
e0empt p)+,i% %ompany 1see Se%tion !'2'1* s)pra2' CAMAC %onsiders t#at* in prin%ip,e
a,so* t#e pre(erred position is t#at an e0empt p)+,i% %ompany s#o),d not +e a dis%,osin&
entity' Some o( t#e %onse<)entia, imp,i%ations are set o)t +e,o$'
..!Annua# reporting requirements
A,, p)+,i% %ompanies m)st provide ann)a,,y.
a (inan%ia, report
a dire%tors/ report
an a)ditor/s report'
22
"#ese reports are provided to %ompany s#are#o,ders in e,e%troni% (orm* e0%ept (or t#ose
s#are#o,ders $#o #ave opted to re%eive t#em in #ard %opy*
2!
or #ave e,e%ted not to +e sent
t#e in(ormation'
24
"#ese reports m)st +e provided to s#are#o,ders $it#in %ertain time
(rames
2
and m)st +e ,od&ed $it# ASIC and t#ere+y a%%essi+,e to t#e p)+,i%'
26

"#e reports m)st +e ,aid +e(ore t#e ann)a, &enera, meetin& 1A3M2'
27
S#are#o,ders at t#at
meetin& may &ive B%onsideration/ to t#ese reports* +)t do not #ave a ri&#t to pass a
reso,)tion on $#et#er to adopt t#em 1e0%ept in re&ard to t#e rem)neration report o( ,isted
p)+,i% %ompanies2'
28
CAMAC e,se$#ere re%ommends t#at t#e o+,i&ation to appoint an a)ditor +e s)spended in
some %ir%)mstan%es 1Se%tion !'!'2* a+ove2' A,so* CAMAC e,se$#ere proposes t#at t#e
o+,i&ation to #o,d an A3M +e s)spended d)rin& t#e period t#at an iss)er is an e0empt
p)+,i% %ompany 1Se%tion !'!'* post2'
3iven t#is* <)estions arise as to.
$#et#er t#e o+,i&ation to provide a (inan%ia, report and a dire%tors/ report s#o),d
remain (or an e0empt p)+,i% %ompany
i( so* #o$ s#o),d s#are#o,ders +e in(ormed* and
$#at ri&#ts s#o),d s#are#o,ders #ave in %onse<)en%e o( re%eivin& t#is in(ormation'
20
ss 180* 181'
21
ss 111AC112* 111A8'
22
ss 292 ((* !141121a2' A %ompany may %#oose to provide t#is in(ormation in t#e (orm o( a %on%ise report.
s !14122* 1!2'
2!
s !14'
24
s !16'
2
s !1'
26
s !19'
27
s !17'
28
s 20:'
(inancial report
"#e %ontent o( t#e ann)a, (inan%ia, report is pres%ri+ed +y ,e&is,ation* in%,)din& vario)s
de%,arations +y dire%tors and ot#ers %on%ernin& so,ven%y and %omp,ian%e $it# a%%o)ntin&
standards'
29
CAMAC %onsiders t#at t#ese o+,i&ations s#o),d remain (or an e0empt p)+,i% %ompany*
s)+Ce%t to re,ie( (rom t#e stat)tory o+,i&ation t#at t#e report +e a)dited
!0
in some
%ir%)mstan%es 1as des%ri+ed in Se%tion !'!'2* a+ove2' "#is $i,, invo,ve a%%o)ntin& %osts
(or a,, e0empt p)+,i% %ompanies* +)t not additiona, a)ditin& %osts'
As an e0empt p)+,i% %ompany s#o),d not +e a dis%,osin& entity* it $o),d #ave no
o+,i&ation to prepare a #a,(-year (inan%ia, report'
!1
%irectors) report
"#e dire%tors/ report (or any p)+,i% %ompany m)st in%,)de &enera, in(ormation a+o)t t#e
operation o( t#e %ompany* in%,)din& its prin%ipa, a%tivities and o)t%omes d)rin& t#e year*
and some (or$ard-,ookin& in(ormation'
!2
"#ere is an e0emption (rom dis%,os)re o( any
matter t#e p)+,i%ation o( $#i%# $o),d res),t in B)nreasona+,e preC)di%e/ to t#e %ompany'
!!
"#e report m)st a,so %ontain in(ormation a+o)t t#e %orporate str)%t)re and any dividend
distri+)tions'
!4
CAMAC %onsiders t#at a,, s#are#o,ders* in%,)din& %ro$d investors* #ave a ,e&itimate
interest in +ein& in(ormed ann)a,,y a+o)t a,, t#ese matters' A,so* t#e o+,i&ation to provide
in(ormation on t#e %orporate str)%t)re $o),d on,y impose an administrative +)rden on t#e
%ompany to t#e e0tent t#at it %reated a %omp,e0 str)%t)re in t#e (irst p,a%e'
"#ere are additiona, reportin& re<)irements (or a ,isted p)+,i% %ompany or ot#er dis%,osin&
entity'
!
CAMAC %onsiders t#at t#ese additiona, re<)irements $o),d +e )nd),y
+)rdensome (or an e0empt p)+,i% %ompany'
!osition of s"are"olders
In t#e interests o( simp,i%ity and %ost-savin&* an e0empt p)+,i% %ompany s#o),d +e entit,ed
to p)+,is# t#e (inan%ia, report* t#e dire%tors/ report and t#e a)ditor/s report 1i( app,i%a+,e2
on,ine on,y* $it# no need to noti(y s#are#o,ders e,e%troni%a,,y on ea%# o%%asion* and no
option (or s#are#o,ders to re%eive a #ard %opy'
"#e temp,ate CS98 o((er dis%,os)re do%)ment s#o),d in%,)de standard in(ormation to
%ro$d investors on t#e periodi% reports t#at an e0empt p)+,i% %ompany m)st provide in
e,e%troni% (ormat* $it# t#e %ompany insertin& detai,s o( t#e $e+site $#ere t#e reports $i,,
+e p)+,is#ed and &enera,,y $#en t#is $i,, o%%)r'
In re&ard to $#at ri&#ts s#are#o,ders s#o),d #ave in %onse<)en%e o( a%%essin& t#ese
reports* CAMAC notes t#at* %)rrent,y* s#are#o,ders o( an )n,isted p)+,i% %ompany #ave no
ri&#ts at an A3M o( t#at %ompany to pass a reso,)tion on $#et#er to adopt t#e reports'
-o$ever* %on%erned s#are#o,ders %o),d seek to %a,, anot#er &enera, meetin& (or t#e
p)rpose o( %onsiderin& a reso,)tion $#i%# is $it#in t#e po$er o( s#are#o,ders to pass'
29
ss 29Q297' "#e re<)irements in s 29A app,y on,y to ,isted p)+,i% %ompanies'
!0
s !01'
!1
"#e #a,(-year (inan%ia, reportin& re<)irements (or dis%,osin& entities are set o)t in 4art 2M'! ;iv 2 o( t#e
Corporations A%t'
!2
ss 298* 299'
!!
s 2991!2'
!4
s !00'
!
ss 299A 1app,i%a+,e to ,isted entities2* !00A 1app,i%a+,e to dis%,osin& entities2'
"#e same ri&#ts to %a,, a &enera, meetin& (or t#e p)rpose o( %onsiderin& a s)ita+,e
reso,)tion s#o),d app,y in t#e %onte0t o( e0empt p)+,i% %ompanies'
..%Meetings of shareho#ders
Annual eneral meetins
A,, p)+,i% %ompanies m)st #o,d an A3M at ,east on%e in ea%# %a,endar year and $it#in
(ive mont#s a(ter t#e end o( t#eir (inan%ia, year 1)n,ess ASIC &rants an e0tension or
e0emption2'
!6
"#e A3M is t#e on,y s#are#o,der meetin& t#at p)+,i% %ompanies are o+,i&ed
to #o,d'
!7
"#e A3M serves vario)s p)rposes in t#e &enera, en&a&ement pro%ess +et$een %ompanies
and t#eir s#are#o,ders and is a me%#anism (or a%%o)nta+i,ity o( t#ose in %ontro, o( t#e
%ompany' "#e A3M is a (or)m (or.
reporting% to in(orm s#are#o,ders a+o)t vario)s (inan%ia, and ot#er matters %on%ernin&
t#e %ompany* prin%ipa,,y t#ro)&# %onsideration o( t#e ann)a, (inan%ia, report*
dire%tors/ report and a)ditor/s report
!8
questioning% to provide an opport)nity (or s#are#o,ders to ask <)estions or make
%omments on vario)s matters* in%,)din& t#e mana&ement o( t#e %ompany* t#e
rem)neration o( dire%tors and ot#er senior %orporate o((i%ers and t#e %ond)%t o( t#e
%ompany/s a)dit
!9
de"iberating. to provide an opport)nity (or s#are#o,ders to dis%)ss t#e matters on
$#i%# t#ey $i,, +e %a,,ed to vote at t#e meetin&
decision making. to ena+,e s#are#o,ders to vote 1t#ro)&# +indin& or non-+indin&
reso,)tions2 on a ,imited ran&e o( matters at t#e A3M'
"#e de%ision-makin& ()n%tion o( t#e A3M in%,)des.
1(or ,isted p)+,i% %ompanies on,y2 t#e rem)neration report 1$#i%# %onstit)tes part o(
t#e dire%tors/ report2
40
t#e e,e%tion o( dire%tors
41
t#e appointment o( t#e a)ditor and t#e (i0in& o( t#e a)ditor/s rem)neration
42
!6
ss 20N* 204* 204AA* 204AB* ASIC :e&),atory 3)ide 44 Annua" genera" meeting 11 e,tension of time'
!7
5t#er &enera, meetin&s o( s#are#o,ders may +e %a,,ed +y t#e %ompany (or vario)s reasons* in%,)din& to
o+tain s#are#o,der approva, (or %ertain transa%tions 1(or instan%e* re,ated party transa%tions* mem+ers/ s%#emes
o( arran&ement or s#are a%<)isitions t#at ot#er$ise $o),d +rea%# t#e takeover provisions2' S#are#o,ders $#o
satis(y t#e stip),ated t#res#o,d %an a,so re<)isition or %a,, a &enera, meetin&. ss 249;-2498' "#e %o)rt may a,so
order a s#are#o,ders/ meetin& i( it is impra%ti%a+,e to %a,, t#e meetin& in any ot#er $ay. s 2493 1see* (or
instan%e* /eck v Tuckey .ty -td L2004M NS7SC !72'
!8
ss 20:1121a2* !17'
!9
ss 204A-20"'
40
s 20:122* 1!2'
41
s 20:1121+2' A person appointed to (i,, a %as)a, va%an%y on t#e +oard o( a p)+,i% %ompany %an remain as a
dire%tor on,y $it# t#e approva, o( s#are#o,ders at t#e %ompany/s ne0t A3M. s 201-1!2 1a rep,a%ea+,e r),e2'
42
s 20:1121%2* 1d2'
ot#er permissi+,e reso,)tions %on%ernin& t#e %ompany t#at may a,so %onvenient,y +e
%onsidered at t#e A3M* s)%# as reso,)tions to amend t#e %ompany/s %onstit)tion*
4!
adC)st t#e s#are %apita, in some manner*
44
or remove one or more dire%tors'
4
7#i,e not seekin& to red)%e t#e si&ni(i%an%e o( t#e A3M as a (or)m (or dis%)ssion and
a%%o)nta+i,ity* CAMAC sees some si&ni(i%ant pra%ti%a, di((i%),ties* and %osts* t#at CS98
iss)ers $o),d (a%e i( t#ey $ere o+,i&ed to #o,d an A3M d)rin& t#e period t#at t#ey are an
e0empt p)+,i% %ompany'
8or instan%e* %opies o( t#e A3M noti%e and a,, t#e a%%ompanyin& in(ormation m)st +e
sent +y post to s#are#o,ders* e0%ept (or t#ose persons $#o #ave e,e%ted to re%eive t#is
in(ormation e,e%troni%a,,y'
46
"#is %o),d +e an e0pensive e0er%ise in t#e ear,y sta&es o( a
start-)p enterprise* parti%),ar,y i( it #as %ro$d investors' A,so* t#e A3M m)st +e #e,d at Ba
reasona+,e time and p,a%e/'
47
Companies may )se te%#no,o&y to #o,d an A3M at more
t#an one ven)e*
48
+)t t#e ena+,in& provision makes no re(eren%e to s#are#o,ders
parti%ipatin& t#ro)&# t#e internet* nor to an A3M +ein& #e,d on,y on,ine' -o,din& an
A3M $o),d a,so re<)ire a %ompany to esta+,is# a str)%t)re 1or %ontra%t a t#ird party (or
t#is p)rpose2 (or t#e administrative tasks invo,ved in #o,din& an A3M* in%,)din& t#e
pro0y votin& pro%ess'
5n +a,an%e* CAMAC %onsiders t#at* in t#e spe%i(i% %ir%)mstan%es o( t#e types o( start -)p
and ot#er sma,,-s%a,e %ompanies (or $#i%# t#e %ate&ory o( e0empt p)+,i% %ompany is
desi&ned* and takin& into a%%o)nt t#at t#is is a temporary stat)s on,y* t#ere is a &ood %ase
(or dispensin& $it# an o+,i&ation on t#ese %ompanies to #o,d an A3M $#i,e t#ey are so
%,assi(ied'
5ne %onse<)en%e $o),d +e to dispense $it# t#e need to pass s#are#o,der reso,)tions on
t#e matters $#i%# %)rrent,y m)st +e voted on +y s#are#o,ders at an A3M o( a p)+,i%
)n,isted %ompany' -o$ever* CAMAC #as ear,ier re%ommended t#at e0empt p)+,i%
%ompanies not +e re<)ired to appoint an a)ditor in some %ir%)mstan%es* and #as p,a%ed t#e
responsi+i,ity (or a)ditor appointment and rem)neration $it# t#e dire%tors in ot#er
%ir%)mstan%es 1see Se%tion !'!'22' A,so* t#e provision %on%ernin& s#are#o,der approva, o(
persons appointed +y t#e +oard to (i,, a %as)a, va%an%y is a rep,a%ea+,e r),e* and t#ere(ore
%an +e dea,t $it# in t#e %onstit)tion o( t#e %ompany'
"#e dire%tors o( an e0empt p)+,i% %ompany may* o( %o)rse* %#oose to #o,d a (orma, A3M
or #o,d an in(orma, p#ysi%a, or e,e%troni% Bto$n #a,,/ meetin& o( s#are#o,ders* to )pdate
t#em on t#e %ompany/s pro&ress and a,,o$ (or dis%)ssion' "#is (orm o( en&a&ement may
+e one means to maintain a positive rep)tation o( t#e %ompany $it# t#e %ro$d and
en&ender %ontin)in& investor s)pport (or any ()rt#er CS98 or ot#er e<)ity o((ers to t#e
p)+,i%'
Ot"er eneral meetins
4!
s 1!6'
44
C#apter 2> o( t#e Corporations A%t'
4
S#are#o,ders o( a p)+,i% %ompany may at any time* in%,)din& at t#e A3M* +y ordinary reso,)tion* remove
one or more dire%tors. s 20!;' A %ompany/s %onstit)tion may +e amended +y spe%ia, reso,)tion o( s#are#o,ders.
s 1!6122' "#e CAMAC report #iversity on boards of directors 1Mar%# 20092 (ootnote 12 e0p,ains ot#er means
+y $#i%# s#are#o,ders %an pass reso,)tions at t#e A3M* or at ot#er &enera, meetin&s* to in(,)en%e t#e ()t)re
dire%tion o( t#e %ompany'
46
s 249>'
47
s 249:'
48
s 249S'
"#e stat)tory pro%ed)res (or ot#er s#are#o,der meetin&s*
49
as $e,, as t#e spe%ia, r),es (or
reso,)tions (or t#e appointment o( p)+,i% %ompany dire%tors*
0
s#o),d app,y to e0empt
p)+,i% %ompanies'
..&)$ecutive remuneration
"#e pro%ed)re (or sett,in& t#e rem)neration o( e0e%)tive and non-e0e%)tive dire%tors o( a
p)+,i% %ompany is a matter (or ea%# %ompany' "#e dire%tors o( p)+,i% %ompanies t#at
%#oose to +e &overned +y t#e rep,a%ea+,e r),es %ontained in t#e Corporations A%t
1
are
paid t#e rem)neration determined +y ordinary reso,)tion o( s#are#o,ders'
2
-o$ever* t#ese
%ompanies may make a,ternative arran&ements in t#eir %onstit)tions (or determinin& t#e
rem)neration o( dire%tors* (or instan%e* ,eavin& t#is matter (or de%ision +y t#e +oard'
:em)neration provided +y a p)+,i% %ompany to a dire%tor is a Bre,ated party/ transa%tion'
!
It is pro#i+ited )n,ess it is Breasona+,e/ or is approved +y s#are#o,ders'
4
7#at %onstit)tes
reasona+,e rem)neration is determined +y re(eren%e to t#e %ir%)mstan%es o( t#e %ompany
and t#e responsi+i,ities invo,ved in t#e o((i%e' S#are#o,ders n)m+erin& at ,east 100
mem+ers $#o are entit,ed to vote at a s#are#o,der meetin& or %o,,e%tive,y #o,d at ,east P
o( t#e votes t#at may +e %ast at a &enera, meetin& %an* at any time* o+tain in(ormation
a+o)t t#e rem)neration paid to dire%tors'
CAMAC %onsiders t#at t#ese re<)irements s#o),d a,so app,y to an e0empt p)+,i%
%ompany* t#o)&# %ro$d investors may or may not #ave votin& ri&#ts in re&ard to
e0e%)tive rem)neration matters'
-o$ever* t#e additiona, %omp,e0 rem)neration reportin& re<)irements*
6
$#i%# app,y on,y
to dis%,osin& entities*
7
and t#e Bt$o-strikes/ r),e* $#i%# app,ies on,y to ,isted p)+,i%
%ompanies*
8
s#o),d not app,y to e0empt p)+,i% %ompanies'
..7)$ecutive termination
"ermination +ene(its (or dire%tors* senior e0e%)tives and ot#er key mana&ement personne,
o( p)+,i% %ompanies t#at e0%eed one year/s avera&e +ase sa,ary are s)+Ce%t to s#are#o,der
approva,'
9
In re,ation to %#an&e o( %ontro, transa%tions* a takeover +id %annot ,a$(),,y
in%,)de a %ondition t#at depends on approva, o( %ompensation to an o((i%er or emp,oyee o(
t#e tar&et 1or any re,ated +ody %orporate o( t#e tar&et2 in %onne%tion $it# t#e ,oss o(* or
retirement (rom* o((i%e in %onse<)en%e o( t#e +id'
60
A,so* t#e %o)rt may void a&reements
+et$een a tar&et %ompany and its dire%tors to &ive t#em termination +ene(its ,inked to a
s)%%ess(), takeover +id (or t#e %ompany 1B&o,den para%#)tes/2* e0%ept $#ere t#e +ene(its
#ave +een approved +y ordinary reso,)tion o( s#are#o,ders'
61
CAMAC does not see any %,ear rationa,e (or adC)stin& any o( t#ese provisions (or e0empt
p)+,i% %ompanies* &iven t#e importan%e o( p,a%in& some %ontro,s on e0e%)tive termination
49
4art 23'2 o( t#e Corporations A%t'
0
s 2019'
1
See ()rt#er s 1! on t#e %on%ept o( rep,a%ea+,e r),es'
2
s 202A112'
!
ss 228Q229'
4
ss 208* 211'
s 202B'
6
s !00A'
7
s !00A122'
8
s 20:122* 1!2* 4art 23'2 ;iv 9 o( t#e Corporations A%t'
9
4art 2;'2 ;iv 2 o( t#e Corporations A%t'
60
s 628'
61
s 1!2C'
arran&ements in t#e interests o( a,, mem+ers o( t#e %ompany' -o$ever* %ro$d investors
may or may not #ave votin& ri&#ts in re&ard to e0e%)tive termination arran&ements'
62
..:Re#ated party transactions
"#e stated p)rpose o( t#e re,ated party transa%tion re<)irements is Bto prote%t t#e interests
o( a p)+,i% %ompany/s mem+ers as a $#o,e* +y re<)irin& mem+er approva, (or &ivin&
(inan%ia, +ene(its to re,ated parties t#at %o),d endan&er t#ose interests/'
6!
CAMAC sees no reason $#y e0empt p)+,i% %ompanies s#o),d +e permitted to provide
(inan%ia, +ene(its to re,ated parties $it#o)t %omp,ian%e $it# t#e re,evant provisions'
64
-o$ever* t#e Committee notes t#at t#e ro,e t#at %ro$d investors $i,, #ave in determinin&
$#et#er to permit re,ated party transa%tions $i,, depend )pon $#et#er t#ey #o,d s#ares
$it# votin& ri&#ts in t#is re&ard'
..;Continuous disc#osure requirements
A p)+,i% %ompany t#at is a dis%,osin& entity m)st %omp,y $it# t#e %ontin)o)s dis%,os)re
re<)irements in C#apter 6CA o( t#e Corporations A%t'
"#e &enera, p)rpose o( t#e %ontin)o)s dis%,os)re re<)irements is to ens)re t#at mem+ers
o( t#e p)+,i% %an keep t#emse,ves (),,y and prompt,y in(ormed o( a,, in(ormation t#at
$o),d reasona+,y +e e0pe%ted to #ave a materia, e((e%t on t#e pri%e or va,)e o( t#e
%ompany/s se%)rities'
8rom one perspe%tive* an e0empt p)+,i% %ompany s#o),d +e made s)+Ce%t to t#e
%ontin)o)s dis%,os)re o+,i&ations in t#e same $ay as ot#er +odies t#at raise ()nds (rom t#e
p)+,i%' 5((settin& %onsiderations are t#e possi+,e %omp,ian%e +)rden t#at t#is o+,i&ation
may p,a%e on a sma,, entity d)rin& its initia, or ear,y &ro$t# sta&es and t#e ,imitation on
t#e amo)nt o( ()nds t#at %an +e raised )nder CS98'
CAMAC %onsiders t#at* on +a,an%e* and takin& into a%%o)nt t#at an e0empt p)+,i%
%ompany $i,, +e s)+Ce%t to spe%i(i% dis%,os)re re<)irements in makin& any e<)ity o((er to
t#e %ro$d 1Se%tion 4'72* and t#at t#e e0empt p)+,i% %ompany stat)s is temporary on,y*
s)%# a %ompany s#o),d not +e made s)+Ce%t to t#e %ontin)o)s dis%,os)re o+,i&ations'
-o$ever* an iss)er t#at is no ,on&er* or never $as* an e0empt p)+,i% %ompany* $o),d* and
in prin%ip,e* s#o),d* +e s)+Ce%t to t#e %ontin)o)s dis%,os)re re<)irements i( and $#en it
satis(ies t#e %riteria (or +ein& a Bdis%,osin& entity/'
..1< Change of shareho#der contro#
An )n,isted p)+,i% %ompany $it# more t#an 0 s#are#o,ders is s)+Ce%t to t#e takeover
provisions in C#apter 6 1"akeovers2 o( t#e Corporations A%t'
6
"#e p)rposes o( t#ese pro%ed)ra, provisions in%,)de ens)rin& t#at a,, a((e%ted s#are#o,ders
are ade<)ate,y in(ormed* are treated e<)a,,y* and are &iven a reasona+,e time to %onsider
any proposed %#an&e o( s#are#o,der %ontro, in t#e %ompany'
66
7#i,e t#e re<)irements o( a
(orma, takeover o((er are %omp,e0* t#ere are e0emptions t#at provide (or a,ternative e<)ity
a%<)isition arran&ements in some instan%es* in%,)din& t#ro)&# s#are#o,der approva,'
67
62
s 2009'
6!
s 207'
64
"#e re,evant provisions are set o)t in C#apter 29 o( t#e Corporations A%t'
6
s 6061121a21ii2'
66
s 602'
67
s 611'
CAMAC does not %onsider t#at t#ere are any %ompe,,in& reasons (or dispensin& $it# t#ese
re<)irements (or e0empt p)+,i% %ompanies* &iven t#at t#ey are desi&ned to prote%t t#e
interests o( s#are#o,ders* $#i,e a,,o$in& (or %#an&es in %ontro, $#ere t#is is s)pported +y
a s)((i%ient n)m+er o( s#are#o,ders'
Applica3ilit' of some ke' provisions to e+empt p#3lic companies
,3ligation Corporations Act
reference
4hether applica3le
Contin)o)s dis%,os)re 1+ein& a dis%,osin&
entity2
ss 111AC112* 111A8*
C#apter 6CA
No
App,i%ation (or re&istration s 117 Yes
1$it# modi(i%ations (or e0empt
p)+,i% %ompanies2
;isp,ay %ompany name s 144 No
Mandatory o((i%e openin& #o)rs s 14 No
In(ormation on #o$ to %onta%t t#e %ompany s 146A Yes
;)ties to a%t $it# d)e %are and di,i&en%e and
in &ood (ait#
ss 180* 181 Yes
Contro,s on termination +ene(its 4art 2;'2 ;iv 2 Yes
Minim)m n)m+er o( dire%tors s 201A122 Yes
(but with ASIC power to
adjust)
:),es (or reso,)tions (or appointment o(
p)+,i% %ompany dire%tors
s 2019 Yes
S#are#o,ders/ ri&#t to o+tain in(ormation
a+o)t dire%tors/ rem)neration
s 202B Yes
:e,ated party transa%tions 4art 29'1 Yes
Stat)tory pro%ed)res (or s#are#o,der
meetin&s 1ot#er t#an A3M2
4art 23'2 Yes
-o,d A3M s 20N No
"$o-strikes r),e s 20:122* 1!2*
4art 23'2 ;iv 9
No
Geep (inan%ia, re%ords s 286 Yes
8inan%ia, report s 292 Yes
;ire%tors/ report ss 292* 298* 299 Yes
1)n,isted %ompany o+,i&ations
on,y2
:em)neration reportin& re<)irements s !00A No
S#are#o,der entit,ement to report s !14 Modi(ied. on,ine on,y
Appoint an independent a)ditor s !27A No
1)n,ess %ertain t#res#o,ds met2
-ave (inan%ia, report a)dited s !01 No
1)n,ess %ertain t#res#o,ds met2
-a,(-year (inan%ia, report 4art 2M'! ;iv 2 No
"akeover provisions C#apter 6 Yes
.! Shareho#der rights
"#is dis%)ssion o( s#are#o,der ri&#ts app,ies to a,, CS98 iss)ers* $#et#er e0empt or
non-e0empt p)+,i% %ompanies'
.!.1Crowd e$pectations
In %onsiderin& t#e ri&#ts o( %ro$d s#are#o,ders* it s#o),d +e re%o&nised t#at t#ese
investors may di((er %onsidera+,y amon&st t#emse,ves in $#at t#ey e0pe%t in ret)rn (or
t#eir investment'
8or instan%e* some %ro$d investors may see t#eir ro,e essentia,,y as assistin& a parti%),ar
so%ia,,y $ort#$#i,e proCe%t' A,t#o)&# t#ey a%<)ire s#ares* t#ey may #ave ,itt,e interest in
e0er%isin& any ri&#ts atta%#ed to t#eir s#ares or in re%eivin& any dividend (rom t#em'
:at#er* t#eir e0pe%tation o( intan&i+,e +ene(its* in terms o( #e,pin& to advan%e t#e &oa,s o(
t#e proCe%t* may s)((i%e'
5t#er* possi+,y most* %ro$d investors may p,a%e t#eir money $it# an enterprise in
e0pe%tation o( some (inan%ia, ret)rn* at ,east in t#e ,on&er term' Some o( t#em may a,so +e
attra%ted to t#e notion o( +ein& part Bo$ners/ o( a %ompany t#ro)&# t#eir s#are#o,din&*
$#i%# t#ey see as &ivin& t#em some parti%ipation ro,e in its a((airs and a dire%t interest in
its ()t)re'
8or t#e vario)s types o( %ro$d investors* t#ere is t#e risk t#at $it#o)t s)((i%ient
in(ormation t#ey may simp,y ass)me t#at t#e s#ares +ein& o((ered to t#em ne%essari,y
%arry ri&#ts t#at (),(i, t#eir e0pe%tations and t#at t#ese ri&#ts are &)aranteed inde(inite,y' In
pra%ti%e* t#is may +e (ar (rom t#e %ase'
.!.2.ther /urisdictions
"#e FSA and Canada do not seek to pres%ri+e s#are#o,der ri&#ts* +)t re,y prin%ipa,,y on a
(),, dis%,os)re approa%#'
USA
Consistent $it# a re<)irement )nder t#e >5BS A%t* t#e proposed S9C r),es $o),d re<)ire
an iss)er to provide a des%ription o( its o$ners#ip and %apita, str)%t)re' "#is dis%,os)re
$o),d in%,)de.
t#e terms o( t#e se%)rities +ein& o((ered and ea%# ot#er %,ass o( se%)rity o( t#e iss)er*
in%,)din& t#e n)m+er o( se%)rities +ein& o((ered andNor o)tstandin&* $#et#er or not
s)%# se%)rities #ave votin& ri&#ts* any ,imitations on any s)%# votin& ri&#ts* #o$ t#e
terms o( t#e se%)rities +ein& o((ered may +e modi(ied and a s)mmary o( t#e
di((eren%es +et$een s)%# se%)rities and ea%# ot#er %,ass o( se%)rity o( t#e iss)er* and
#o$ t#e ri&#ts o( t#e se%)rities +ein& o((ered may +e materia,,y ,imited* di,)ted or
<)a,i(ied +y t#e ri&#ts o( any ot#er %,ass o( se%)rity o( t#e iss)er
a des%ription o( #o$ t#e e0er%ise o( t#e ri&#ts #e,d +y t#e prin%ipa, s#are#o,ders o( t#e
iss)er %o),d a((e%t t#e p)r%#asers o( t#e se%)rities
t#e name and o$ners#ip ,eve, o( persons $#o are 20P or more o$ners
#o$ t#e se%)rities +ein& o((ered are +ein& va,)ed* and e0amp,es o( met#ods (or #o$
s)%# se%)rities may +e va,)ed +y t#e iss)er in t#e ()t)re* in%,)din& d)rin& s)+se<)ent
%orporate a%tions
t#e risks to p)r%#asers o( t#e se%)rities re,atin& to minority o$ners#ip in t#e iss)er and
t#e risks asso%iated $it# %orporate a%tions in%,)din& additiona, iss)an%es o( se%)rities*
iss)er rep)r%#ases o( se%)rities* a sa,e o( t#e iss)er or o( assets o( t#e iss)er or
transa%tions $it# re,ated parties* and
a des%ription o( t#e restri%tions on t#e trans(er o( t#e se%)rities'
Canada
It is not proposed to re<)ire t#at %ro$d investors +e provided $it# s#are#o,der ri&#ts'
:at#er* an iss)er m)st dis%,ose t#e spe%i(i% risks to %ro$d investors i( spe%i(ied ri&#ts are
not provided and t#at t#e a+sen%e o( s)%# ri&#ts a((e%ts t#e va,)e o( t#e se%)rities'
In re&ard to possi+,e di,)tion* it is proposed t#at t#e o((er do%)ment m)st %ontain t#e
(o,,o$in& statement.
"#e ri&#ts o( p)r%#asers o( t#e se%)rities )nder t#is o((erin& may +e di,)ted or
ne&ative,y a((e%ted as a res),t o( a n)m+er o( (a%tors* in%,)din& t#e ri&#ts and
%#ara%teristi%s o( ot#er se%)rities a,ready iss)ed +y t#e iss)er* ()t)re iss)an%es o(
se%)rities +y t#e iss)er* and potentia, %#an&es to t#e %apita, str)%t)re andNor %ontro, o(
t#e iss)er'
.!.0etermining crowd investor rights
!olic* options
5ne possi+,e po,i%y response to dea, $it# %ro$d e0pe%tations is to provide t#at on,y
non-votin& s#ares %an +e o((ered )nder CS98' "#is #as t#e +ene(its o( simp,i%ity and
%ertainty' -o$ever* it may )nd),y restri%t iss)ers* $#o ot#er$ise may +e $i,,in& to o((er
s#ares $it# votin& and ot#er ri&#ts in ret)rn (or (inan%ia, s)pport (rom t#e %ro$d' It may
a,so )nd),y dis%o)ra&e t#ose %ro$d investors $#o e0pe%t more t#an C)st a passive ro,e in
t#e %ompany'
Anot#er possi+,e response to %ro$d e0pe%tations is to pres%ri+e a set o( ri&#ts (or a,,
s#ares o((ered to t#e %ro$d* $#i%# eit#er %annot +e varied* or %an +e varied on,y $it# t#e
%onsent o( t#e %ro$d investors t#emse,ves 1+y ordinary or spe%ia, reso,)tion2' S)%# a
pres%riptive approa%#* $#i,e providin& %ertainty* $o),d raise t#e +roader <)estion o( #o$
to a%#ieve a satis(a%tory +a,an%e +et$een %ro$d investors #avin& too m)%# po$er in an
iss)er and t#eir #avin& too ,itt,e po$er' "#e (ormer o)t%ome may deter entreprene)rs (rom
seekin& ()nds t#ro)&# CS98* $#i,e t#e ,atter o)t%ome may +e )nd),y o)t o( a,i&nment
$it# t#e e0pe%tations o( many %ro$d investors'
Anot#er approa%# $o),d +e a re<)irement t#at any s#are o((er t#at o%%)rs at t#e same time
as an o((er to t#e %ro$d 1s)%# as a private p,a%ement )nder s 7082 m)st #ave t#e same
terms and %onditions* in%,)din& pri%e* as t#e %ro$d()ndin& o((er' 7#i,e t#is approa%# is
intended to a%#ieve a ,eve, o( (airness and e<)a,ity o( treatment +et$een %ro$d and ot#er
o((erees* it on,y %overs t#e o((er period' It does not reso,ve t#e +roader iss)e o( a %ompany
#avin& a %omp,e0 e<)ity str)%t)re* $it# di((erentia, ri&#ts +et$een di((erent &ro)ps o(
s#are#o,ders'
CAMAC %onsiders t#at a pre(era+,e approa%# to dea, $it# t#e ran&e o( %ro$d e0pe%tations
is to a,,o$ ea%# iss)er to desi&n its o$n e<)ity str)%t)re and determine $#at s#ares it $i,,
o((er t#ro)&# CS98 1as permitted )nder %)rrent ,a$* dis%)ssed +e,o$2* provided t#at t#e
ri&#ts t#at atta%# to t#ese s#ares* and #o$ t#ose ri&#ts %ompare and %ontrast $it# t#e ri&#ts
atta%#ed to any ot#er s#ares t#at t#e %ompany #as iss)ed* or %an
68
iss)e* are (),,y dis%,osed
to t#e %ro$d in t#e o((er dis%,os)re do%)ments in a %,ear* %ompre#ensive and transparent
manner' "#at %omparison m)st in%,)de ri&#ts t#at are atta%#ed to any ot#er s#ares in t#e
%ompany +)t t#at are not avai,a+,e to t#e s#ares o((ered to t#e %ro$d'
CAMAC o+serves t#at %omp,ian%e +y an iss)er $it# t#e proposed dis%,os)re re<)irements
$o),d not impose an administrative +)rden on t#e iss)er e0%ept to t#e e0tent t#at it
%#ooses to adopt a %omp,e0 e<)ity str)%t)re in t#e (irst p,a%e' A,so* ea%# iss)er may need
%are(),,y to %onsider $#et#er t#e e<)ity str)%t)re it #as adopted* and t#e respe%tive ri&#ts
t#at atta%# to ea%# %,ass o( its s#ares* $i,, satis(a%tori,y a,i&n $it# t#e e0pe%tations o( its
tar&et &ro)p o( %ro$d investors'
Implementin t"e proposed polic* option
Fnder %)rrent A)stra,ian ,a$* a p)+,i% %ompany* +y its %onstit)tion or t#e terms o( iss)e o(
its s#ares* may determine t#e terms on $#i%# its s#ares are iss)ed* and t#e ri&#ts and
restri%tions atta%#in& to t#em vis-R-vis ot#er s#ares in t#e %ompany'
69
As s)mmed )p in
one ,e&a, %ommentary.
s#ares may +e iss)ed on terms K t#at provide (or di((erent ri&#ts t#an t#e ri&#ts )pon
$#i%# ot#er s#ares are #e,d' "#e di((erentia, ri&#ts may re,ate to parti%ipation in
dividends* ret)rn o( %apita,* distri+)tion o( s)rp,)s assets on $indin& )p* votin&* or
ot#er matters K ' Mem+ers#ips may +e %reated $it# di((erent ri&#ts (rom t#e ri&#ts o(
e0istin& mem+ers'
70
In %onse<)en%e* in re&ard to &overnan%e and ot#er matters* in%,)din& t#e appointment and
remova, o( dire%tors
71
and %orporate re%onstr)%tions* %,asses o( s#ares may +e iss)ed $it#
pre(erentia,* a++reviated* or no* votin& or ot#er ri&#ts on some or a,, o( t#ose matters'
CAMAC does not seek to dist)r+ t#e ri&#t o( e0empt or non-e0empt p)+,i% %ompany
iss)ers to iss)e %,asses o( s#ares $it# di((erentia, ri&#ts' 8or instan%e* in t#e %onte0t o(
start-)ps and ot#er sma,, enterprises* t#ere may +e &ood reasons (or %reatin& a separate
%,ass o( B(o)nder/ s#ares* $it# votin&* dividend and ot#er ri&#ts t#at permit t#ese
s#are#o,ders to remain in %ontro, o( t#e enterprise 1on t#e ar&)ment t#at t#ey are t#e
persons $it# t#e Bvision/ and t#e ski,,s to make t#e enterprise s)%%ess(),2 and to re%eive a
Bpremi)m/ ret)rn (rom any pro(its &enerated 1on t#e ar&)ment t#at t#is premi)m re(,e%ts
t#e B(inan%ia, va,)e/ o( t#eir ideas* over and a+ove t#e %apita, %ontri+)ted (rom t#e %ro$d2'
-avin& said t#is* CAMAC a,so o+serves t#at some investors 1s)%# as Ban&e,/* vent)re
%apita, or ot#er instit)tiona, ()nd providers2 are in a position to ne&otiate arran&ements
$it# t#e iss)er t#at prote%t t#eir interests' "#is %an invo,ve t#ese investors takin& )p a
%,ass o( e<)ity $it# pre(erentia, votin&* dividend and ot#er ri&#ts atta%#ed' "#ere is no
e<)iva,ent representative to ne&otiate s#are#o,der ri&#ts (or %ro$d investors* even $#ere*
%o,,e%tive,y* t#ey may +e makin& a s)+stantia,* i( not t#e ,ar&est* (inan%ia, %ontri+)tion to
an enterprise* at ,east in its %r)%ia, ear,y deve,opment sta&e'
3iven t#is* CAMAC %onsiders t#at iss)ers s#o),d +e o+,i&ed %,ear,y to set o)t t#e
%omparative ri&#ts o( s#ares t#ey are o((erin& to t#e %ro$d' 8or t#is p)rpose* t#e o((er
dis%,os)re do%)ment s#o),d o+,i&e iss)ers to provide t#e (o,,o$in& in(ormation.
68
"#e %on%ept o( s#ares t#at a %ompany B%an/ iss)e is intended to %over s#ares o( a spe%i(i% desi&nation or
des%ription t#at are re(erred to in t#e %ompany/s %onstit)tion +)t t#at #ave not yet +een iss)ed'
69
s 24B112'
70
A)stin J B,a%k/s Annotations to the Corporations Act L28'246BM'
71
ss 2019* 20!;'
s#mmar' of e5#it' str#ct#re$ $#at is t#e e0istin& e<)ity str)%t)re o( t#e iss)er*
in%,)din& $#et#er t#ere are e0istin& andNor anti%ipated %,asses o( s#ares 1in name or in
(a%t
72
2 or any se%)rities %onverti+,e to s#ares
7!
simple e5#it' str#ct#re$ i( t#ere is on,y one %,ass o( e<)ity* t#e iss)er s#o),d %on(irm
t#at %ro$d investors $i,, #ave t#e same votin&* dividend* %apita, re%onstr)%tion*
takeover* ret)rn o( %apita, and ot#er ri&#ts as a,, ot#er #o,ders o( e<)ity* proportionate
to t#e n)m+er o( s#ares #e,d
comple+ e5#it' str#ct#re$ i( t#ere are e0istin& or anti%ipated %,asses o( e<)ity* $#i%#
%,ass o( s#ares is to +e o((ered to %ro$d investors* $#at are t#e ri&#ts atta%#ed to t#is
%,ass* and in $#at respe%ts do t#ese ri&#ts di((er (rom t#e ri&#ts atta%#ed to any ot#er
%,ass o( e<)ity 1in%,)din& any ri&#ts &iven on,y to one or more ot#er %,asses o( s#ares2
variation of e5#it' rights$ $#at is t#e pro%ed)re +y $#i%# any ri&#ts atta%#ed to
e<)ity &enera,,y* or to any %,ass o( e<)ity* %an +e varied or %an%e,,ed'
74
:e<)irin& a,, iss)ers to provide t#is in(ormation* in a standard temp,ate (ormat* $o),d
assist t#e %ro$d to %ompare t#e s#are#o,der ri&#ts +ein& o((ered +y di((erent iss)ers* (or
t#e p)rpose o( makin& investment de%isions' Cro$d investors may* o( %o)rse* take ot#er
(a%tors into a%%o)nt in de%idin& $#et#er to a%<)ire s#ares in a parti%),ar iss)er 1s)%# as t#e
p)+,i% interest or %omm)nity advan%ement &oa,s o( t#at iss)er2' 7#at is important*
#o$ever* is t#at t#e %ro$d not +e mis,ed in t#eir e0pe%tations o( t#e ri&#ts t#ey $i,,
re%eive i( t#ey %#oose to +e%ome s#are#o,ders'
.!.!'ater di#ution of crowd investor rights
Submissions
It $as ar&)ed t#at market pra%ti%e $o),d s)&&est t#at any %apita,-raisin& (rom
sop#isti%ated investors (o,,o$in& t#e raisin& o( ()nds t#ro)&# CS98 may re<)ire t#e iss)e
o( pre(eren%e s#ares* $it# s)perior ri&#ts to t#e s#are %apita, previo)s,y o((ered to t#e
%ro$d' In %onse<)en%e* appropriate dis%,os)re s#o),d +e made to CS98 investors a+o)t
t#e risks asso%iated $it# ()t)re %apita, raisin&s %a)sin& di,)tion or a potentia, impa%t on
t#e ri&#ts atta%#ed to t#eir s#ares'
CAMAC position
"#e CS98 iss)er %ap o( O2 mi,,ion in any 12 mont# period* proposed e,se$#ere in t#is
report 1Se%tion 4'2* means t#at in many instan%es t#e iss)er may need to raise e<)ity
%apita, (rom t#e %ro$d on a n)m+er o( o%%asions* or (rom a ran&e o( so)r%es* in%,)din&
sop#isti%ated investors' 3iven t#is* t#e %#an%e o( di,)tion o( vario)s ri&#ts o( s#ares taken
)p +y %ro$d investors in an ear,y ()ndraisin& e0er%ise t#ro)&# ,ater s#are iss)es %o),d +e
very #i&#* and needs to +e taken into a%%o)nt'
(ubsequent share issues in the same c"ass
An iss)er may en&a&e in a n)m+er o( CS98 o((ers o( s#ares in t#e same %,ass 1s)+Ce%t to
%omp,ian%e $it# t#e iss)er %ap. see Se%tion 4'2' Any s)+se<)ent s)%%ess(), o((er $i,,
proportionate,y di,)te t#e per%enta&e o( t#e iss)ed s#ares #e,d +y ear,ier-a%%eptin& %ro$d
72
"#e re,evant %ase ,a$ provides t#at i( t#e s#ares o( a %ompany %an +e divided in terms o( t#eir re,ative
ri&#ts* +ene(its* or disa+i,ities* t#en t#e s#are %apita, o( t#e %ompany $i,, +e deemed to +e divided into %,asses o(
s#ares a%%ordin& to t#ose distin%tions* $#et#er or not t#e s#ares are so des%ri+ed'
7!
"#is dis%,os)re o+,i&ation $o),d +e %onsistent $it# t#e e0istin& re<)irement t#at an app,i%ation (or
re&istration as a p)+,i% %ompany m)st in%,)de in(ormation %on%ernin& t#e s#are %apita, and any %,asses o(
s#ares. s 1171221k2'
74
In re&ard to t#e pro%ed)re (or varyin& %,ass ri&#ts* see a,so 4art 28'2 1C,ass ri&#ts2 o( t#e Corporations A%t'
investors' At t#e same time* o( %o)rse* t#ere $i,, +e more e<)ity %apita, avai,a+,e to t#e
iss)er'
CAMAC notes t#at t#is di,)tion e((e%t app,ies to s#are iss)es &enera,,y* $#et#er or not
t#ro)&# CS98' -o$ever* it may +e important to dra$ t#is e((e%t to t#e attention o( %ro$d
investors in t#e &eneri% risk dis%,os)re $arnin& 1Se%tion '12* &iven t#at some o( t#em
may ,a%k t#is )nderstandin& o( t#e e((e%t o( any s)+se<)ent CS98 o((er'
(ubsequent share c"asses
"#e dis%,os)res proposed )nder Determining crowd investor rights* a+ove* do not %over
t#e sit)ation $#ere* s)+se<)ent to an o((er to t#e %ro$d* an iss)er de%ides to %reate and
o((er a ne$ %,ass o( s#ares* say* to parti%),ar sop#isti%ated or ot#er investors $#o are no$
$i,,in& to invest on t#e apparent stren&t# o( t#e enterprise' In some %ases* t#e ear,ier
(inan%ia, %ontri+)tion +y %ro$d investors may #ave +een a de%isive (a%tor in attra%tin&
,ater e<)ity providers' -o$ever* t#ose s)+se<)ent providers may re<)ire pre(erentia,
s#are#o,der ri&#ts over %ro$d investors as a %ondition o( ()ndin& t#e %ompany at t#is
point'
"#e o)t%ome %o),d +e t#at t#e ori&ina, %ro$d investors re%eive ,itt,e ret)rn on t#eir
investment* and t#eir s#ares may #ave no materia, resa,e va,)e* even $#en t#e enterprise
to $#i%# t#ey #ave provided t#e ori&ina, seed %apita, event)a,,y proves to +e s)%%ess(),'
7#i,e a%kno$,ed&in& t#is pro+,em* CAMAC %onsiders t#at it is not possi+,e* &iven t#e
many possi+,e %ir%)mstan%es* to %reate a re&),atory re&ime (or t#is post-o((er sit)ation in
t#e parti%),ar %onte0t o( CS98'
"#ere are a,ready some ,e&a, %onstraints on $#at iss)ers may do* and some e0istin&
remedies are avai,a+,e (or %ro$d investors' 8or instan%e* dire%tors o( a %ompany* p)rs)ant
to t#eir stat)tory d)ty to a%t in &ood (ait# in t#e +est interests o( t#e %ompany* %an on,y
iss)e ne$ s#ares (or a proper p)rpose'
7
A,so* %ro$d s#are#o,ders a&&rieved +y any ne$
e<)ity iss)e may seek oppression remedies*
76
individ)a,,y or t#ro)&# a %,ass a%tion' It is
a,so open to %ro$d investors* as mem+ers o( t#e %ompany* to take pro%eedin&s on +e#a,(
o( t#e %ompany* $it# t#e ,eave o( t#e %o)rt* in appropriate %ir%)mstan%es* a&ainst an
a,,e&ed $ron&doer* $#o %o),d +e a dire%tor or ot#er o((i%er o( t#e %ompany'
77
5( %o)rse*
individ)a, %ro$d investors may or may not +e motivated to a%t* and t#e %ost o( doin& so*
even %o,,e%tive,y* may (or many o( t#em $e,, e0%eed t#e ()nds t#ey #ave a,ready invested
in t#e %ompany'
3iven t#ese %onstraints and remedies* a,+eit ,imited* and t#e (a%t t#at ne$ %,asses o( s#ares
may +e %reated d)rin& t#e ,i(etime o( any %ompany 1$#et#er or not t#ro)&# CS982* it is
not %onsidered appropriate to impose spe%i(i% %onstraints on s#are %,ass iss)es in t#e
spe%i(i% %onte0t o( CS98' :at#er* CAMAC %onsiders t#at t#e pre(era+,e %o)rse is to dra$
t#e possi+i,ity o( s)+se<)ent s#are %,ass iss)es* and t#eir di,)tion e((e%ts* to t#e attention
o( %ro$d investors in t#e &eneri% risk dis%,os)re statement 1Se%tion '12'
.!.%Crowd investors communicating with each other
"#e possi+i,ity o( %ro$d investors* individ)a,,y or %o,,e%tive,y* seekin& remedies in
appropriate %ir%)mstan%es mi&#t +e stren&t#ened i( t#ey %an dire%t,y %omm)ni%ate $it#
ea%# ot#er (or t#is p)rpose 1see ()rt#er Se%tion 4'12'
7
s 181' In t#is %onte0t* see t#e s)mmary o( re,evant %ase ,a$ prin%ip,es %on%ernin& s#are iss)es in A)stin J
B,a%k/s Annotations to the Corporations Act L2;'181M'
76
4art 28'1 o( t#e Corporations A%t'
77
4art 28'1A o( t#e Corporations A%t'
.% )$piration of the e$empt status
"#e e0empt p)+,i% %ompany stat)s proposed +y CAMAC is spe%i(i%a,,y desi&ned to
(a%i,itate CS98 +y start-)p and ot#er sma,,-s%a,e enterprises in t#e ear,y sta&es o( t#eir
&ro$t#' -o$ever* d)rin& s)%# time as an iss)er is an e0empt p)+,i% %ompany* %ro$d
investors $i,, not #ave t#e +ene(it o( t#e (),, %orporate &overnan%e* and ot#er*
re<)irements (or a p)+,i% %ompany* $#i%# provide some ,eve, o( %#e%k and +a,an%e and
$#i%# %o),d assist in prote%tin& persons $#o $i,, most ,ike,y +e minority retai, investors'
8or t#ese reasons* an iss)er s#o),d not #ave t#e +ene(it o( an e0empt stat)s inde(inite,y'
"#at stat)s s#o),d ,apse $#en t#e +asis (or t#e e0emption no ,on&er e0ists or a(ter a
pres%ri+ed time period #as e,apsed* $it# t#e iss)er t#erea(ter a)tomati%a,,y +e%omin& a
p)+,i% %ompany (or a,, p)rposes'
CAMAC t#ere(ore proposes t#at t#e e0empt p)+,i% %ompany stat)s a)tomati%a,,y ,apse
$#en any o( t#e (o,,o$in& o%%)r.
t#e %apita, o( t#e enterprise rea%#es a %ertain stip),ated t#res#o,d* say* O mi,,ion 1(or a
%ertain %ontin)o)s period o(* say* 6 mont#s2
t#e t)rnover o( t#e enterprise meets a predetermined minim)m* say* O mi,,ion per
ann)m
t#e %ompany #as +een in%orporated as an e0empt p)+,i% %ompany (or a %ertain period*
say* t#ree years* s)+Ce%t to a ,imited e0tension 1see +e,o$2'
"#e iss)er itse,(* +y noti%e to ASIC* s#o),d #ave t#e po$er at any time to remove its stat)s
o( +ein& an e0empt p)+,i% %ompany* t#ere+y +e%omin& a p)+,i% %ompany' A,so* t#e
s#are#o,ders o( t#e %ompany* +y spe%ia, reso,)tion* or t#e %o)rt* on app,i%ation* s#o),d
a,so #ave t#e po$er to a,ter its stat)s in t#is $ay' 7#at* i( any* votin& ri&#ts %ro$d
investors $o),d #ave on any s)%# reso,)tion $o),d +e a matter (or ea%# %ompany'
"o provide some (,e0i+i,ity in parti%),ar %ir%)mstan%es* and i( s#are#o,ders a&ree +y
spe%ia, reso,)tion 1$it# %ro$d investors votin& as a separate %,ass (or t#is p)rpose2* an
e0empt p)+,i% %ompany t#at #as not yet satis(ied t#e %apita, or t)rnover %riteria %o),d
%ontin)e as t#is type o( %ompany (or a ()rt#er 12 mont#s a(ter t#e pres%ri+ed time period
#as e0pired' "#at e0tension %o),d +e rene$ed ann)a,,y +y s#are#o,der vote* (or* say* a
ma0im)m o( t$o years a(ter t#e e0piration o( t#e t#ree year ma0im)m period t#at
ot#er$ise app,ies' "#e reason (or &ivin& %ro$d investors %,ass votin& ri&#ts in t#is
parti%),ar %onte0t is t#at t#ey %o),d +e dire%t,y a((e%ted +y %ontin)ation o( t#e %omp,ian%e
e0emptions t#at ot#er$ise $o),d no ,on&er app,y to t#e %ompany'
! The crowdfunding process= issuers
This chapter sets out the proposa"s to permit issuers to offer their equity to the crowd!
!.1 .verview
It is proposed t#at an e0empt or non-e0empt p)+,i% %ompany 1dis%)ssed in C#apter !2 may
seek ()nds (rom t#e %ro$d +y o((erin& its e<)ity t#ro)&# a ,i%ensed on,ine intermediary
1dis%)ssed in C#apter 2 provided.
it is an e,i&i+,e iss)er 1Se%tion 4'22
it is o((erin& s#ares in t#e %ompany 1Se%tion 4'!2
t#e o((er is a primary o((er 1Se%tion 4'42
t#e o((er does not e0%eed t#e iss)er %ap 1Se%tion 4'2
t#e o((er dis%,os)re re<)irements are %omp,ied $it# 1Se%tion 4'72
t#e %ontro,s on advertisin& are %omp,ied $it# 1Se%tion 4'82
it does not ,end to %ro$d investors to a%<)ire its s#ares 1Se%tion 4'102
any materia, adverse %#an&e %on%ernin& t#e iss)er is noti(ied 1Se%tion 4'112
no trans(er o( ()nds or s#ares takes p,a%e )nti, t#e CS98 o((er is %omp,eted
1Se%tion 4'122
t#e %ontro,s on (ee payments are %omp,ied $it# 1Se%tion 4'1!2'
An iss)er %o),d a,so.
o((er ot#er e<)ity d)rin& t#e CS98 o((er period 1Se%tion 4'62
a%%ept overs)+s%riptions 1Se%tion 4'92'
-o$ever.
t#e iss)er $i,, +e ,ia+,e (or %ertain +rea%#es 1Se%tion 4'142'
"#ere is a,so a dis%)ssion on $#et#er an iss)er s#o),d provide a means (or its %ro$d and
ot#er s#are#o,ders to %omm)ni%ate $it# ea%# ot#er 1Se%tion 4'12'
CAMAC %onsiders t#at t#ese proposa,s a%#ieve a proper and $orka+,e +a,an%e +et$een
(a%i,itatin& t#e CS98 pro%ess (or +ona (ide iss)ers* and providin& sa(e&)ards a&ainst
possi+,e a+)se'
The crowdfunding process% issuers
!.2 1ermitted issuers
)ss#e$ sho#ld there 3e restrictions on the t'pes of iss#ers permitted to emplo' CS!6
!.2.1.ther /urisdictions
USA
"#e ena+,in& %ro$d()ndin& provisions o( t#e >5BS A%t app,y to FS in%orporated iss)ers'
"#e provisions in t#e >5BS A%t pre-empt re&),ation o( t#ese iss)ers +y t#e ,a$s o( t#e
vario)s States o( t#e FSA in re,ation to t#e ()ndraisin& pro%ess'
A,so* t#e >5BS A%t e0%,)des investment ()nd %ompanies )ti,isin& CS98 to distri+)te t#eir
se%)rities'
"#e S9C #as a,so proposed to e0%,)de a %ompany t#at #as no spe%i(i% +)siness p,an or #as
indi%ated t#at its +)siness p,an is simp,y to en&a&e in a mer&er or a%<)isition $it# an
)nidenti(ied entity or entities.
%ro$d()ndin& is a ne$ and evo,vin& met#od to raise money t#at serves as an
a,ternative so)r%e o( %apita, to s)pport a $ide ran&e o( ideas and vent)res' 7e +e,ieve
t#at t#e e0emption )nder L"it,e III o( t#e >5BS A%tM is intended to provide an iss)er
$it# an ear,y sta&e proCe%t* idea or +)siness an opport)nity to s#are it p)+,i%,y $it# a
$ider ran&e o( potentia, investors' "#ose potentia, investors may t#en s#are
in(ormation $it# ea%# ot#er a+o)t t#e ear,y sta&e proposa, and )se t#at in(ormation to
de%ide $#et#er or not to provide ()ndin& +ased on t#e S$isdom o( t#e %ro$d'T Fnder
s)%# %ir%)mstan%es* t#is me%#anism re<)ires t#e p)+,i% to #ave s)((i%ient in(ormation
a+o)t t#e iss)er/s proposa, to dis%)ss its merit and (,a$s'
At t#e same time* an ear,y sta&e proposa, may not a,,o$ t#e %ro$d()ndin& me%#anism
to $ork appropriate,y i( t#e iss)er does not des%ri+e a spe%i(i% proCe%t* idea* or
+)siness* or is seekin& ()ndin& (or )nspe%i(ied %orporate transa%tions' In s)%# %ases*
individ)a,s revie$in& t#e proposa, may not #ave s)((i%ient in(ormation to (orm),ate a
%onsidered vie$ o( t#e proposa,* or t#e proposa, may +e ,ess ,ike,y to attra%t eno)&#
perspe%tives to in(orm a %ro$d de%ision'
Ital*
CS98 in Ita,y is ,imited to Binnovative start-)ps/' "o +e Binnovative/* a (irm m)st +e
re%o&nised as s)%# +y t#e C#am+er o( Commer%e* +e%a)se* (or e0amp,e* it #as invested in
:J; a%tivities or emp,oys resear%#ers' "#e %ompany p)rpose s#o),d e0press,y in%,)de
t#e Bdeve,opment and %ommer%ia,isation o( #i&#-te%# va,)e prod)%ts or servi%es/' "o +e a
Bstart-)p/* t#e (irm %an +e no more t#an 48 mont#s in e0isten%e'
"#ere is no e<)iva,ent re<)irement in t#e FS ,e&is,ation or t#e Canadian proposa,s'
UK
CS98 in t#e FG is e((e%tive,y ,imited to iss)ers t#at are p)+,i% %ompanies'
A,t#o)&# t#ere is no ma0im)m n)m+er o( s#are#o,ders o( a FG private %ompany 1in
%ontrast $it# t#e A)stra,ian 0 non-emp,oyee s#are#o,der %ap2* t#e pro#i+ition on p)+,i%
o((ers o( private %ompany s#ares remains in t#e FG %onte0t 1as indi%ated in 8CA 4o,i%y
Statement 4S14N42'
Canada
Fnder t#e proposa,s* e,i&i+,e iss)ers m)st +e in%orporated or or&aniDed in Canada* $it#
t#eir #ead o((i%es sit)ated in Canada* and t#e maCority o( t#eir dire%tors m)st +e Canadian
residents' Bot# reportin& iss)ers and non-reportin& iss)ers are e,i&i+,e to raise ()nds
t#ro)&# CS98* t#o)&# some iss)ers are e0%,)ded* prin%ipa,,y investment ()nds or iss)ers
invo,ved in B+,ind poo,s/ 1see +e,o$2'
In app,yin& CS98 opport)nities to reportin& as $e,, as non-reportin& iss)ers* t#e 5SC
%ommented t#at.
As t#e overa,, &oa, o( o)r %ro$d()ndin& initiative is to (a%i,itate %apita, raisin& (or
start-)ps and sma,, and medi)m-siDed enterprises 1SM9s2* $e t#ink t#e e0emption
s#o),d +e avai,a+,e to +ot# reportin& iss)ers and non-reportin& iss)ers'
7e #ave +een advised t#at reportin& iss)ers may $is# to raise %apita, t#ro)&#
%ro$d()ndin&* parti%),ar,y vent)re iss)ers t#at may +e e0perien%in& di((i%),ties in
raisin& %apita, t#ro)&# more traditiona, means in t#e %)rrent e%onomi% environment'
7e s)pport a,,o$in& reportin& iss)ers to raise %apita, t#ro)&# %ro$d()ndin& as
reportin& iss)ers s#o),d not #ave (e$er %apita, raisin& options t#an non-reportin&
iss)ers* parti%),ar,y sin%e reportin& iss)ers #ave a %ontin)o)s dis%,os)re re%ord and
are s)+Ce%t to re&),atory oversi&#t'
Sit)ations t#at invo,ve a B+,ind poo,/ in%,)de $#ere.
an iss)er does not #ave a $ritten +)siness p,an settin& o)t its +)siness or proposed
+)siness* its &oa,s or mi,estones and a p,an (or rea%#in& t#ose &oa,s or mi,estones
t#e pro%eeds o( a distri+)tion $i,, +e )sed primari,y +y t#e iss)er to invest in* mer&e
$it# or a%<)ire anot#er )nspe%i(ied +)siness'
!.2.2 Su,missions
"#ere $ere a ran&e o( approa%#es +y respondents on $#et#er to %on(ine CS98 to
parti%),ar entities'
5ne vie$ $as t#at CS98 +e %on(ined to B&en)ine start-)ps/' 5t#er respondents re(erred to
t#e ,e&a, di((i%),ties t#at may arise in app,yin& any de(inition o( an Binnovative start-)p/ or
a B&en)ine start-)p/* notin& t#at in Ita,y t#e %,assi(i%ation o( an Binnovative/ start-)p $as
determined +y a parti%),ar +ody* not p)rs)ant to a ,e&is,ative de(inition' It $as a,so ar&)ed
t#at %on(inin& CS98 to Binnovative start-)ps/ 1even i( satis(a%tori,y de(ined2 may
)nne%essari,y r),e o)t many potentia, proCe%ts t#at are +ased on proven approa%#es* +)t
$#i%# #ave a ne$ emp#asis or %apita, need'
Anot#er approa%# in s)+missions $as to permit a,, enterprises* $#et#er or not te%#no,o&y
or ot#er start-)ps* to raise ()nds t#ro)&# CS98* e0%ept (or a,, or some o( t#e (o,,o$in&
types o( entities.
investment %ompanies 1re(erred to +y a n)m+er o( respondents2
%ompanies $it#o)t a spe%i(i% +)siness p,an or a p,an $#i%# is simp,y to en&a&e in a
mer&er or a%<)isition $it# an )nidenti(ied entity
%ompanies $it# more t#an one +)siness operation
poo,ed investment or private e<)ity ()nds
+anks or ot#er (inan%ia, instit)tions
any ot#er A8S? #o,der or entity a%tin& as an A;I* %)stodian or depository servi%e'
Some s)+missions opposed restri%tions on t#e %,asses o( entities permitted to emp,oy
CS98* $it# t#e (o,,o$in& ran&e o( reasons +ein& p)t (or$ard +y vario)s respondents.
A)stra,ian %ompanies s#o),d #ave a%%ess to t#e +roadest ran&e o( so)r%es o( %apita,
and markets
(irms o)tside any spe%i(ied %ate&ory may nevert#e,ess #ave t#e %apa%ity to &enerate
innovation* emp,oyment and e%onomi% &ro$t#
t#e &oa, o( improvin& t#e e((i%ien%y $it# $#i%# %apita, is re%y%,ed (rom #o)se#o,d
savin&s into +)siness investment does not re<)ire re&),ators to take any vie$ on t#e
types o( investment (or $#i%# %ro$d()ndin& s#o),d +e )sed to a,,o%ate %apita,'
!.2.CAMAC position
"#e CAMAC revie$ is ,imited to A)stra,ian in%orporated iss)ers* $#i%#* as proposed in
C#apter ! o( t#is report* m)st +e p)+,i% %ompanies* $#et#er or not t#ey %ome $it#in t#e
proposed ne$ %ate&ory o( Be0empt p)+,i% %ompany/'
7#i,e t#ere is merit in t#e vie$ p)t (or$ard in s)+missions t#at t#e ran&e o( entities
e,i&i+,e to seek ()nds t#ro)&# CS98 not +e )nd),y %on(ined* vario)s restri%tions s#o),d
nevert#e,ess app,y'
Comple$ institutions+ As t#e proposed re&),atory str)%t)re (or CS98 is aimed at
(a%i,itatin& start-)p and ot#er sma,, enterprises* it s#o),d not +e avai,a+,e (or more
%ommer%ia,,y or (inan%ia,,y %omp,e0 str)%t)res* s)%# as investment or (inan%ia,
instit)tions* nor (or B%as# +o0/ arran&ements' "#ese more %ommer%ia,,y sop#isti%ated
entities #ave t#e %apa%ity to seek ()nds (rom t#e p)+,i% t#ro)&# t#e pro%esses )nder
C#apter 6; 18)ndraisin&2 o( t#e Corporations A%t'
#isted companies+ "#e proposed CS98 pro%ed)re s#o),d not +e avai,a+,e* dire%t,y or
indire%t,y 1say* t#ro)&# s)+sidiaries or asso%iates2* to a ,isted p)+,i% %ompany' S)%# a
%ompany may $e,, +e +eyond t#e start-)p or sma,,-s%a,e p#ase o( its deve,opment' A,so*
t#e %ompany %an o((er its se%)rities* and t#e %ro$d %an transa%t in its s#ares* t#ro)&# t#e
e0%#an&e me%#anism'
Companies t"at "ave made reulated public offers+ A %ompany t#at #as made a p)+,i%
o((er o( its e<)ity )nder C#apter 6; o( t#e Corporations A%t 1ot#er t#an )nder t#e s 708
e0emptions2 s#o),d not +e permitted to raise ()rt#er ()nds t#ro)&# CS98' "#at %ompany
$o),d a,ready #ave %omp,ied $it# t#e dis%,os)re and d)e di,i&en%e re<)irements in t#e
C#apter 6; provisions' It %o),d make ()rt#er re&),ated o((ers to t#e p)+,i% p)rs)ant to t#at
C#apter $it#o)t )nd)e additiona, e0pense in preparin& t#e o((er do%)mentation' "#e o((er
dis%,os)re do%)ment %an +e provided e,e%troni%a,,y 1ASIC :e&),atory 3)ide 1072'
,lind pool+ CAMAC s)pports t#e e0%,)sion o( B+,ind poo,s/ as t#at term is )sed in t#e
Canadian proposa,s* to avoid %ro$d investors p)ttin& t#eir ()nds into an enterprise $it#o)t
a +)siness p,an or in %ir%)mstan%es $#ere t#e ()nds invested in t#e iss)er $i,,* in e((e%t* +e
made avai,a+,e to anot#er enterprise'
Companies wit" substantial capital+ Consideration s#o),d +e &iven to e0%,)din&
%ompanies $it# s)+stantia, %apita,* say* more t#an O10 mi,,ion* (rom raisin& ()nds t#ro)&#
CS98* &iven t#at t#ey $o),d no ,on&er +e start-)ps or sma,,-s%a,e enterprises* and $o),d
norma,,y #ave t#e (inan%ia, %apa%ity to make re&),ated p)+,i% o((ers )nder C#apter 6; i(
t#ey $is#ed to raise additiona, %apita,'
CAMAC does not s)pport t#e ()rt#er step o( ,imitin& CS98 to iss)ers %,assi(ied as
Binnovative start-)ps/' 7#i,e t#e CS98 pro%ess is intended to assist $ort#$#i,e innovative
proCe%ts* imposin& some %,assi(i%ation o( t#is nat)re as a pre%ondition to o((erin& e<)ity to
t#e %ro$d $o),d add an )nne%essari,y %omp,e0 ,eve, o( re&),ation'
"#e m)t)a, re%o&nition r),es +et$een A)stra,ia and Ne$ Hea,and in%,)de t#e prospe%t)s
re&ime* a,,o$in& Ne$ Hea,and %ompanies to raise ()nds in A)stra,ia t#ro)&# %omp,ian%e
$it# t#e Ne$ Hea,and prospe%t)s re<)irements 1and vi%e versa2' "#e %)rrent provisions do
not e0tend to %apita,-raisin& t#ro)&# CS98' Consideration may need to +e &iven to t#e
e0tension o( t#e m)t)a, re%o&nition r),es to %over t#is (orm o( %orporate ()ndraisin&'
-o$ever* any m)t)a, re%o&nition may #ave to take into a%%o)nt some materia, di((eren%es
+et$een t#e Ne$ Hea,and approa%# and $#at is proposed +y CAMAC (or A)stra,ia* in
parti%),ar di((erent iss)er dis%,os)re re&imes and di((erent approa%#es to $#et#er t#ere
s#o),d +e a %ap on t#e tota, ()nds t#at an investor %an invest t#ro)&# CS98 in a parti%),ar
period'
!. 1ermitted securities
)ss#e$ what t'pes of sec#rities of the iss#er sho#ld 3e a3le to 3e offered thro#gh
CS!6
!..1.ther /urisdictions
New Zealand
CS98 is ,imited to s#ares in %ompanies* e0%,)din& options and %onverti+,e se%)rities'
USA
"#e >5BS A%t provisions app,y to e<)ity or de+t se%)rities o( t#e iss)er'
Canada
(ecurities
?imited types o( se%)rities o( t#e iss)er %an +e o((ered )nder CS98* prin%ipa,,y.
%ommon s#ares
non-%onverti+,e pre(eren%e s#ares
se%)rities %onverti+,e into %ommon s#ares or non-%onverti+,e pre(eren%e s#ares
non-%onverti+,e de+t se%)rities ,inked to a (i0ed or (,oatin& interest rate'
A,, o( t#e se%)rities o((ered in a %ro$d()ndin& distri+)tion m)st #ave t#e same pri%e*
terms and %onditions'
As t#e overa,, &oa, o( o)r %ro$d()ndin& initiative is to (a%i,itate %apita, raisin& +y
start-)ps and SM9s* $e do not t#ink it is ne%essary or appropriate to a,,o$ %omp,e0
se%)rities* s)%# as derivatives and se%)ritiDed prod)%ts* to +e o((ered )nder t#e LCS98
provisionsM'
<ther rewards
An iss)er %an %om+ine se%)rities and non-se%)rities re$ards 1in%,)din& Bperks/2 in a
%ro$d()ndin& o((er* provided t#e o((er do%)ment des%ri+es any non-se%)rities re$ards t#at
are +ein& o((ered and on $#at terms' "#e 5SC %onsidered t#at t#is $o),d ena+,e t#e iss)er
to derive t#e +ene(its o( +ot# se%)rities-+ased and non-se%)rities-+ased %ro$d()ndin&.
Non-se%)rities-+ased %ro$d()ndin& #as +een %ited as %ontri+)tin& to %ons)mer and
investor ,oya,ty* prod)%t deve,opment* and marketin&' As a res),t* %om+inin& se%)rities
and non-se%)rities re$ards and perks in a %ro$d()ndin& o((er may res),t in a +etter
investment opport)nity (or investors $it#o)t detra%tin& (rom investor prote%tion'
UK
"#e 8CA re&),atory str)%t)re (or $#at it terms Binvestment-+ased %ro$d()ndin&/ %overs
t#e pro%esses +y $#i%# ,i%ensed intermediaries may market Bdire%t o((ers/ to vario)s
%,asses o( investors to a%<)ire Bnon-readi,y rea,isa+,e se%)rities/ in iss)ers'
"#e %on%ept o( Bnon-readi,y rea,isa+,e se%)rities/ is desi&ned to %over e<)ity or de+t
se%)rities o( sma,, and medi)m enterprises (or $#i%# t#ere is no* or on,y a ,imited*
se%ondary market* and $#i%#* t#ere(ore* $o),d pose a ,i<)idity risk (or investors' "#e
%on%ept t#ere(ore e0%,)des (rom t#e 8CA re&),atory provisions (or investment-+ased
%ro$d()ndin& t#ose se%)rities $#i%# are Breadi,y rea,isa+,e/* meanin& se%)rities t#at are
admitted or a+o)t to +e admitted to an o((i%ia, ,istin&U or traded* or soon to +e traded* on a
re%o&nised investment e0%#an&e or desi&nated investment e0%#an&e' -o$ever* a
se%ondary market does not %over an on,ine +),,etin +oard on $#i%# peop,e %an ,ist
se%)rities t#ey $is# to se,,'
!..2 Su,missions
5ne vie$ in s)+missions $as t#at to maintain simp,i%ity in t#e operation o( any CS98
e0er%ise* and to red)%e t#e inte,,e%t)a, +)rden on %ro$d investors and t#e %omp,ian%e
+)rden on iss)ers* CS98 o((ers s#o),d +e ,imited to a sin&,e %,ass o( se%)rity - pre(era+,y
an ordinary s#are' Iss)ers $is#in& to o((er more diverse or %omp,e0 (inan%ia, instr)ments
s#o),d )ti,ise more sop#isti%ated marketp,a%es in t#e interest o( +ot# t#emse,ves and
potentia, investors'
Some ot#er respondents %onsidered t#at iss)ers s#o),d +e permitted to iss)e t#e types o(
se%)rities %ontemp,ated )nder t#e Canadian approa%#'
Anot#er position in s)+missions $as t#at iss)ers s#o),d +e permitted to o((er a,, (orms o(
e<)ity and e<)ity-,ike instr)ments 1s)%# as ordinary s#ares* pre(erred s#ares and
%onverti+,e notes2 and de+t-,ike instr)ments 1s)%# as de+ent)res and se%)red interests in
in%ome streams2' It $as ar&)ed t#at t#ese are a,, proven instr)ments )sed +y t#e vent)re
%apita, investor %omm)nity'
A ()rt#er vie$ $as t#at iss)ers s#o),d +e entit,ed to o((er di((erent %,asses o( s#ares* $it#
investors determinin& t#ro)&# t#eir o$n assessment 1takin& into a%%o)nt t#e mandatory
dis%,os)res +y iss)ers2 $#i%#* i( any* %,ass o( s#ares o((ered +y an iss)er (its $it# t#eir
e0pe%tations and investment needs'
"#ere $as a &enera, vie$ t#at %omp,e0 (inan%ia, instr)ments* s)%# as derivatives* $o),d
+e too %omp,i%ated (or retai, investors and )nne%essary (or most CS98 iss)ers* and t#e
asso%iated investment risks $o),d not +e proper,y appre%iated'
!..CAMAC position
CAMAC s)pports t#e Ne$ Hea,and approa%# o( ,imitin& CS98 to one %,ass o( s#ares*
e0%,)din& options and %onverti+,e se%)rities* to&et#er $it# t#e re<)irement t#at a,, t#e
s#ares in a parti%),ar o((er to t#e %ro$d m)st #ave t#e same pri%e* terms and %onditions'
A,so* t#ere s#o),d +e a pro#i+ition on o((erin& part,y-paid s#ares* &iven t#e possi+i,ity t#at
%ro$d investors may not )nderstand t#at t#ey %o),d +e s)+Ce%t to %a,,s in t#e ()t)re (or a,,
or part o( t#e )npaid portion o( t#ose s#ares'
Consideration %o),d +e &iven* in t#e ()t)re* to e0tendin& t#e permitted %ate&ories o( (),,y-
paid e<)ity t#at %an +e o((ered t#ro)&# t#e CS98 pro%ess to a +roader %,ass o( se%)rities*
dependin& )pon e0perien%e $it# any s)%# re&ime in A)stra,ia'
CAMAC a&rees $it# t#e vie$ in s)+missions t#at iss)ers $is#in& to o((er more diverse or
%omp,e0 (inan%ia, prod)%ts* in%,)din& derivatives* s#o),d )ti,ise more sop#isti%ated
marketp,a%es in t#e interest o( +ot# t#emse,ves and potentia, investors' :etai, %ro$d
investors may not (),,y )nderstand t#e nat)re o( t#ese more %omp,e0 (inan%ia, prod)%ts* or
some potentia, ,ia+i,ities t#at may %ome $it# t#em'
?imitin& CS98 to one %,ass o( s#ares $i,, not over%ome t#e possi+i,ity o( t#e s#ares
a%<)ired +y %ro$d investors +ein& di,)ted in vario)s $ays* in%,)din& t#ro)&# s)+se<)ent
e<)ity iss)es to #o,ders o( s#ares in ot#er %,asses' It is not t#e intention o( CAMAC to
%onstrain an entity* espe%ia,,y a start-)p* (rom raisin& ()rt#er e<)ity t#ro)&# ot#er means'
Iss)es %on%ernin& possi+,e di,)tion o( s#ares #e,d +y t#e %ro$d are dis%)ssed e,se$#ere in
t#is report 1Se%tion !'4'42'
CAMAC sees no o+Ce%tion* in prin%ip,e* to permittin& t#e in%,)sion o( ot#er re$ards
1Bperks/2 in a s#are o((er to t#e %ro$d* provided t#ese re$ards are e<)a,,y avai,a+,e to a,,
%ro$d investors and do not invo,ve any ()rt#er (inan%ia, o+,i&ation on t#eir part'
CAMAC notes t#at t#e FG %on%ept o( Bnon-readi,y rea,isa+,e se%)rities/ is part o( a
di((erent re&),atory approa%# t#at #as +een adopted in t#at C)risdi%tion'
!.! >ew equity
)ss#e$ sho#ld CS! 3e limited to new e5#it' iss#es6
!.!.1.ther /urisdictions
USA
"#e >5BS A%t app,ies to distri+)tions +y an iss)er o( its o$n se%)rities' It is not avai,a+,e
as a means (or e0istin& se%)rity #o,ders to on-se,, t#eir se%)rities in an iss)er'
Canada
Fnder t#e proposa,s* %ro$d()ndin& arran&ements are ,imited to primary o((ers +y an iss)er
o( its o$n se%)rities' It is not avai,a+,e as a means (or e0istin& se%)rity #o,ders to on-se,,
t#eir s#ares'
An intermediary a%tin& in %onne%tion $it# CS98 o((ers o( a parti%),ar iss)er %annot a,so
a%t as an intermediary in any se%ondary transa%tions in t#ose se%)rities* s)%# as %,earin& or
sett,in& any trades in an iss)er/s se%)rities'
"#e 5SC %ommented t#at t#e CS98 provisions are intended to (a%i,itate %apita, raisin& +y
iss)ers and not t#e resa,e o( se%)rities'
"#e 5SC pointed o)t t#at t#ese ,imitations app,y on,y to a%tivities in %onne%tion $it# a
distri+)tion o( se%)rities t#ro)&# t#e CS98 pro%ess' An intermediary may en&a&e in ot#er
types o( %ro$d()ndin& a%tivities t#at do not invo,ve a distri+)tion o( se%)rities* s)%# as
donation ()ndin&* re$ard ()ndin& or pre-p)r%#ase ()ndin&
!.!.2 Su,missions
A n)m+er o( respondents s)pported CS98 +ein& %on(ined to ne$ e<)ity o((ers* ar&)in&
t#at t#e primary p)rpose o( CS98 s#o),d +e to improve a%%ess to start-)p %apita, (or sma,,
%ompanies* not to (a%i,itate a market (or t#e ()rt#er sa,e +y s#are#o,ders o( e0istin&
se%)rities'
A %ontrary vie$ in s)+missions $as t#at intermediaries s#o),d +e a+,e to (a%i,itate +ot#
iss)es o( ne$ se%)rities* and t#e sa,e o( e0istin& se%)rities* to t#e %ro$d' It $as ar&)ed t#at
it is in t#e interests o( e%onomi% e((i%ien%y* in%,)din& %reatin& ,i<)idity in t#e CS98
market* to (a%i,itate t#e e0%#an&e o( e0istin& se%)rities t#ro)&# t#e %ro$d me%#anism*
$#i%# may +est +e a%#ieved via t#e ori&ina, CS98 intermediary'
A midd,e position in s)+missions $as t#at $#i,e t#e CS98 pro%ess s#o),d +e ,imited to
primary o((ers +y iss)ers* intermediaries s#o),d +e a+,e to operate a se%)rities Bmat%#-
makin&/ servi%e to mat%# +)yers and se,,ers o( e0istin& e<)ity o( iss)ers d)rin& s)%# time
as t#ose iss)ers are ,isted on t#at parti%),ar CS98 p,at(orm (or t#e p)rpose o( makin&
CS98 o((ers'
!.!.CAMAC position
8)ndraisin& t#ro)&# CS98 s#o),d +e ,imited to primary o((ers* meanin& o((ers +y iss)ers
to %ro$d investors to take )p previo)s,y )niss)ed s#ares in t#eir %ompanies'
"#is ,imitation is not intended to restri%t t#e deve,opment o( a se%ondary market in s#ares
iss)ed t#ro)&# CS98' Indeed* as o+served in a n)m+er o( s)+missions* any se%ondary
market may +e in t#e interests o( e%onomi% e((i%ien%y +y %reatin& some ,i<)idity in t#ese
s#ares* to t#e +ene(it o( %ro$d s#are#o,ders' "#ese s#are#o,ders %o),d t#en %as# in t#eir
e<)ity investment i( ot#er investors are $i,,in& to +)y t#e s#ares* and at a pri%e determined
+y t#at market'
A CS98 intermediary t#at so)&#t to operate a se%ondary market in s#ares previo)s,y
iss)ed t#ro)&# t#e CS98 pro%ess $o),d need to +e appropriate,y ,i%ensed )nder t#e
Corporations A%t and %omp,y $it# t#e terms o( t#e ,i%en%e re<)irements in %ond)%tin& t#at
market'
5ne ,imitation CAMAC $o),d p,a%e* to avoid a possi+,e %on(,i%t o( interest +et$een t#e
iss)er and t#e intermediary* is t#at an intermediary may not %ond)%t a CS98 primary o((er
o( a parti%),ar %,ass o( s#ares o( an iss)er sim),taneo)s,y $it# %ond)%tin& a se%ondary
market in t#at %,ass o( previo)s,y iss)ed s#ares o( t#e iss)er' "#e iss)er %o),d )ti,ise
anot#er e,i&i+,e intermediary to %ond)%t t#e CS98 primary o((er or t#e intermediary %o),d
de%ide to s)spend t#e se%ondary market on its $e+site'
!.% "ssuer cap
)ss#e$ sho#ld there 3e a cap1 and if so what amo#nt1 on the f#nds that an iss#er can
raise in a partic#lar period thro#gh CS!6 Sho#ld that iss#er cap incl#de an' f#nds
raised #nder the small7scale personal offers e+emption or the sophisticated investors8
e+emption6
!.%.10i?erent types of caps
"#ere are t$o types o( %ap to %onsider in t#e %onte0t o( CS98.
iss#er caps$ +ein& ,imits on t#e amo)nt o( ()nds an iss)er %an raise t#ro)&# CS98
1)s)a,,y per year2' "#e p)rpose o( t#ese %aps is to restri%t t#e amo)nt an iss)er %an
raise (rom t#e %ro$d $it#o)t #avin& to %omp,y $it# t#e )s)a, o((er dis%,os)re
o+,i&ations* in t#e (orm o( a prospe%t)s or simi,ar do%)ment'
investor caps. +ein& ,imits on $#at an individ)a, investor %an invest t#ro)&# CS98
1)s)a,,y per year2' "#is may take t#e (orm o( a %ap on t#e ()nds t#at an individ)a,
investor may p,a%e $it# a parti%),ar iss)er in a %ertain period andNor a %ap on t#e ()nds
t#at an individ)a, investor may p,a%e $it# iss)ers 1%om+ined2 in a %ertain period' "#e
p)rpose o( t#ese %aps is to ,imit an individ)a, investor/s e0pos)re to t#ese #i&#-risk
investments'
Caps dire%t,y impa%t on t#e ()nds t#at iss)ers %an raise t#ro)&# CS98 and #o$ many
investors t#ey $i,, need to attra%t to a%#ieve t#eir ()ndin& &oa,' Investor and iss)er %aps
are interre,ated in t#at t#e ,o$er a %ap on t#e amo)nt o( ()nds any %ro$d investor %an
p,a%e $it# ea%# iss)er* t#e more %ro$d investors ea%# iss)er may need to attra%t to rea%#
its ()ndin& tar&et'
"#is Se%tion dea,s $it# iss)er %aps' Investor %aps are dea,t $it# in Se%tion 6'4'
!.%.2.ther /urisdictions
UK
"#ere is no pres%ri+ed iss)er %ap' -o$ever* dependin& )pon t#e amo)nt so)&#t* an iss)er
may #ave to p)+,is# a prospe%t)s or ot#er dis%,os)re do%)ment'
New Zealand
Iss)ers may raise a tota, o( O2 mi,,ion in ea%# 12 mont# period t#ro)&# a %om+ination o(
CS98 to retai, investors and any ()ndraisin& t#ro)&# t#e Ne$ Hea,and e<)iva,ent o( t#e
sma,,-s%a,e persona, o((ers e0%eption 1in s 708112 o( t#e A)stra,ian ,e&is,ation2' -o$ever*
investments (rom $#o,esa,e investors $i,, not %o)nt in determinin& $#et#er t#e
()ndraisin& is $it#in t#e %ap.
"#is means t#at iss)ers $i,, +e a+,e to raise more t#an O2 mi,,ion per year 1sometimes
m)%# more2 t#ro)&# %ro$d ()ndin& servi%es i( some o( t#e investors are $#o,esa,e
investors )nder t#e 8MC A%t'
Intermediaries m)st ens)re t#at iss)ers do not e0%eed ()ndraisin& ,imits' 8or t#is p)rpose*
intermediaries m)st maintain ade<)ate systems and pro%ed)res to ens)re t#at iss)ers do
not e0%eed t#e iss)er %ap o( O2 mi,,ion in any 12 mont# period t#at t#e iss)er )ses t#e
intermediary/s servi%e'
USA
A %ompany may raise no more t#an O1 mi,,ion in a 12 mont# period t#ro)&# CS98 1t#at
amo)nt to +e periodi%a,,y adC)sted +ased on t#e %ons)mer pri%e inde02'
"#e S9C noted t#at.
"#e ,imitation on t#e amo)nt t#at may +e raised %o),d +ene(it investors +y red)%in&
t#e potentia, (or di,)tion or (ra)d' -o$ever* $e re%o&niDe t#at t#e %ap on t#e
ma0im)m amo)nt t#at may +e so,d K a,so %o),d prevent %ertain iss)ers (rom raisin&
a,, t#e %apita, t#ey need to make t#eir +)sinesses via+,e'
Canada
Through C($5
Fnder t#e proposa,s* t#ere is o( O1' mi,,ion ,imit on $#at any Biss)er &ro)p/ may raise in
any 12 mont# period' An iss)er &ro)p in%,)des t#e iss)er* any a((i,iate o( t#e iss)er* and
any ot#er iss)er t#at is en&a&ed in a %ommon enterprise $it# t#e iss)er or $it# an a((i,iate
o( t#e iss)er'
As e0p,ained +y t#e 5SC.
As t#e e0emption is (o%)sed on (inan%in& (or start-)ps and SM9s* $e t#ink a
distri+)tion ,imit o( O1' mi,,ion is appropriate'
"#e imposition o( t#e o((erin& ,imit on t#e a&&re&ate pro%eeds raised +y t#e iss)er
&ro)p* rat#er t#an on,y +y t#e iss)er* is intended to prevent t#e O1' mi,,ion o((erin&
,imit (rom +ein& %ir%)mvented'
Through other means
It is proposed t#at d)rin& a CS98 o((er period* an iss)er %an raise ot#er ()nds )nder any
ot#er permissi+,e e0emptions (rom t#e Canadian prospe%t)s re<)irements* s)%# as t#e
a%%redited 1sop#isti%ated2 investor e0emption' "#ese ()nds %an +e additiona, to t#e
O1' mi,,ion CS98 ,imit'
Ital*
"#e ma0im)m ()nds raised +y an e,i&i+,e start-)p t#ro)&# CS98 %annot e0%eed V mi,,ion
per year'
!.%. Su,missions
"#e %aps on t#e amo)nt t#at an iss)er may raise in any 12 mont# period proposed in
s)+missions ran&ed (rom OW mi,,ion to O10 mi,,ion* $it# most respondents s)pportin&
eit#er a O2 mi,,ion ann)a, %ap 1+ased on t#e sma,,-s%a,e o((er e0emption %ap in s 7082 or a
O mi,,ion ann)a, %ap 1+ased on ASIC C,ass 5rder 02N27!2' It $as ar&)ed* (or instan%e*
t#at a %ap in t#e order o( O2 mi,,ion $o),d +e %onsistent $it# t#e seed %apita, re<)irements
o( many start-)ps and $o),d +e pit%#ed at a ,eve, $#i%# is a+,e to #e,p to +rid&e t#e &ap
+et$een (o)nders and an&e, (inan%e and (orma, vent)re %apita,' "#at %ap $o),d s)((i%e (or
t#e maCority o( start-)ps to prove t#eir %on%ept on a sma,, s%a,e and attra%t ()rt#er %apita,*
t#ro)&# traditiona, means* (or ()rt#er prod)%t deve,opment' It $o),d a,so +e s)ita+,e to
meet t#e %apita, re<)irements o( a +roader ran&e o( sma,, +)sinesses $#i%# may $is# to
raise %apita, via a %ro$d()ndin& p,at(orm'
5ne respondent proposed a tiered system (or di((erent +)siness mode,s* parti%),ar,y in t#e
areas o( innovative B,o%a, in(rastr)%t)re/ and B%,ean-te%#no,o&y/* $#ere+y t#e %ap is
di((erent (or %ertain types o( proCe%ts a%%ordin& to varyin& %riteria to +e assessed $it#
re(eren%e to %osts asso%iated $it# provin& t#e %on%ept and t#e time and %ost ,ike,y to +e
invo,ved in +reakin& even and &eneratin& a pro(it'
"#ere $as some s)pport in s)+missions (or t#e Ne$ Hea,and approa%#* $#i%# $o),d
permit iss)ers to make some sma,,-s%a,e persona, o((ers a,on&side CS98 o((ers to retai,
%,ients* provided t#e a&&re&ate ()nds raised are $it#in a %ap stip),ated +y ,e&is,ation* as
$e,, as +ein& a+,e to make additiona, )n%apped o((ers to sop#isti%ated investors' 5ne
s)&&estion* #o$ever* $as t#at t#e tota, amo)nt t#at an iss)er %o),d raise $it#in 12 mont#s
+y t#ese %om+ined met#ods +e identi(ied in t#e o((er do%)ment to %ro$d investors* to
avoid CS98 and sma,,-s%a,e persona, o((er investors )nkno$in&,y #avin& t#eir proportion
o( e<)ity in t#e %ompany $atered do$n +y t#e siDe o( t#e e<)ity investment +y
sop#isti%ated investors'
5ne vie$ $as t#at t#ere s#o),d +e no %ei,in& on t#e amo)nt an iss)er may raise* &iven t#at
ma0im)m amo)nts ,ike,y to +e raised +y iss)ers t#ro)&# CS98 $o),d &enera,,y +e very
sma,, in t#e %onte0t o( +roader %apita, markets'
It $as a,so ar&)ed t#at iss)ers s#o),d +e entit,ed to a%%ept over-s)+s%riptions* in t#e
manner proposed +y t#e S9C* and (or t#e reasons it p)t (or$ard' "#e iss)er po,i%y
%on%ernin& overs)+s%riptions s#o),d +e o)t,ined in t#e iss)er o((er do%)ment'
!.%.!CAMAC position
Issuer cap
"#ere s#o),d +e a restri%tion on t#e ma0im)m ()nds a,,o$ed to +e raised +y an iss)er in a
&iven period t#ro)&# CS98* takin& into a%%o)nt t#at CS98 is aimed at start-)ps and ot#er
sma,, enterprises and t#at t#e (),, re&),atory str)%t)re in C#apter 6; o( t#e Corporations
A%t $i,, not app,y to t#is (orm o( o((er to t#e p)+,i%'
"#e C)risdi%tions revie$ed &enera,,y set %aps in t#e O1 mi,,ion to O2 mi,,ion ran&e (or a
12 mont# period' CAMAC %onsiders t#at t#e Ne$ Hea,and %ap* $#ere+y an iss)er may
raise )p to O2 mi,,ion in any 12 mont# period* $o),d a,so +e appropriate in A)stra,ia* at
,east at t#e o)tset' CAMAC a&rees $it# t#e %omment in s)+missions t#at a %ap o( t#is
amo)nt $o),d s)((i%e (or t#e maCority o( start-)ps to prove t#eir %on%ept on a sma,, s%a,e
and attra%t ()rt#er %apita,* t#ro)&# traditiona, means* (or ()rt#er prod)%t deve,opment' A
start-)p $#i%#* say* rea%#ed its iss)er %ap $it# stron& p)+,i% interest in its e<)ity o((er sti,,
remainin& %o),d %onsider movin& to a re&),ated p)+,i% o((er in t#e (orm o( a prospe%t)s or
an o((er in(ormation statement* $#i%# %o),d +e provided on,ine'
-o$ever* any (i&)re %#osen is ar+itrary to some e0tent and t#is %ap %o),d +e adC)sted at
some ()t)re time in ,i&#t o( e0perien%e $it# CS98'
CAMAC does not s)pport t#e s)&&estion in some s)+missions o( %reatin& a tiered system
o( %aps (or di((erent +)siness mode,s' S)%# an approa%# may +e administrative,y %ost,y
and %)m+ersome* $#i,e %reatin& ar+itrary di((eren%es in %aps $#i%# may +e di((i%),t to
C)sti(y in parti%),ar %ir%)mstan%es and %o),d ,ead to perverse e((e%ts'
"#e FG #as no iss)er %ap' -o$ever* t#at re(,e%ts a di((erent re&),atory approa%# in t#at
C)risdi%tion* $#i%# dea,s $it# t#e dire%t sa,e o( any (orm o( se%)rity o( any iss)er* o(
$#atever siDe* $#ere t#at se%)rity does not #ave a se%ondary market'
Sop"isticated investors) e$emption
"#e proposed iss)er %ap s#o),d not in%,)de any ()nds raised )nder t#e sop#isti%ated
investors/ e0emption in s 708 1$#i%# in%,)des very ,ar&e minim)m s)+s%ription o((ers2' A
simi,ar approa%# is taken in Ne$ Hea,and and Canada' It $o),d not +e in t#e interests o(
iss)ers* or t#eir %ro$d investors* to ,imit ()ndin& (rom t#is so)r%e'
Small&scale personal offers e$emption
"#e Ne$ Hea,and iss)er %ap in%,)des any ()nds raised +y t#e iss)er )nder t#e e<)iva,ent
o( t#e A)stra,ian sma,,-s%a,e persona, o((ers e0emption in s 708 o( t#e Corporations A%t'
In t#e A)stra,ian %onte0t* t#ere are %ompetin& %onsiderations to take into a%%o)nt'
In some instan%es* iss)ers %)rrent,y may raise )p to O mi,,ion )nder t#e sma,,-s%a,e
persona, o((ers e0emption 1takin& into a%%o)nt ASIC C,ass 5rder 02N27!2' "o re<)ire any
()nds raised in t#is manner to +e taken into a%%o)nt (or t#e CS98 iss)er %ap o( O2 mi,,ion
may %onstrain some iss)ers t#at #ave attra%ted ()ndin& (rom no more t#an 20 investors
(rom makin& an e<)ity o((er to t#e %ro$d $it#in t#e 12 mont# period'
A %ompetin& vie$ is t#at ()nds raised )nder t#e sma,,-s%a,e persona, o((ers e0emption
may invo,ve retai, investors simi,ar to %ro$d investors &enera,,y* &iven t#at t#ere is
a,ready anot#er e0emption (or sop#isti%ated investors 1in%,)din& ,ar&e o((ers2 1s 7081822'
An iss)er s#o),d not #ave t#e opport)nity* in e((e%t* to raise ()nds (rom t#e %ro$d* in
e0%ess o( t#e iss)er %ap* t#ro)&# )sin& +ot# me%#anisms'
5n +a,an%e* CAMAC %onsiders t#at ()nds raised )nder t#e sma,,-s%a,e persona, o((ers
e0emption s#o),d +e taken into a%%o)nt (or t#e p)rposes o( t#e CS98 iss)er %ap' In
%onse<)en%e.
an iss)er t#at raised t#e ma0im)m possi+,e t#ro)&# CS98 in any 12 mont# period
)nder t#e iss)er %ap* +ein& O2 mi,,ion* %o),d not raise additiona, ()nds in t#at period
)nder t#e sma,,-s%a,e persona, o((ers e0emption
an iss)er t#at raised ,ess t#an t#e O2 mi,,ion t#ro)&# CS98 d)rin& t#at period %o),d
raise additiona, ()nds (rom retai, s#are#o,ders )nder t#e sma,, -s%a,e persona, o((ers
e0emption* provided t#at t#e %om+ined amo)nt did not e0%eed t#e O2 mi,,ion in t#at
period
an iss)er t#at raised in e0%ess o( O2 mi,,ion )nder t#e sma,,-s%a,e persona, o((ers
e0emption 1&iven t#at )p to O mi,,ion may in some %ir%)mstan%es +e raised in t#is
manner2 $o),d not +e permitted to en&a&e in CS98 $it#in t#e re,evant 12 mont#
period'
Issuer roup
CAMAC e,se$#ere dis%)sses t#e possi+i,ity o( one or more parties seekin& to %ir%)mvent
an iss)er %ap +y settin& )p a series o( iss)ers* ea%# seekin& to raise ()nds (rom t#e %ro$d
)p to t#e iss)er %ap 1Se%tion !'2'22'
"o #e,p %o)nter t#is possi+i,ity* CAMAC proposes t#at t#e iss)er %ap o( O2 mi,,ion in any
12 mont# period app,y to any Biss)er &ro)p/' "#at %on%ept s#o),d +e +road,y de(ined to
in%,)de any iss)er $it# $#i%# t#e dire%tors* senior mana&ement* or ot#er re,ated party
asso%iates #ave an invo,vement' "#e de(inition o( Bsenior mana&er/ in s 9 o( t#e
Corporations A%t and t#e %on%ept o( Bre,ated parties/ in s 228 may +e a )se(), &)ide (or
t#is p)rpose'
In %onse<)en%e* t#e ma0im)m ()nds a parti%),ar iss)er may raise in any 12 mont# period
t#ro)&# CS98 $i,, +e red)%ed +e,o$ t#e O2 mi,,ion iss)er %ap +y any ()nds t#at any entity
in t#e iss)er &ro)p #as raised in t#at period t#ro)&# CS98 1in%,)din& )nder t#e sma,, -s%a,e
persona, o((ers e0emption2'
"#is approa%# $i,, re<)ire an iss)er to monitor any CS98 a%tivities o( any ot#er entity in
its iss)er &ro)p' "#at $i,, +e an on&oin& task on,y to t#e e0tent t#at a %omp,e0 iss)er
&ro)p #as +een esta+,is#ed in t#e (irst p,a%e and more t#an one entity in t#e &ro)p #as
so)&#t to )ti,ise t#e CS98 pro%ess'
Enforcement
CAMAC a&rees $it# t#e Ne$ Hea,and approa%# t#at intermediaries m)st ens)re t#at
iss)ers do not e0%eed ()ndraisin& ,imits' 8or t#is p)rpose* intermediaries m)st maintain
ade<)ate systems and pro%ed)res to ens)re t#at iss)ers do not e0%eed t#e iss)er %ap o(
O2 mi,,ion in any 12 mont# period t#at t#e iss)er )ses t#e intermediary/s servi%e'
8or t#is p)rpose* intermediaries %o),d emp,oy a so(t$are system $#i%# a)tomati%a,,y
%,oses o(( a%%eptan%es on%e an iss)er %ap is rea%#ed'
Ot"er matters referred to in submissions
"#e matter o( dis%,os)re o( ot#er e<)ity o((ers is dea,t $it# )nder comple+ e5#it'
str#ct#re in Se%tion !'4'!'
"#e matter o( overs)+s%ription is dea,t $it# in Se%tion 4'9'
!.& .ther equity issues
)ss#e$ sho#ld there 3e controls on other e5#it' iss#es 3' the iss#er d#ring the CS!
offer period6
!.&.1.ther /urisdictions
Canada
It is proposed t#at t#at s#ares o((ered or iss)ed d)rin& t#e period o( a CS98 o((er or
s#ort,y t#erea(ter* +)t independent,y o( t#at o((er* m)st +e on t#e same terms and
%onditions* in%,)din& pri%e* as t#e o((er to t#e %ro$d'
More spe%i(i%a,,y* i( an iss)er distri+)tes se%)rities )nder ot#er prospe%t)s e0emptions
1s)%# as t#e sop#isti%ated investor e0emption2 d)rin& t#e period +e&innin& at t#e
%ommen%ement o( t#e %ro$d()ndin& o((er period and endin& one mont# a(ter t#e
distri+)tion date )nder t#at o((er 1t#e pres%ri+ed period2* t#e se%)rities so,d )nder t#e ot#er
e0emptions m)st #ave t#e same pri%e* terms and %onditions as t#ose distri+)ted )nder t#e
%ro$d()ndin& o((er'
A%%ordin& to t#e 5SC* t#is re<)irement.
is intended to promote (airness to investors +y pro#i+itin& an iss)er (rom o((erin&
se%)rities d)rin& t#e pres%ri+ed period at di((erent pri%es* or $it# di((erent terms and
%onditions* t#an t#ose +ein& distri+)ted )nder t#e LCS98 o((erM' ?imitin& t#e
pres%ri+ed period to one mont# (o,,o$in& t#e distri+)tion date is appropriate +e%a)se
on%e an iss)er re%eives t#e ()nds* t#e va,)e o( t#e iss)er or its operations %o),d
<)i%k,y %#an&e* t#)s C)sti(yin& o((erin& se%)rities at di((erent pri%es or $it# di((erent
terms and %onditions t#an t#ose t#at $ere distri+)ted )nder t#e %ro$d()ndin& Lo((erM'
"#e intermediary %ond)%tin& t#e CS98 o((er %annot a,so a%t as t#e intermediary (or t#ese
additiona, transa%tions* $#i%# m)st a,so +e dis%,osed in t#e iss)er/s marketin& materia,s to
investors in t#e CS98 o((er'
!.&.2CAMAC position
7#i,e re%o&nisin& t#at t#e Canadian approa%# seeks to promote (airness and e<)a,ity o(
treatment +et$een di((erent s#are#o,ders* CAMAC is %on%erned t#at it may %reate
in(,e0i+i,ities in some instan%es* &iven t#at e,se$#ere in t#is report CAMAC %on(irms t#at
an iss)er may #ave vario)s %,asses o( s#ares 1Se%tion !'42'
A more pra&mati% approa%# $o),d +e an o+,i&ation on an iss)er* in t#e CS98 o((er
dis%,os)re do%)ment* (),,y to dis%,ose t#e pri%e* terms and %onditions o( any non-CS98
e<)ity o((er or p,a%ement t#at t#e iss)er $i,, make* or intends to make* d)rin& t#e CS98
o((er period' A previo)s,y p)+,is#ed o((er dis%,os)re do%)ment $o),d #ave to +e amended
i( t#is intention is (ormed* or a previo)s,y )nanno)n%ed e<)ity o((er or p,a%ement
event)ates* d)rin& t#e CS98 o((er period'
CAMAC a,so e,se$#ere re%ommends t#at %ro$d investors $#o #ave a%%epted e<)ity
o((ers #ave ri&#ts o( $it#dra$a, $#ere t#ere is a s)+se<)ent materia, adverse %#an&e in
t#e position o( t#e iss)er 1Se%tion 4'112' An iss)er $o),d need to %onsider $#et#er a
previo)s,y )nanno)n%ed e<)ity o((er or p,a%ement o)tside CS98 t#at takes p,a%e d)rin&
t#at CS98 o((er period s#o),d +e treated as a materia, adverse %#an&e (or t#at p)rpose'
!.7 0isc#osures in the o?er documents
)ss#e$ what disclos#res sho#ld iss#ers provide to investors in making their offer to
the crowd6
!.7.1.ther /urisdictions
UK
Iss)ers are s)+Ce%t to t#e prospe%t)s provisions* t#o)&# FG %orporate ,a$ %ontains some
e0emptions (or promotions o( sma,, se%)rities iss)es'
Comin& $it#in an e0emption (rom t#e prospe%t)s re<)irements sti,, imposes some
dis%,os)re re<)irements on an iss)er' A%%ordin& to one %ommentary on FG %orporate ,a$.
I( a prospe%t)s is not re<)ired* t#e o((er do%)ment 1or in(ormation memorand)m or
ot#er marketin& materia,2 $o),d not #ave to %omp,y $it# any re&),atory %riteria' "#e
on,y %onstraints $o),d +e )nder t#e %ommon ,a$* and s)+s%ri+ers %o),d #ave
remedies a&ainst t#e dire%tors (or ne&,i&ent misstatement andNor de%eit i( in%omp,ete
or mis,eadin& in(ormation is provided' It $o),d t#ere(ore +e pr)dent (or t#e %ontents
o( t#e o((er do%)ment to (o,,o$ t#e prospe%t)s re<)irements as (ar as possi+,e* as $e,,
as in%,)din& appropriate B#ea,t# $arnin&s/* even i( t#ese are not mandatory 1e'&' t#at
t#e va,)e o( t#e s#ares may (a,,* and t#at t#e investor may not &et +a%k a,, t#e money
#eNs#e paid (or t#em2' In t#is re&ard it $o),d +e appropriate to )ndertake d)e
di,i&en%e and veri(i%ation o( t#e o((er do%)ment to ens)re t#at t#e %ontents are
(a%t)a,,y %orre%t'
An iss)er is a,so s)+Ce%t to vario)s &enera, app,i%ation dis%,os)re r),es in t#e 8CA
-and+ook dependin& )pon t#e nat)re o( t#e o((er and t#e nat)re o( t#e investor* in%,)din&.
8MA Cond)%t o( B)siness So)r%e+ook 1C5BS2 2'2'1:. in(ormation dis%,os)re +e(ore
providin& servi%es
C5BS 4'7'1:. in(ormation to +e dis%,osed in dire%t o((er (inan%ia, promotions
C5BS 6'1. in(ormation %on%ernin& vario)s %#ar&es and rem)neration'
USA
Iss)ers $i,, +e re<)ired to (i,e $it# t#e S9C* and provide to investors* t#ro)&# t#e
intermediary* in(ormation s)%# as.
t#e name* ,e&a, stat)s* p#ysi%a, address and $e+site address o( t#e iss)er
a des%ription o( t#e +)siness and its anti%ipated +)siness p,an
a des%ription o( t#e iss)er/s (inan%ia, %ondition 1in%,)din& (inan%ia, statements. see
+e,o$2
t#e names o( o((i%ers and dire%tors and persons $it# a s#are#o,din& o( more t#an 20P'
"#e S9C is proposin& to re<)ire dis%,os)re o( t#e +)siness e0perien%e o( dire%tors and
o((i%ers o( t#e iss)er d)rin& t#e past t#ree years
t#e stated p)rpose and intended )se o( pro%eeds
t#e spe%i(ied tar&et o((er amo)nt and dead,ine to rea%# t#at tar&et
t#e pri%e o( t#e se%)rities' "#e S9C proposes to permit iss)ers to a,ter t#e o((er pri%e
d)rin& t#e %o)rse o( t#e o((er 1Bdynami% pri%in&/2* &iven t#e %an%e,,ation ri&#ts o(
investors 1see Se%tion 6'62
a des%ription o( t#e o$ners#ip and %apita, str)%t)re 1$#i%# #as a parti%),ar
si&ni(i%an%e (or t#e on&oin& position o( t#e CS98 investors in t#e %ompany. see
()rt#er Se%tion !'42* and
s)%# ot#er in(ormation as t#e S9C pres%ri+es +y r),e' "#e S9C is proposin& to re<)ire
dis%,os)re +y t#e iss)er o( vario)s matters* in%,)din& t#e amo)nt o( %ompensation paid
+y t#e iss)er to t#e intermediary (or %ond)%tin& t#e o((er* any materia, (a%tors t#at
make an investment in t#e iss)er spe%),ative or risky and %ertain re,ated-party
transa%tions'
"#e iss)er m)st provide (inan%ia, statements* %erti(ied +y an o((i%er o( t#e iss)er i( t#e
spe%i(ied tar&et o((er amo)nt is O100*000 or ,ess* revie$ed +y an a%%o)ntant i( t#at amo)nt
is )p to O00*000 and a)dited i( t#at amo)nt is over O00*000' Companies %o),d avoid
a)dit %osts +y ,imitin& t#e siDe o( t#eir o((ers' "#e S9C is proposin& t#at ea%# iss)er a,so
provide a narrative dis%)ssion o( its (inan%ia, position'
Intermediaries m)st make t#e iss)er dis%,os)res avai,a+,e to t#e S9C and potentia,
investors not ,ater t#an 21 days +e(ore t#e (irst day on $#i%# se%)rities are so,d to any
investor' A%%ordin& to t#e S9C.
"#e iss)er dis%,os)re re<)irements s#o),d +ene(it investors +y ena+,in& t#em to +etter
eva,)ate t#e iss)er and t#e o((erin&' :e<)irin& intermediaries to make t#e iss)er
in(ormation p)+,i%,y avai,a+,e and easi,y a%%essi+,e on t#eir p,at(orms $o),d red)%e
in(ormation asymmetries +et$een iss)ers and investors and $o),d en#an%e +ot#
transparen%y and e((i%ien%y o( t#e market'
An intermediary $o),d +e pro#i+ited (rom re<)irin& any person to esta+,is# an a%%o)nt
$it# t#e intermediary in order to a%%ess t#is in(ormation'
Iss)ers $i,, +e re<)ired to %omp,y $it# s)%# ot#er re<)irements as t#e S9C may* +y r),e*
pres%ri+e* s)%# as dis%,os)re o( t#e inde+tedness o( t#e iss)er and any prior CS98
)ndertaken +y t#e iss)er.
Lt#e S9C isM proposin& to re<)ire dis%,os)re o( any inde+tedness o( t#e iss)er +e%a)se
$e +e,ieve t#at servi%in& de+t %o),d p,a%e additiona, press)res on a %ompany in t#e
ear,y sta&es o( deve,opment and t#is in(ormation $o),d +e important to investors' "#e
proposed r),es a,so $o),d re<)ire dis%,os)re o( any prior se%)rities-+ased
%ro$d()ndin& or ot#er e0empt o((erin&s %ond)%ted $it#in t#e past t#ree years' In
some %ases* an iss)er mi&#t #ave previo)s,y en&a&ed in %ro$d()ndin& in re,ian%e on
Lt#e "it,e III CS98 re&),atory provisionsM and may +e ret)rnin& (or additiona,
()ndin&' 7e +e,ieve t#at it $o),d +e important to investors to kno$ $#et#er t#e prior
se%)rities-+ased %ro$d()ndin& or ot#er o((erin&s o( se%)rities $ere s)%%ess(),* and i(
so* t#e amo)nt raised in t#ese prior o((erin&s'
"#e S9C %onsidered t#at t#e iss)er dis%,os)re re<)irements are ne%essary to ens)re t#at
investors are s)((i%ient,y in(ormed.
Sma,, private +)sinesses typi%a,,y do not dis%,ose in(ormation as (re<)ent,y or as
e0tensive,y as p)+,i% %ompanies* i( at a,,' Moreover* )n,ike p)+,i% %ompanies* sma,,
private +)sinesses are not re<)ired to #ire an independent t#ird party to va,idate t#e
in(ormation dis%,osed' 7#en in(ormation a+o)t a %ompany is di((i%),t to o+tain or t#e
<)a,ity o( t#e in(ormation is )n%ertain* investors are at risk o( makin& poor,y-
in(ormed investment de%isions re&ardin& t#at %ompany'
S)%# in(ormation asymmetries mi&#t +e espe%ia,,y a%)te in t#e se%)rities-+ased
%ro$d()ndin& market +e%a)se t#e market in%,)des start)ps and sma,, +)sinesses t#at
#ave si&ni(i%ant risk (a%tors and t#at mi&#t #ave %#ara%teristi%s t#at #ave ,ed t#em to
+e reCe%ted +y ot#er potentia, ()ndin& so)r%es* in%,)din& +anks* Lvent)re %apita,istsM*
and an&e, investors' In addition* t#e se%)rities-+ased %ro$d()ndin& market may attra%t
)nsop#isti%ated retai, investors $#o may not #ave t#e reso)r%es ne%essary to
e((e%tive,y monitor iss)ers'
7#i,e s)pportive o( dis%,os)re* t#e S9C a,so noted t#at it %o),d +ene(it %ompetitors o( an
iss)er.
dis%,os)re mi&#t #ave indire%t %osts to t#e e0tent t#at in(ormation dis%,osed +y iss)ers
re,yin& on Lt#e "it,e III CS98 provisionsM %o),d +e )sed +y t#eir %ompetitors'
:e<)irin& si&ni(i%ant ,eve,s o( dis%,os)re at an ear,y sta&e o( an iss)er/s ,i(e%y%,e
mi&#t a((e%t an iss)er/s %ompetitive position and mi&#t ,imit t#e )se o( t#e LCS98
provisionsM +y iss)ers $#o are espe%ia,,y %on%erned $it# %on(identia,ity'
<ngoing disc"osure
Iss)ers $i,, +e re<)ired to provide ann)a, reports to investors on t#e res),ts o( operations
and (inan%ia, statements* %ontainin& s)%# in(ormation as t#e S9C s#a,, determine +y r),e*
$it# s)%# reports to +e (i,ed $it# t#e S9C' "#e S9C proposes t#at iss)ers post t#e ann)a,
reports on t#eir $e+sites'
New Zealand
"#e detai,s o( t#e in(ormation in t#e o((er to provide to investors are determined +y t#e
intermediary in %onC)n%tion $it# t#e iss)er* $it# &)idan%e provided +y t#e re&),ator 1t#e
8MA2* as set o)t +e,o$'
Intermediaries m)st #ave ade<)ate dis%,os)re arran&ements $it# iss)ers to &ive investors*
or to ena+,e investors readi,y to o+tain* time,y and )nderstanda+,e in(ormation to assist
investors to de%ide $#et#er to a%<)ire parti%),ar s#ares on o((er on t#e intermediary/s
$e+site 1(or e0amp,e* t#ro)&# initia, dis%,os)re* or <)estion and ans$er (or)ms* or ot#er
in(ormation t#at is made avai,a+,e2'
In %onsiderin& $#et#er t#e dis%,os)re arran&ements are ade<)ate* t#e 8MA m)st #ave
re&ard to.
t#e ,imits 1i( any2 on t#e amo)nt t#at retai, investors may invest in an iss)erU and
t#e amo)nt t#at iss)ers may raise t#ro)&# t#e CS98 pro%ess'
Minimum disc"osure arrangements
"#e minim)m dis%,os)re arran&ements in%,)de.
a dedi%ated $e+pa&e on t#e intermediary (a%i,ity (or ea%# o((er* $#i%# is simp,e to
a%%ess and navi&ate and avai,a+,e to a,, investors
dis%,os)re o( a des%ription o( t#e iss)er +)siness and t#e p)rpose o( t#e ()ndraisin&
dis%,os)re o( t#e terms o( t#e o((er* in%,)din&.
0 pri%e
1 minim)m ()ndin& so)&#t
2 d)ration o( t#e o((er
! amo)nts raised 1)pdated re&),ar,y2
4 investor %aps 1i( any2
ri&#ts atta%#in& to t#e s#ares 1and detai,s o( any ot#er se%)rities o( t#e iss)er2
in(ormation a+o)t #o$ s#ares %an +e so,d* in%,)din& a+o)t any avai,a+,e se%ondary
markets
t#e names and positions o( t#e iss)er/s dire%tors and senior mana&ers 1intermediaries
%o),d a,so %onsider re<)irin& dis%,os)re o( t#eir ed)%ation* ski,,s and e0perien%e2
arran&ements $it# iss)ers to s)pp,y re<)ired in(ormation'
An intermediary/s dis%,os)re arran&ements s#o),d a,so %over #o$ t#e intermediary $i,,
revie$ t#e in(ormation iss)ers/ s)pp,y to %#e%k t#at it is )nderstanda+,e and time,y 1$#en
dis%,osed2 or state #o$ t#e intermediary $i,, re,y on t#e iss)er to do t#is'
#iscretionary disc"osure arrangements
Intermediaries may a,so %onsider in%,)din&.
a XJA ()n%tion on t#eir $e+sites
in(ormation (rom t#e Companies 5((i%e a+o)t iss)ers* or ,inks to t#e Companies
5((i%e BCompany S)mmary/ $e+pa&es (or iss)ers'
-eve" of disc"osure "inked to any investor cap
"#e 8MA #as indi%ated t#at i( vo,)ntary investor %aps are not imposed* or t#ey are #i&#* or
t#e iss)er is tryin& to raise si&ni(i%ant amo)nts o( %apita,* t#e 8MA $o),d )s)a,,y e0pe%t
t#at t#e arran&ements (or dis%,os)re to t#e %ro$d in%,)de e0tra dis%,os)re s)%# as
providin& a +)siness p,an* detai,s o( #o$ ()nds $i,, +e )sed* key risks and key (inan%ia,
in(ormation* s)%# as (inan%ia, statements'
Canada
"#e 5SC #as o+served t#at.
8or %ro$d()ndin& to +e a via+,e met#od o( raisin& %apita,* investors m)st +e provided
$it# appropriate in(ormation to make in(ormed investment de%isions $it#o)t
imposin& e0%essive %osts on iss)ers'
"#e intention is t#at t#e dis%,os)res in an iss)er/s B%ro$d()ndin& o((erin& do%)ment/
s#o),d +e stream,ined and (o%)s on materia, in(ormation t#at is re,evant to t#e iss)er/s
+)siness and an investment in t#e se%)rities o((ered'
An iss)er m)st make t#is do%)ment avai,a+,e to an investor t#ro)&# t#e intermediary
porta, +e(ore t#e investor enters into an a&reement to p)r%#ase t#e se%)rity' "#e iss)er
m)st a,so o+tain a si&ned risk a%kno$,ed&ement (rom t#e investor +e(ore enterin& into t#e
a&reement 1see ()rt#er Se%tion 6'2' "#e iss)er m)st a,so provide a %opy o( t#e o((er
do%)ment to t#e re&),ator'
"#e o((er do%)ment m)st %omprise items* to&et#er $it# a %erti(i%ate (rom t#e iss)er t#at
t#e o((er do%)ment does not %ontain a misrepresentation'
)tem 1% 2equired statements
"#is invo,ves.
t#e risk $arnin& to investors'
)tem *% 5inancing facts
"#is invo,ves.
o((erin& s)mmary
des%ription o( se%)rities o((ered and re,evant ri&#ts
a+i,ity to rese,, se%)rities
ri&#t o( a%tion (or misrepresentation and ri&#t o( $it#dra$a,
%on%)rrent o((erin&s
)se o( pro%eeds
a+i,ity to a%#ieve ne0t mi,estone or +)siness p,an
ot#er %ro$d()ndin& o((erin&s
persons promotin& and marketin& t#e o((erin&'
)tem =% )ssuer facts
"#is invo,ves.
+)siness o( t#e iss)er
prin%ipa, risks (a%in& t#e +)siness
(inan%ia, in(ormation
on&oin& in(ormation
minin& iss)er dis%,os)re Lre,evant on,y to CanadaM
%apita, str)%t)re
e0e%)tive o((i%ers* dire%tors and ot#er prin%ipa,s
mana&ement %ompensation
re,ated party transa%tions
ot#er re,evant in(ormation'
)tem >% 2egistrant facts
"#is invo,ves.
re&istered ()ndin& porta,'
)tem ?% Contact information
"#is invo,ves.
%onta%t in(ormation (or t#e iss)er
%onta%t in(ormation (or t#e re&istered ()ndin& porta,'
Certificate
"#is invo,ves.
statement o( no misrepresentation'
Eario)s aspe%ts o( t#ese proposed dis%,os)re re<)irements are o)t,ined +e,o$'
,ffer si9e
An iss)er/s o((er do%)ment (or a %ro$d()ndin& distri+)tion m)st dis%,ose t#e minim)m
n)m+er or prin%ipa, amo)nt o( se%)rities +ein& o((ered* and $#et#er t#ere is a ma0im)m
n)m+er or prin%ipa, amo)nt o( se%)rities +ein& o((ered'
Length of time an offer can remain open
An iss)er/s o((er do%)ment m)st dis%,ose #o$ ,on& t#e o((er $i,, remain open* $#i%#
%annot e0%eed 90 days' I( an iss)er %annot %omp,ete a %ro$d()ndin& o((er $it#in 90 days*
it m)st $it#dra$ it'
"#e 5SC #as taken t#e vie$ t#at a 90 day ,imit on t#e ,en&t# o( time an o((er %an remain
open $i,, #e,p to ens)re t#at t#e in(ormation in t#e o((er do%)ment does not +e%ome sta,e'
"#e iss)er %an %ommen%e a ne$ %ro$d()ndin& o((er a(ter t#e 90 day period'
"#is ri&#t o( an iss)er to %ommen%e a ne$ o((er every t#ree mont#s is parti%),ar,y
si&ni(i%ant (or t#e investor %aps dis%)ssed in Se%tion 6'4* &iven t#at t#e Canadian proposa,
is to impose a O2*00 investment %ei,in& per o((er* $it#in a tota, O10*000 %ei,in& on a,,
CS98 investments +y an investor per year' In e((e%t* an investor in one year %o),d p,a%e
t#e $#o,e O10*000 $it# one iss)er* i( t#at iss)er p)+,is#ed a ne$ o((er ea%# t#ree mont#s'
Sec#rities holdings 3' principals in an iss#er
"#e prin%ipa,s o( an iss)er seekin& to raise %apita, t#ro)&# CS98 are not re<)ired to invest
t#eir o$n money in t#e vent)re +e(ore makin& an o((er to t#e p)+,i%' -o$ever* an iss)er
m)st dis%,ose.
$#et#er or not t#e prin%ipa,s o$n se%)rities o( t#e iss)er
i( so* t#e n)m+er and type o( t#e se%)rities
#o$ m)%# t#e prin%ipa,s paid (or t#em
$#et#er or not t#e se%)rities are s)+Ce%t to an es%ro$ or #o,d period* and* i( so* detai,s
o( t#e es%ro$ or #o,d period'
"#e 5SC %onsidered t#at $#i,e t#ere is a +ene(it in prin%ipa,s o( a +)siness investin& t#eir
o$n money in t#e iss)er* as t#is $o),d a,i&n t#eir interests $it# t#ose o( ot#er investors in
t#e iss)er* t#is s#o),d not +e a mandatory re<)irement.
5ne o( t#e prin%ipa, p)rposes o( Lpermittin& CS98M is to ena+,e an entreprene)r to
(inan%e a start-)p $#ere #e or s#e does not #ave t#e persona, (inan%ia, reso)r%es to do
so'
:at#er* a%%ordin& to t#e 5SC* dis%,os)re $o),d s)((i%e.
-o$ever* re<)irin& an iss)er to dis%,ose $#et#er or not t#e prin%ipa,s o$n se%)rities
o( t#e iss)er* t#e n)m+er and type o( t#e se%)rities* #o$ m)%# t#e prin%ipa,s paid (or
t#e se%)rities* $#et#er or not t#e se%)rities are s)+Ce%t to an es%ro$ or #o,d period and
detai,s o( any es%ro$ or #o,d period $i,, #e,p investors make in(ormed investment
de%isions'
0isk warning 3' iss#ers to crowd investors
Iss)ers m)st in%,)de a &enera, risk $arnin& o+,i&ation in t#eir B%ro$d()ndin& o((erin&
do%)ment/ as $e,, as risk $arnin& o+,i&ations on intermediaries'
"#e iss)er m)st provide a risk $arnin& to investors* at t#e top o( its %ro$d()ndin& o((er
do%)ment* indi%atin& t#at.
many start-)ps and sma,, +)sinesses (ai,
investors may not +e a+,e to rese,, t#eir se%)rities
investors may re%eive ,imited on&oin& in(ormation a+o)t t#e iss)er/s per(orman%e
no se%)rities re&),atory a)t#ority #as revie$ed t#e CS98 o((er'
(#siness plan
An iss)er m)st dis%,ose t#e nat)re o( its e0istin& or proposed +)siness* its +)siness p,an*
and t#e )se o( t#e pro%eeds o( t#e distri+)tion in ()rt#eran%e o( t#e +)siness p,an'
&revio#s CS! offers
An iss)er makin& a CS98 o((er m)st dis%,ose a,, %)rrent* previo)s,y %,osed* and (ai,ed
CS98 distri+)tions +y ea%# iss)er %omprised in t#e iss)er &ro)p'
)ntended #se of CS! proceeds
"#e iss)er m)st state in t#e o((er do%)ment #o$ it intends to spend t#e net pro%eeds to +e
raised (rom a CS98 o((er* in%,)din& t#e prin%ipa, p)rposes to $#i%# pro%eeds $i,, +e
a,,o%ated* (or +ot# o( t#e (o,,o$in& %ir%)mstan%es.
1a2 i( t#e iss)er raises t#e minim)m ()nds to +e raised in t#is o((erin&* and
1+2 i( t#e iss)er raises more t#an t#e minim)m ()nds'
"#e iss)er m)st a,so dis%,ose i( any o( t#e (o,,o$in& persons $i,, re%eive any pro%eeds
(rom t#e ()nds re%eived t#ro)&# CS98 dire%t,y or indire%t,y and* i( so* t#e amo)nt ea%#
person $i,, re%eive.
1a2 any o( e0e%)tive o((i%ers* dire%tors or (o)nders o( t#e iss)er*
1+2 any person promotin& or marketin& t#e CS98 o((er*
1%2 any person $#o o$ns 20P or more o( t#e iss)er/s votin& se%)rities* or
1d2 any ot#er person t#at is a re,ated party to t#e iss)er'
5ne respondent to t#e CAMAC 4aper proposed t#at dire%tors o( iss)ers +e o+,i&ed to si&n
and p)+,is# a de%,aration t#at no ()nds raised t#ro)&# CS98 s#a,, +e )sed +y dire%tors or
t#eir re,ated parties in a persona, %apa%ity'
!.7.2 Su,missions
A &enera, %omment in s)+missions $as t#at* in desi&nin& iss)er dis%,os)re re<)irements* a
+a,an%e needs to +e str)%k +et$een t#e need to provide re,ia+,e and )se(), in(ormation to
t#e %ro$d investor and t#e need to ens)re t#at t#e dis%,os)re o+,i&ations are not so
+)rdensome as to dis%o)ra&e +ona (ide start-)p and ot#er enterprises (rom seekin& e<)ity
()nds t#ro)&# CS98' Iss)ers s#o),d not +e s)+Ce%t to t#e prospe%t)s o+,i&ations t#at
%)rrent,y app,y to p)+,i% e<)ity o((ers )nder t#e Corporations A%t' A,so* it $as s)+mitted*
t#e )se o( investor and iss)er (inan%ia, %aps and t#e (a%i,itation o( in(ormation s#arin&
t#ro)&# on,ine %omm)ni%ation %#anne,s are important (eat)res o( CS98 $#i%# o)&#t to
ena+,e re&),ation $it# ,ess %ost,y dis%,os)re %omp,ian%e +)rdens on t#e iss)er'
5ne s)&&ested approa%# $as to introd)%e on,y a &eneri% dis%,os)re re<)irement* (or
instan%e.
An iss)er m)st dis%,ose everyt#in& t#at is materia, (or t#e reasona+,e investor to kno$
in makin& a de%ision $#et#er to invest in t#e iss)er'
Anot#er approa%# $as to adopt t#e o((er in(ormation statement 15IS2 re<)irements in
s 71 o( t#e Corporations A%t* $it# modi(i%ations to e0%,)de t#e a)dit re<)irement in
s 71122 to avoid t#e (inan%ia, reportin& re<)irements (or start-)p and ot#er sma,,
enterprises +ein& over,y +)rdensome' :at#er* an a+rid&ed and &raded (orm o( (inan%ia,
report 1possi+,y +ased on t#e proposed FS &raded approa%#2 s#o),d +e a,,o$ed (or CS98
p)rposes'
In t#is %onte0t* one approa%# in s)+missions $as to re<)ire a dis%,os)re do%)ment (or
iss)ers makin& %ro$d-+ased e<)ity o((ers* dra$in& on s 71* +)t +ein& more spe%i(i%a,,y
desi&ned (or t#is (orm o( ()ndraisin&' "#e dis%,os)res s#o),d in%,)de.
a des%ription o( t#e iss)er/s +)siness and +)siness p,an and t#e prin%ipa, risks (a%in&
t#e iss)er
%)rrent (inan%ia, statements 1adoptin&* (or instan%e t#e FS stepped approa%#2
t#e %ompany/s mana&ement str)%t)re* invo,vin& detai,s o( dire%tors* o((i%ers and any
ot#er key personne, 1in%,)din& any s#are#o,ders $it# at ,east 20P o( t#e %)rrent iss)ed
s#ares2* in%,)din& re,evant ski,,s and e0perien%e o( t#ese persons 1t#e FS is proposin&
dis%,os)re o( re,evant e0perien%e d)rin& at ,east t#e ,ast t#ree years2 and t#eir
rem)neration arran&ements
t#e %apita, str)%t)re o( t#e iss)er* in%,)din& any %,asses o( s#ares and t#eir parti%),ar
ri&#ts
t#e tar&et o((er amo)nt
t#e p)rpose (or $#i%# t#e ()nds raised $i,, +e )sed
detai,s o( a,, amo)nts paya+,e +y t#e iss)er in respe%t o( t#e e<)ity to +e raised (rom
t#e %ro$d* in%,)din& any amo)nts +y $ay o( (ee* %ommission or %#ar&e
any minim)m s)+s%ription to a%tivate t#e investor a%%eptan%es
t#e e0piry date o( t#e o((er
t#e o((er pri%e o( t#e s#ares* s)pported +y a va,)ation* as $e,, as detai,s o( #o$ t#e
va,)ation $as rea%#ed
any re,ated party transa%tions
any ()t)re e<)ity or de+t ()ndraisin& t#at is anti%ipated and its potentia, di,)tion or
ot#er imp,i%ations (or t#e s#are#o,din& o( %ro$d investors'
5ne respondent took t#e vie$ t#at in t#e %onte0t o( ear,y sta&e start-)p enterprises* %ro$d
investors $o),d a,so +ene(it (rom more detai,ed in(ormation on key aspe%ts o( t#e
intended proCe%t' 7#i,e it is not proposed t#at dis%,os)re o( a,, t#ese matters +e mandated*
t#ey %o),d +e treated as )se(), &)idan%e' "#ey %o),d in%,)de.
an e0p,anation o( t#e intended prod)%t* pro%ess or servi%e 1proCe%t2 and a +asi%
des%ription o( any te%#no,o&y on $#i%# it depends (or its ()n%tiona,ity
$#at is t#e ed&e or %ompetitive advanta&e over $#at is %)rrent,y avai,a+,e in t#e
market t#at $i,, make t#e proCe%t s)%%ess(),
$#at are any risks asso%iated $it# any te%#no,o&y (or t#e proCe%t
any estimates prepared o( t#e siDe o( market (or t#e proCe%t
t#e mi,estones and pat# to market (or t#e proCe%t
t#e ro,es o( t#e key personne, in t#e proCe%t deve,opment* in%,)din& t#e %ontin)ed
invo,vement o( t#e inventor o( any re,evant te%#no,o&y
#o$ any inte,,e%t)a, property is prote%ted and $#et#er t#e iss)er is a$are o( any
disp)tes %on%ernin& it or %#a,,en&es to t#e va,idity o( any asso%iated patents or ot#er
(orms o( inte,,e%t)a, property prote%tion'
"#e o+servation $as a,so made in s)+missions t#at a key to any s)%%ess(), CS98 proCe%t
is (or t#e iss)er to %reate en&a&ement $it# t#e p)+,i%' "#is is norma,,y a%#ieved via
$#atever means are appropriate to t#e proCe%t Q additiona, in(ormation provided on a
$e+site* in(ormative videos* so%ia, media )pdates et%' 8ai,)re to provide t#is promotiona,
%ontent may res),t in a (ai,ed proCe%tN%apita, raisin&' "#is type o( materia, s#o),d not +e
+anned* t#o)&# it does not (orm part o( t#e mandatory o((er do%)ment' Its %ontent s#o),d
+e s)+Ce%t to &enera, ,a$ prin%ip,es to %over any mis,eadin& or de%eptive %ontent'
5ne note o( reservation e0pressed in s)+missions $as t#at t#e dis%,os)re o( t#e key
aspe%ts o( an intended proCe%t %o),d ,ead to inte,,e%t)a, property t#e(t* premat)re e0pos)re
to market %ompetition* and %opy%at a%tivities +y ot#er entities'
!.7.CAMAC position
Approac" to disclosure
CAMAC #as %onsidered a n)m+er o( possi+,e approa%#es to #o$ iss)ers s#o),d dis%,ose
in(ormation a+o)t t#emse,ves* and t#e o((er* to t#e %ro$d* takin& into a%%o)nt t#e
o+servation in s)+missions t#at a +a,an%e needs to +e str)%k +et$een t#e need to provide
re,ia+,e and )se(), in(ormation to t#e %ro$d investor and t#e need to ens)re t#at t#e
dis%,os)re o+,i&ations are not )nd),y +)rdensome (or iss)ers'
5ne approa%# is an o((er dis%,os)re do%)ment (or CS98 mode,,ed on t#e o((er in(ormation
statement 15IS2 dis%,os)re re<)irements )nder s 71 o( t#e Corporations A%t* possi+,y
e0%,)din& t#e re<)irement t#at t#e (inan%ia, reports +e a)dited' "#ere a,ready e0ists some
)se(), &)idan%e on %)rrent dis%,os)re re<)irements* $#i%# %o),d +e o( assistan%e to
intendin& iss)ers 1(or instan%e* ASIC :e&),atory 3)ide 228 .rospectuses% $ffective
disc"osure for retai" investors2'
Ne$ Hea,and #as adopted anot#er approa%#* $#i%# %ontemp,ates t#e iss)er and t#e
intermediary determinin& to some e0tent t#e %ontent o( t#e dis%,os)re $it#in t#e %onte0t o(
&enera, &)idan%e provided +y t#e 8inan%ia, Markets A)t#ority' "#e Ne$ Hea,and approa%#
a,so %ontemp,ates t#e ,eve, o( dis%,os)re +ein& partia,,y am+),atory* dependin& on t#e
amo)nt o( ()nds so)&#t and $#et#er t#e iss)er proposes to p,a%e a %ap 1and i( so* t#e
amo)nt2 on t#e ()nds t#at ea%# %ro$d investor %an invest in t#at iss)er t#ro)&# a parti%),ar
CS98 o((er 1see ()rt#er Se%tion 6'4 %on%ernin& investor %aps2'
A t#ird approa%#* $#i%# CAMAC %onsiders is pre(era+,e in t#e %onte0t o( CS98* is an
iss)er dis%,os)re temp,ate spe%i(i%a,,y tai,ored (or t#is (orm o( %orporate ()ndraisin&' A
)se(), startin& point is t#e Canadian proposed B%ro$d()ndin& o((er do%)ment/* $#i%#
provides %,ear and str)%t)red dire%tion to iss)ers on $#at needs to +e dis%,osed* )sin& a
standard temp,ate to +e %omp,eted +y iss)ers'
"#e Canadian temp,ate (ormat #as a n)m+er o( advanta&es.
guidance. t#e temp,ate provides %,ear str)%t)red &)idan%e to iss)ers on $#at t#ey need
to dis%,ose to t#e %ro$d a+o)t t#emse,ves and t#e terms o( t#eir o((er* as $e,, as t#e
(ormat o( t#at dis%,os)re' "#is %an +e parti%),ar,y #e,p(), to start-)ps* &iven t#at t#eir
%ontro,,ers may #ave #ad ,itt,e or no e0perien%e $it# ()ndraisin& (rom t#e p)+,i% and
may #ave ,itt,e idea o( $#at is e0pe%ted o( t#em in t#is re&ard
comparison% it $o),d assist %ro$d investors to %ompare o((ers (rom di((erent iss)ers
more easi,y* &iven t#at a,, o((ers $o),d #ave to (o,,o$ t#e same dis%,os)re temp,ate
and (ormat'
In t#e vie$ o( CAMAC* t#is is an instan%e $#ere &reater 1+)t not )nd)e2 dis%,os)re
pres%ription may +e in t#e interests o( a,, invo,ved parties'
"#e dis%,os)re o+,i&ation* and ,ia+i,ities (or +rea%#* s#o),d rest primari,y on t#e iss)er' An
intermediary provided +y an iss)er $it# a (),,y %omp,eted o((er do%)ment $o),d +e
entit,ed to p)+,is# t#e o((er* s#ort o( a%t)a, kno$,ed&e o( some materia, misrepresentation
or omission or o( iss)er (ra)d 1Se%tion '10 and Se%tion '112'
CAMAC s)&&ests t#at t#e spe%i(i% e,ements o( a dis%,os)re temp,ate mi&#t +est +e
deve,oped +y ASIC and %ontained* say* in an ASIC po,i%y do%)ment' "#e Commission
%o),d take into a%%o)nt t#e Canadian pre%edent* t#e FS approa%# 1parti%),ar,y its
re<)irements %on%ernin& (inan%ia, statements2 and some o( t#e very )se(), s)&&estions p)t
(or$ard in t#e s)+missions* o)t,ined a+ove'
"#is temp,ate approa%# $o),d a,so provide (,e0i+i,ity +y ena+,in& ASIC to adC)st t#e
dis%,os)re re<)irements over time* in ,i&#t o( e0perien%e $it# t#e CS98 pro%ess' S)%# an
approa%# may #ave a more dere&),atory o)t%ome t#an a pres%riptive ,e&is,ative or
re&),ation-+ased (orm),ation o( t#e dis%,os)re re<)irements'
8rom t#e perspe%tive o( t#e +est )se o( p)+,i% ()nds* CS98 o((er do%)ments s#o),d not +e
re<)ired to +e ,od&ed $it# ASIC* nor s#o),d ASIC ot#er$ise +e re<)ired to revie$ s)%#
do%)ments* +e(ore t#eir p)+,i%ation on t#e intermediary/s $e+site* &iven t#at* )n,ike
prospe%t)s or 5IS o((ers* CS98 o((ers mi&#t on,y +e (or very sma,, amo)nts* $it# a ,o$
%ap on t#e tota, ()nds t#at an iss)er %an raise in a 12 mont# period' :at#er* ASIC s#o),d
+e &ranted stop order po$ers* to +e emp,oyed $#ere $arranted'
CAMAC proposes a n)m+er o( e,ements t#at s#o),d +e in%,)ded in t#e dis%,os)re re&ime
(or CS98 o((ers* and #o$ t#ey may +est +e re&),ated* as set o)t +e,o$'
Offer si-e
An iss)er/s o((er do%)ment s#o),d dis%,ose.
t#e minim)m n)m+er or va,)e o( s#ares +ein& o((ered in t#e on,ine o((er* and
$#et#er t#ere is a ma0im)m n)m+er or va,)e o( s#ares +ein& o((ered 1$it#in t#e
proposed O2 mi,,ion %ap2'
!ricin of s"ares
"#e pri%e per s#are o( t#e e<)ity o((ered to t#e %ro$d s#o),d +e at t#e dis%retion o( t#e
iss)er' -o$ever* an iss)er s#o),d +e o+,i&ed to indi%ate #o$ t#e pri%e per s#are is arrived
at* and #o$ it %ompares $it# t#e pri%e per s#are o( any ot#er %,ass o( s#ares in t#e iss)er*
as $e,, as $#o are t#e #o,ders o( any ot#er %,ass o( s#ares'
An entreprene)r $o),d +e entit,ed to #ave di((erentia, pri%in& +et$een %,asses o( s#ares
1(or instan%e* &ivin& an advanta&e to t#e %,ass o( B(o)nder s#ares/ over t#e %,ass o( B%ro$d
s#ares/2* provided t#at t#is in(ormation is (),,y dis%,osed to t#e %ro$d in t#e o((er
dis%,os)re do%)ment'
#ent" of time an offer can remain open
An iss)er/s o((er do%)ment s#o),d dis%,ose #o$ ,on& t#e o((er $i,, remain open' "#at
period s#o),d +e no more t#an* say* t#ree mont#s* t#ere+y #e,pin& to ens)re t#at t#e
in(ormation in t#e o((er do%)ment does not +e%ome sta,e'
Securities "oldins b* principals in an issuer
"#e prin%ipa,s o( an iss)er seekin& to raise %apita, t#ro)&# CS98 may t#emse,ves #ave
,itt,e or no (inan%ia, reso)r%es to p,a%e into t#e proCe%t' It may )ndermine some o( t#e
prod)%tivity potentia, o( CS98 i( an e<)ity o((er to t#e %ro$d %annot pro%eed )n,ess and
)nti, t#ese persons #ave invested a s)+stantia, amo)nt o( t#eir o$n %apita, in t#e proCe%t'
-o$ever* in t#e vie$ o( CAMAC* in(ormation on $#at ()nds* i( any* prin%ipa,s #ave
%ontri+)ted to t#e proCe%t is materia, to %ro$d investors in makin& in(ormed investment
de%isions' Some mem+ers o( t#e %ro$d may p,a%e %onsidera+,e importan%e on t#is matter'
A%%ordin&,y* an iss)er o((er do%)ment s#o),d +e re<)ired to dis%,ose.
$#et#er ea%# o( t#e prin%ipa,s o$ns s#ares or ot#er se%)rities o( t#e iss)er* or #as
ot#er$ise invested ()nds in t#e iss)er
i( so* detai,s o( t#e amo)nts invested* s#ares or ot#er se%)rities o$ned or ot#er
re,evant arran&ements entered into* and #o$ m)%# t#e prin%ipa,s paid in s)%#
transa%tions
$#et#er or not t#e s#ares or ot#er se%)rities are s)+Ce%t to an es%ro$ or #o,d period
and* i( so* detai,s o( t#e es%ro$ or #o,d period'
.is' warnin b* issuers to crowd investors
9,se$#ere in t#is report CAMAC proposes t#at intermediaries +e o+,i&ed to provide a
&eneri% $arnin& to %ro$d investors a+o)t t#e risks o( investin& in s#ares o((ered t#ro)&#
CS98 1Se%tion '12 and t#at t#ese $arnin&s m)st +e a%kno$,ed&ed +y t#ese investors
+e(ore t#ey %an invest in a parti%),ar e<)ity o((er t#ro)&# t#e intermediary/s $e+site
1Se%tion 6'2'
Canada is proposin& t#at iss)ers a,so +e o+,i&ed to provide a &eneri% risk $arnin& in t#eir
e<)ity o((er do%)ment' CAMAC s)pports t#is approa%#* notin& t#at it $o),d %onstit)te a
passive risk $arnin&* as investors $o),d not need to a%kno$,ed&e it +e(ore investin&' "#e
Canadian proposa,s #ave )se(), s)&&estions %on%ernin& t#e %ontent o( t#is &eneri% risk
$arnin&'
CAMAC %onsiders t#at &eneri% risk $arnin&s o( t#is nat)re* +ein& &iven to %ro$d
investors +ot# +y iss)ers and +y intermediaries* are a vita, %omponent o( investor
prote%tion $it# CS98'
%ilution
5ne o( t#e on&oin& risks t#at %ro$d investors may (a%e* even i( t#e proCe%t in $#i%# t#ey
#ave invested is s)%%ess(),* is t#e possi+,e di,)tion o( t#e dividend* votin& or any ot#er
ri&#ts atta%#ed to t#eir s#ares t#ro)&# s#are iss)es to ot#er parties' "#is matter is ()rt#er
dis%)ssed in Se%tion !'4'
-o$ever* ea%# o((er dis%,os)re do%)ment s#o),d %ontain a %,ear e0p,anation o( t#e nat)re
o( any s)%# risk (or %ro$d investors $#o a%%ept s#ares )nder t#e o((er'
,usiness plan
An iss)er s#o),d +e o+,i&ed to dis%,ose in its o((er do%)ment t#e nat)re o( its e0istin& or
proposed +)siness* its +)siness p,an* and #o$ t#e pro%eeds o( t#e CS98 o((er $i,, +e )sed
in ()rt#eran%e o( t#e +)siness p,an'
-avin& said t#is* CAMAC re%o&nises t#e need to #ave some %ommer%ia,-%on(identia,ity
e0emption* ana,o&o)s to t#at app,i%a+,e in t#e %onte0t o( %ontin)o)s dis%,os)re* to avoid
mandatin& dis%,os)res t#at %o),d ,ead to inte,,e%t)a, property t#e(t* premat)re e0pos)re to
market %ompetition* or %opy%at a%tivities +y ot#er entities'
As ear,ier indi%ated* CAMAC s)pports a pro#i+ition on iss)ers makin& o((ers in B+,ind
poo,s/* $#i%# in%,)de arran&ements $#ere an iss)er does not #ave a $ritten +)siness p,an'
!revious CSE( offers b* t"e issuer
An iss)er s#o),d +e re<)ired to dis%,ose t#e o)t%ome o( a,, past CS98 o((ers +y t#e iss)er
at any time* in%,)din& any (ai,ed or $it#dra$n o((ers'
Ot"er relevant issuers
An iss)er s#o),d +e re<)ired to dis%,ose in(ormation a+o)t ,inked or re,evant past
%ompanies t#at #ave en&a&ed in CS98 at any time' "#is in(ormation s#o),d invo,ve t#e
asso%iation detai,s 1see Se%tion !'2'22 and t#e nat)re and o)t%ome o( a,, CS98 o((ers* and
any ot#er o((ers to t#e p)+,i%* +y t#ose %ompanies* in%,)din& any (ai,ed or $it#dra$n
o((ers'
Intended use of CSE( proceeds
"#e iss)er s#o),d +e o+,i&ed to state in t#e o((er do%)ment #o$ it intends to spend t#e
pro%eeds to +e raised (rom a CS98 o((er* in%,)din& t#e prin%ipa, p)rposes to $#i%#
pro%eeds $i,, +e a,,o%ated and #o$ t#e pro%eeds $i,, +e )sed in ()rt#eran%e o( t#e iss)er/s
+)siness p,an'
5ne s)+mission proposed t#at dire%tors o( iss)ers s#o),d +e o+,i&ed to si&n and p)+,is# a
de%,aration t#at no ()nds raised t#ro)&# CS98 s#a,, +e )sed +y t#em* or t#eir re,ated
parties* in a persona, %apa%ity' CAMAC %onsiders t#at s)%# an o+,i&ation* in prin%ip,e*
may #e,p ens)re t#at investor ()nds are )sed dire%t,y to advan%e t#e iss)er/s proCe%t'
-o$ever* t#is raises a n)m+er o( imp,ementation iss)es* in%,)din& $#et#er ()nds raised
t#ro)&# CS98 %o),d +e )sed to %over reasona+,e rem)neration o( t#e prin%ipa,s o( t#e
iss)er'
An a,ternative approa%# is to re<)ire an iss)er to dis%,ose in t#e o((er do%)ment i( any o(
t#e (o,,o$in& persons* dire%t,y or indire%t,y* $i,, re%eive any pro%eeds (rom t#e ()nds
re%eived t#ro)&# CS98 and* i( so* t#e amo)nt ea%# person $i,, re%eive.
1a2 any o( t#e e0e%)tive o((i%ers* dire%tors or (o)nders o( t#e iss)er
1+2 any person promotin& or marketin& t#e CS98 o((er
1d2 any ot#er person t#at is a re,ated party o( t#e iss)er'
CAMAC s)pports t#is a,ternative dis%,os)re approa%#' It avoids t#e need to reso,ve
%omp,e0 pro+,ems s)rro)ndin& t#e %ir%)mstan%es $#en pro%eeds (rom a CS98 o((er %o),d
,e&itimate,y +e )sed to reasona+,y rem)nerate promoters in deve,opin& t#e proCe%t'
"#e Committee %onsiders t#at a dis%,os)re o+,i&ation may a,so #e,p a,ert t#e %ro$d to
possi+,e e0%essive or <)estiona+,e payments (rom ()nds to +e raised to persons asso%iated
$it# t#e proCe%t* and t#ere+y red)%e t#e attra%tiveness o( t#at o((er as an investment
option'
Implications of an adverse material c"ane
"#e temp,ate $o),d e0p,ain t#e opt-o)t option (or investors $#o a%%ept an o((er +e(ore
dis%,os)re o( any materia, adverse in(ormation %on%ernin& t#e o((er 1see Se%tion 4'112'
Onoin reportin obliations
"#e temp,ate s#o),d state t#at an e0empt p)+,i% %ompany is entit,ed to p)+,is# its ann)a,
(inan%ia, report* t#e dire%tors/ report and t#e a)ditor/s report 1i( app,i%a+,e2 on,ine on,y*
$it# no need to noti(y s#are#o,ders e,e%troni%a,,y on ea%# o%%asion* and no option (or
s#are#o,ders to re%eive a #ard %opy 1see ()rt#er Se%tion !'!'42'
An e0empt p)+,i% %ompany iss)er s#o),d insert detai,s o( t#e $e+site $#ere t#e reports
$i,, +e p)+,is#ed'
!.: Contro#s on advertising
)ss#e$ what controls sho#ld there 3e on advertising 3' an iss#er6
!.:.1.ther /urisdictions
USA
Iss)ers are pro#i+ited (rom t$o (orms o( advertisin& or promotion o( t#eir o((ers.
advertisin& t#e terms o( t#e o((er* e0%ept (or providin& a noti%e t#at dire%ts investors to
t#e intermediary p,at(orm (or t#at in(ormation' "#e S9C %ommented t#at t#is
,imitation.
is intended to dire%t investors to t#e intermediary/s p,at(orm and to make investment
de%isions $it# a%%ess to t#e dis%,os)res ne%essary (or t#em to make in(ormed
investment de%isions'
%ompensatin& any promoter o( t#e se%)rities* )n,ess s)%# %ompensation is (),,y
dis%,osed in a%%ordan%e $it# S9C :),es' "#e S9C %ommented t#at.
A,t#o)&# t#e re<)irement Lon iss)ersM to take steps to ens)re dis%,os)re o(
%ompensation paid to persons promotin& t#e o((erin& $o),d impose %omp,ian%e %osts
(or iss)ers* $e +e,ieve t#at investors $o),d +ene(it (rom kno$in& i( t#e investment
t#ey are %onsiderin& and dis%)ssin& $it# ot#er potentia, investors is +ein& to)ted +y a
promoter $#o is %ompensated +y t#e iss)er'
Canada
It is proposed t#at t#e on,y materia,s t#at may +e made avai,a+,e to potentia, investors in
%onne%tion $it# a %ro$d()ndin& o((er* in addition to t#e mandatory o((er do%)ment* are.
any do%)ment t#at is des%ri+ed in t#e o((er do%)ment* s)%# as t#e iss)er/s +)siness
p,an or s#are#o,ders/ a&reements* and
any term s#eet or ot#er s)mmary* in%,)din& a video* o( t#e in(ormation t#at is in%,)ded
in t#e o((er do%)ment'
A,, o((er materia,s m)st +e made avai,a+,e to potentia, investors t#ro)&# t#e
intermediary/s $e+site' "#e iss)er m)st a,so provide a %opy o( t#ese o((er materia, to t#e
re&),ator'
An iss)er 1as $e,, as an intermediary and any ot#er person invo,ved $it# a CS98 o((er2
may not advertise t#e o((er or so,i%it potentia, investors' -o$ever an iss)er 1as $e,, as an
intermediary and any ot#er person invo,ved $it# a CS98 o((er2 may advise potentia,
investors t#at t#e iss)er is proposin& to make t#e o((er and re(er t#e potentia, investors to
t#e $e+site o( t#e intermediary t#ro)&# $#i%# t#e o((er is made' "#is advi%e may +e
provided in paper (ormat or t#ro)&# so%ia, media'
!.:.2 Su,missions
A n)m+er o( respondents s)pported t#e prin%ip,e o( iss)ers +ein& a+,e to advertise t#eir
o((ers in some manner ot#er t#an mere,y t#ro)&# t#e o((er on t#e intermediary $e+site' A
tota, +an on ot#er (orms o( advertisin&* it $as ar&)ed* %o),d ne&ate t#e p)rpose o( CS98 to
+rin& t#e o((er to t#e attention o( a +road ran&e o( potentia, investors'
7it#in t#is %onte0t* one approa%# $as t#at t#ere +e no restri%tions on advertisin& +y an
iss)er* ot#er t#an p)rs)ant to e0istin& %ons)mer prote%tion provisions a&ainst (a,se and
mis,eadin& or de%eptive statements 1$#i%#* (or instan%e* %o),d app,y to (inan%ia, (ore%asts
$#i%# are )nreasona+,e or )nrea,isti%2 and a pro#i+ition on an iss)er a%%eptin& e<)ity
()nds ot#er t#an p)rs)ant to t#e o((er on t#e intermediary on,ine p,at(orm'
Anot#er approa%# $as t#at any advertisin& +y an iss)er ot#er t#an t#ro)&# t#e o((er on t#e
intermediary $e+site s#o),d +e ,imited to +asi% in(ormation identi(yin& t#e name and
+)siness o( t#e iss)er and t#e investment opport)nity* and dire%tin& potentia, investors to
t#e intermediary $#ere t#ey %an o+tain t#e o((er in(ormation and re,evant do%)ments' 5ne
s)&&estion $as t#at in des%ri+in& t#e investment opport)nity in any (orm o( advertisin&
t#ere s#o),d +e an e0press +an on an iss)er en&a&in& in (inan%ia, (ore%astin&* in%,)din&
any statement %on%ernin& potentia, earnin&s or ()t)re distri+)tions'
Anot#er vie$ $as t#at any (orm o( advertisin& +y iss)ers ot#er t#an t#ro)&# t#e o((er on
t#e intermediary $e+site s#o),d +e +anned' It $as ar&)ed t#at i( advertisin& +y iss)ers is
permitted in t#e mainstream media* %ro$d investors %o),d (orm )nrea,isti% (irst
impressions or e0pe%tations in re,ation to t#e potentia, re$ards o( s)%# investments* even
t#o)&# t#ey %o),d on,y a%%ept t#e o((er t#ro)&# t#e intermediated pro%ess'
!.:.CAMAC position
CAMAC %onsiders t#at %ontro,s need to +e p,a%ed on advertisin& 1ot#er t#an $#at is set
o)t in t#e o((er do%)ments2 +y an iss)er makin& a CS98 o((er'
S)%# %ontro,s are ne%essary* over and a+ove re,ian%e on &enera, ,a$ remedies (or (a,se and
mis,eadin& or de%eptive statements* in t#e interests o( investor prote%tion' As s)mmed )p
in one s)+mission.
i( advertisin& +y iss)ers is permitted in t#e mainstream media* investors %o),d (orm
)nrea,isti% (irst impressions or e0pe%tations in re,ation to t#e potentia, re$ards o( s)%#
investments* even t#o)&# t#ey %o),d on,y a%%ept t#e o((er t#ro)&# t#e intermediated
pro%ess'
"#ere may a,so +e a temptation (or iss)ers* or persons asso%iated $it# t#em* to try to
&enerate interest in an o((er +y* (or instan%e* p,antin& (ake positive %omments in so%ia,
media' CS98* +ein& internet +ased* may a%%ent)ate t#is pro+,em' 7#i,e it may not +e
possi+,e to %)rtai, t#is pra%ti%e* it is sti,, in t#e interests o( investor prote%tion to (orma,,y
indi%ate t#at s)%# pra%ti%es are )na%%epta+,e'
CAMAC sees t#e &enera, approa%# in s 7!4 o( t#e Corporations A%t as a possi+,e mode, in
t#e %onte0t o( CS98' "#at provision re&),ates advertisin& and p)+,i%ity o( %)rrent,y
permitted se%)rities o((ers* +e(ore and a(ter t#e dis%,os)re do%)ment is ,od&ed'
"#e FS and Canadian approa%#es* and t#e vie$s o( t#ose respondents in s)+missions $#o
(avo)red %ontro,s on advertisin& +y iss)ers* a,so %onstit)te a ran&e o( )se(), s)&&estions
a+o)t t#e (orm* and p)rpose* o( s)%# %ontro,s in t#e spe%i(i% %onte0t o( CS98'
!.; .versu,scription
)ss#e$ sho#ld iss#ers 3e permitted to raise more f#nds than referred to in the original
offer6
!.;.1.ther /urisdictions
Canada
It is proposed t#at an iss)er +e permitted to o((er more t#an t#e n)m+er o( se%)rities
initia,,y proposed to +e o((ered in its o((er do%)ment i( it #as dis%,osed t#e ma0im)m
n)m+er o( se%)rities t#at %o),d +e o((ered )nder CS98 and t#e )se o( t#e additiona,
pro%eeds t#at $o),d +e raised' -o$ever* t#e O1' mi,,ion ,imit on t#e a&&re&ate amo)nt
t#at %an +e raised )nder CS98 +y t#e iss)er &ro)p in a spe%i(ied time period m)st +e
%omp,ied $it#'
A%%ordin& to t#e 5SC.
"#is approa%# $i,, a,,o$ an iss)er to raise additiona, ()nds to a,,o%ate to t#e
advan%ement o( its +)siness p,an i( t#ere is stron& investor interest in t#e o((erin&*
s)+Ce%t to t#e overa,, distri+)tion ,imit o( O1' mi,,ion'
USA
In t#e FS* t#e S9C a,so (avo)rs an iss)er +ein& a+,e to a%%ept investments in e0%ess o( any
tar&et amo)nt in an o((er do%)ment* s)+Ce%t to t#e O1 mi,,ion in 12 mont#s ,imitation and
%ertain %onditions.
7e +e,ieve t#at permittin& overs)+s%riptions $o),d provide (,e0i+i,ity to iss)ers so
t#at t#ey %an raise t#e amo)nt o( %apita, t#ey deem ne%essary to (inan%e t#eir
+)sinesses' 8or e0amp,e* permittin& overs)+s%riptions $o),d a,,o$ an iss)er to raise
more ()nds* $#i,e ,o$erin& %omp,ian%e %osts* i( t#e iss)er dis%overs d)rin& t#e
o((erin& pro%ess t#at t#ere is &reater investor interest in t#e o((erin& t#an initia,,y
anti%ipated or i( t#e %ost o( %apita, is ,o$er t#an initia,,y anti%ipated'
!.;.2CAMAC position
An iss)er s#o),d +e permitted to o((er to t#e %ro$d more t#an t#e n)m+er o( s#ares
previo)s,y re(erred to in its o((er do%)ment* provided t#at it dis%,oses t#e adC)sted
ma0im)m n)m+er o( s#ares on o((er )nder CS98 1$it#in t#e O2 mi,,ion %ap2 and t#e )se
o( t#e additiona, pro%eeds t#at $o),d +e raised'
"#is $i,, &ive some (,e0i+i,ity to iss)ers to raise ()nds in e0%ess o( an initia, tar&et $#ere
t#ere is a stron&er t#an anti%ipated ,eve, o( %ro$d interest in t#e o((er'
!.1<'ending to crowd investors
)ss#e$ sho#ld there 3e controls on lending to investors to ac5#ire shares offered
thro#gh the CS! process6
!.1<.1 .ther /urisdictions
Canada
It is proposed t#at restri%tions app,y to t#e a+i,ity o( %ro$d investors to +orro$ money to
(inan%e t#e p)r%#ase o( se%)rities t#ro)&# CS98'
Fnder t#is approa%#* iss)ers 1as $e,, as intermediaries. see Se%tion '192 and t#eir
respe%tive dire%tors and e0e%)tive o((i%ers* m)st not ,end or (inan%e* or arran&e ,endin& or
(inan%in& 1(or instan%e* (rom an a((i,iate2* (or an investor to p)r%#ase se%)rities o( t#e
iss)er t#ro)&# CS98'
"#is approa%# $as seen as #e,pin& to address %on%erns asso%iated $it# retai, investors
)sin& ,evera&e to invest t#ro)&# %ro$d()ndin&* t#o)&# a possi+,e ()rt#er step o(
pro#i+itin& a potentia, investor o)tri&#t (rom +orro$in& money to (inan%e t#e p)r%#ase o(
se%)rities t#ro)&# CS98 $as seen as over,y intr)sive and di((i%),t to en(or%e'
!.1<.2 CAMAC position
CAMAC a&rees $it# t#e Canadian approa%# t#at to avoid %on(,i%ts o( interest* iss)ers 1as
$e,, as intermediaries2 and t#eir respe%tive dire%tors and e0e%)tive o((i%ers s#o),d +e
pro#i+ited (rom (inan%in&* or arran&in& (inan%in& (or* a %ro$d investor to p)r%#ase s#ares
o( t#e iss)er t#ro)&# CS98' "#is pro#i+ition $o),d address some %on%erns asso%iated $it#
retai, investors )sin& ,evera&e to invest t#ro)&# CS98'
-o$ever* in t#e vie$ o( CAMAC* &oin& t#e ()rt#er step o( pro#i+itin& o)tri&#t a potentia,
%ro$d investor (rom independent,y +orro$in& money to (inan%e t#e p)r%#ase o( s#ares
t#ro)&# CS98 $o),d +e an over,y intr)sive (orm o( re&),ation* and $o),d +e very di((i%),t
to en(or%e'
An independent* t#o)&# re,ated* <)estion %on%erns t#e stat)s o( any s#ares a%<)ired in
+rea%# o( t#is pro#i+ition' 3iven t#at t#e %ir%)mstan%es s)rro)ndin& ,oan transa%tions may
di((er* t#e +etter %o)rse may +e to &ive dis%retionary po$ers to t#e %o)rt to )n$ind* or
ot#er$ise adC)st* s)%# transa%tions'
!.11Materia# adverse change concerning the
issuer
)ss#e$ what sho#ld 3e the conse5#ences of a :material adverse change8 concerning the
iss#er d#ring the offer period6
!.11.1 .ther /urisdictions
Canada
7#ere a materia, %#an&e in t#e o((er o%%)rs* %ommitted investors m)st +e noti(ied o( t#e
%#an&e* and re%on(irm t#eir %ommitment* $it#in (ive +)siness days' I( re%on(irmation is
not re%eived $it#in t#at time* t#e investment m)st +e a)tomati%a,,y %an%e,,ed and t#e
()nds ret)rned'
!.11.2 CAMAC position
7#ere* (o,,o$in& t#e p)+,i%ation o( an o((er to t#e %ro$d* an iss)er +e%omes a$are o( a
Bmateria, adverse %#an&e/ %on%ernin& itse,(* t#e iss)er s#o),d +e re<)ired to amend t#e
o((er do%)mentation a%%ordin&,y and advise t#e intermediary o( t#e %orre%ted in(ormation*
(or p)+,i%ation on t#e intermediary/s $e+site'
A materia, adverse %#an&e %on%ernin& t#e iss)er $o),d +e any matter.
invo,vin& a mis,eadin& or de%eptive statement in t#e o((er dis%,os)re do%)mentation*
or
a materia, omission (rom t#e in(ormation re<)ired in t#e o((er dis%,os)re
do%)mentation* or
a ne$ %ir%)mstan%e t#at #as arisen sin%e t#e o((er $as p)+,is#ed* and
$#i%# is materia,,y adverse (rom t#e point o( vie$ o( t#e %ro$d investor 1%( s 7191122'
"#e o+,i&ation s#o),d rest on t#e iss)er to identi(y any adverse materia, %#an&e'
An intermediary t#at #as +een noti(ied +y t#e iss)er o( a materia, adverse %#an&e s#o),d
+e re<)ired to noti(y t#at %#an&e to a,, investors $#o #ave previo)s,y a%%epted t#e o((er'
"#is $o),d not +e a +)rdensome task* as t#e intermediary $o),d #ave %onta%t detai,s (or
t#ese %ro$d investors' "#e intermediary $o),d on,y #ave to pass on t#e in(ormation* and
$o),d not +e re<)ired to make any assessment o( it' "#e intermediary s#o),d +e entit,ed to
%#ar&e t#e iss)er (or t#at noti(i%ation servi%e'
5n%e noti(ied +y t#e intermediary* a((e%ted investors s#o),d +e &iven %ertain ri&#ts to
$it#dra$ t#eir ear,ier a%%eptan%e o( t#e o((er' In t#is re&ard* CAMAC #as %onsidered t$o
po,i%y approa%#es.
opt1out rights. p,a%in& t#e on)s on ea%# investor* on%e in(ormed o( t#e materia,
adverse %#an&e* to noti(y t#e intermediary* $it#in a pres%ri+ed period* o( any intention
to %an%e, t#e a%<)isition o( a,, or some o( t#e s#ares previo)s,y p)r%#ased )nder t#e
o((er
opt1in rights% a)tomati%a,,y %an%e,,in& t#e previo)s s#are transa%tions o( ea%# investor
)nder t#e o((er* ot#er t#an t#ose o( any investor $#o* on%e in(ormed o( t#e materia,
adverse %#an&e* noti(ies t#e intermediary $it#in a pres%ri+ed period t#at t#e investor
$is#es to %ontin)e $it# t#e a%<)isition (or a,, or some o( t#e a((e%ted s#ares'
Bot# po,i%y options $o),d +e e<)a,,y $orka+,e (or t#ose %ro$d investors $#o %#ose to
make an e,e%tion $it#in t#e pres%ri+ed period' -o$ever* t#e opt-o)t po,i%y option $o),d
+e detrimenta, to t#e interest o( t#ose %ro$d investors $#o did not respond in t#e
stip),ated period 1$#i%# %o),d +e (or any n)m+er o( reasons2' 8rom t#eir perspe%tive* t#e
opt-in po,i%y option $o),d +e pre(era+,e'
"#e opt-o)t po,i%y option is adopted in t#e Corporations A%t in re&ard to re&),ated o((ers
to t#e p)+,i% 1s 7242' "#e opt-in po,i%y option #as +een proposed in t#e Canadian
approa%#'
CAMAC %onsiders t#at* on +a,an%e* t#e opt-o)t po,i%y option s#o),d +e adopted* (or t#e
(o,,o$in& reasons.
it is $orka+,e (or t#ose investors $#o t)rn t#eir mind to $#et#er to e0er%ise t#e
e,e%tion to $it#dra$ (rom t#e s#are transa%tion
t#e opt-in po,i%y option %o),d see t#e %o,,apse o( a CS98 o((er +y de(a),t* t#ro)&# t#e
non-response* in%,)din& t#ro)&# apat#y* o( a s)((i%ient n)m+er o( %ro$d investors
$#o #ave previo)s,y a%%epted t#e o((er
an opt-o)t approa%# in t#e %onte0t o( CS98 $o),d %reate a %onsistent approa%# $it#
ot#er re&),ated (orms o( p)+,i% e<)ity ()ndraisin&'
CAMAC %onsiders t#at to dra$ t#e attention o( %ro$d investors to t#e operation o( t#e
opt-o)t me%#anism* and t#e imp,i%ations o( t#eir not respondin&* t#ey s#o),d +e made
a$are o( t#is me%#anism.
+y t#e iss)er* in t#e o((er dis%,os)re do%)ment itse,(
+y t#e intermediary* $#en &ivin& noti%e o( any adverse materia, %#an&e to t#e
investor* at $#i%# time t#e opt-o)t ri&#t arises'
In t#e interests o( a,, parties* a temp,ate e0p,anation o( t#e opt-o)t pro%ess* in +ot#
%onte0ts* %o),d +e desi&ned (or t#is p)rpose'
In addition to opt-o)t ri&#ts* investors may #ave remedies )nder t#e &enera, ,a$* in%,)din&
dama&es* $#ere (ra)d or some ot#er (orm o( misrepresentation is invo,ved 1Se%tion 6'102'
!.12Comp#eting the o?er
)ss#e$ what sho#ld 3e the preconditions to completing a CS! offer6
Canada
It is proposed t#at a CS98 o((er %annot +e %omp,eted )n,ess.
t#e minim)m amo)nt o( ()nds to +e raised* as dis%,osed in t#e %ro$d()ndin& o((er
do%)ment #as +een s)+s%ri+ed (or* and
at t#e time o( %omp,etion o( t#e o((er* t#e iss)er #as (inan%ia, reso)r%es 1$#i%# may
in%,)de ()nds raised ot#er t#an t#ro)&# CS982 t#at are s)((i%ient to a%#ieve t#e ne0t
mi,estone set o)t in its $ritten +)siness p,an* or i( t#e iss)er does not #ave any
mi,estones set o)t in its $ritten +)siness p,an* to %arry o)t t#e a%tivities set o)t in its
$ritten +)siness p,an'
"#e 5SC %onsidered t#at t#ese re<)irements.
$i,, provide an e,ement o( investor prote%tion* as an investor $i,, kno$ t#e minim)m
amo)nt o( pro%eeds t#at $i,, +e raised )nder t#e o((erin& and $i,, #ave some
ass)ran%e t#at* on %omp,etion o( t#e o((erin&* t#e iss)er $i,, #ave (inan%ia, reso)r%es
s)((i%ient to a%#ieve t#e ne0t mi,estone set o)t in its $ritten +)siness p,an or to %arry
o)t t#e a%tivities set o)t in its $ritten +)siness p,an'
An intermediary m)st ens)re t#at a CS98 o((er is not %omp,eted )nti, t#ese %onditions
#ave +een satis(ied'
An iss)er t#at distri+)tes se%)rities )nder a %omp,eted CS98 o((er m)st (i,e a report to t#e
re&),ator $it#in 10 days o( %omp,etion o( t#e distri+)tion'
!.12.2 Su,missions
"#ere $as a vie$ in s)+missions t#at $#et#er it is an Ba,, or not#in&/ or Bkeep it a,,/ CS98
%ampai&n* iss)ers s#o),d on,y &ain a%%ess to investor ()nds $#en.
t#e CS98 o((er period #as ended* and
any minim)m s)+s%riptionNdesi&nated ()nds tar&et set +y t#e iss)er #as +een met* and
any ot#er pre%onditions in t#e o((er #ave +een satis(ied
any %oo,in& o(( period (or investors #as e0pired* and
,e&a,,y +indin& s#are o$ners#ip do%)mentation #as +een provided to investors'
!.12. CAMAC position
CAMAC a&rees $it# t#e approa%# in s)+missions as to $#at %onstit)tes %omp,etin& a
CS98 o((er' Fnti, t#e o((er is %omp,eted* t#ere s#o),d +e a +an on t#e trans(er o( any
%ro$d investor ()nds to t#e iss)er and t#e trans(er o( any s#ares to t#ose investors'
An o((er %annot pro%eed to %omp,etion )n,ess t#e s)+s%ription t#res#o,d* +ein& t#e
minim)m amo)nt o( ()nds to +e raised* as dis%,osed in t#e %ro$d()ndin& o((er do%)ment*
#as +een rea%#ed' -o$ever* $#et#er t#at t#res#o,d #as +een a%#ieved may +e in(,)en%ed
+y.
any materia, adverse %#an&e d)rin& t#e o((er period and* i( so* t#e n)m+er o( investors
$#o t#ere)pon $it#dra$ t#eir a%%eptan%es 1Se%tion 4'112'
t#e %oo,in&-o(( ri&#ts o( %ro$d investors 1Se%tion 6'62'
In %onse<)en%e* a CS98 o((er %annot +e treated as +ein& %omp,eted )nti, t#e e0piration o(
t#ese investor ri&#ts'
Canada #as proposed t#at a se%ond %ondition app,y* name,y t#at at t#e intended time o(
%omp,etion* t#e iss)er #as (inan%ia, reso)r%es 1takin& into a%%o)nt t#e ()nds raised t#ro)&#
t#e CS98 o((er2 t#at are s)((i%ient to a%#ieve t#e ne0t sta&e in its $ritten +)siness p,an* or
ot#er$ise to %arry o)t t#e a%tivities set o)t in t#at p,an'
CAMAC notes t#at t#is proposed sufficient funds condition is intended to &ive %ro$d
investors some ass)ran%e 1+e(ore t#e s#are transa%tions are %omp,eted2 t#at t#e iss)er $i,,
#ave s)((i%ient (inan%ia, reso)r%es to %ontin)e t#e proCe%t'
"#e type o( %ir%)mstan%e so)&#t to +e %overed +y t#e sufficient funds condition s)%# as a
materia, deterioration in t#e (inan%ia, position o( t#e iss)er d)rin& t#e o((er period $o),d*
)nder t#e CAMAC approa%#* %onstit)te a materia, adverse %#an&e t#at $o),d a,,o$ t#e
investor to res%ind t#e s#are a%<)isition %ontra%t 1Se%tion 4'112' 3iven t#is* an additiona,
,ayer o( investor prote%tion t#ro)&# a sufficient funds condition may +e )nne%essary'
!.1*ees paid ,y issuers
)ss#e$ what controls sho#ld appl' to fees paid 3' iss#ers6
Canada
An iss)er $i,, +e pro#i+ited (rom* dire%t,y or indire%t,y* payin& a %ommission* (inder/s (ee*
re(erra, (ee or simi,ar payment to any person in %onne%tion $it# any CS98 o((er ot#er t#an
to t#e intermediary t#ro)&# $#i%# t#e o((ers are made' A%%ordin& to t#e 5SC* t#is
pro#i+ition does not app,y to payments +y iss)ers to persons as %ompensation (or t#eir
servi%es to an iss)er in preparin& materia,s in %onne%tion $it# a CS98 o((er* s)%# as
a%%o)ntin& or ,e&a, (ees'
In t#e vie$ o( t#e 5SC* t#ese (ee restri%tions $i,, miti&ate potentia, %on(,i%ts o( interest'
!.1.2 CAMAC position
CAMAC %onsiders t#at (ee restri%tions s#o),d app,y* to miti&ate %on(,i%ts o( interest*
in%,)din& #idden promotions or endorsements +y persons $#o* )nkno$n to t#e %ro$d* $i,,
+ene(it (rom t#e take-)p o( %ertain CS98 o((ers'
Consistent $it# t#e approa%# in Canada* an iss)er s#o),d +e pro#i+ited (rom* dire%t,y or
indire%t,y* payin& a %ommission* (inder/s (ee* re(erra, (ee or simi,ar payment to any person
in %onne%tion $it# any CS98 o((er* ot#er t#an (ees to t#e intermediary dire%t,y re(era+,e to
%ond)%tin& t#at o((er on its $e+site'
-o$ever* t#is pro#i+ition s#o),d not app,y to payments +y an iss)er to persons as
%ompensation (or t#eir servi%es to t#at iss)er in preparin& materia,s dire%t,y in %onne%tion
$it# a CS98 o((er* in%,)din& payment o( a%%o)ntin& or ,e&a, (ees in preparin& an o((er
dis%,os)re do%)ment'
CAMAC e,se$#ere dis%)sses t#e dis%,os)re o( (ees %#ar&ed +y intermediaries
1Se%tion '2!2'
!.1!'ia,i#ity
)ss#e$ in what circ#mstances sho#ld iss#ers and their controllers 3e lia3le for the
content of CS! offer doc#ments6 4hat defences sho#ld appl'6
!.1!.1 .ther /urisdictions
New Zealand
An iss)er )sin& CS98 $i,, +e s)+Ce%t to ,ia+i,ity (or pe%)niary pena,ties (or any
misstatements or )ns)+stantiated representations it makes 1)n,ess it %an prove a de(en%e*
(or instan%e t#at t#e %ontravention $as d)e to a %a)se +eyond its %ontro, and it took
reasona+,e pre%a)tions and e0er%ised d)e di,i&en%e to avoid t#e %ontravention2'
USA
Misstatements
Iss)ers* and B%ontro, persons/ o( t#e %ompany* in%,)din& dire%tors and prin%ipa, o((i%ers*
$i,, +e s)+Ce%t to ,ia+i,ity (or any misstatements t#ey make' I( t#e iss)er.
makes an )ntr)e statement o( a materia, (a%t or omits to state a materia, (a%t ne%essary
to make its statements* in ,i&#t o( t#e %ir%)mstan%es in $#i%# t#ey $ere made* not
mis,eadin&* and
%annot s)stain t#e +)rden o( proo( t#at it did not kno$ and* in t#e e0er%ise o(
reasona+,e %are* %o),d not #ave kno$n* o( s)%# )ntr)t# or omission
it m)st reim+)rse t#e p)r%#ase pri%e o( se%)rities p,)s interest'
)nvestment "imits
"#ere are ,imits on t#e amo)nt o( ()nds t#at ea%# investor %an %ontri+)te ann)a,,y t#ro)&#
CS98 1see Se%tion 6'42'
"#e S9C #as proposed a,,o$in& an iss)er to re,y on e((orts t#at an intermediary takes to
determine t#at an investor does not e0%eed t#e investor ,imits 1see Se%tion 6'4'22* provided
t#at t#e iss)er does not #ave kno$,ed&e t#at t#e investor #ad e0%eeded* or $o),d e0%eed*
t#e investor ,imits as a res),t o( a%%eptin& t#e o((er o( t#e iss)er'
/anning and safe harbour
"#e S9C may +an persons (rom )ti,isin& CS98 to ()nd t#eir proCe%ts on %ertain &ro)nds*
in%,)din& non-%omp,ian%e $it# re&),atory re<)irements or (ra)d),ent* manip),ative or
de%eptive %ond)%t'
"#e S9C is proposin& to provide a sa(e #ar+o)r (or iss)ers (or %ertain insi&ni(i%ant
deviations (rom re&),atory re<)irements )nder t#e CS98 provisions* provided.
t#e (ai,)re to %omp,y $as insi&ni(i%ant $it# respe%t to t#e o((er as a $#o,e
t#e iss)er made a &ood (ait# and reasona+,e attempt to %omp,y $it# a,, app,i%a+,e
terms* %onditions and ot#er re&),atory re<)irements* and
t#e iss)er did not kno$ o( t#e (ai,)re to %omp,y* $#ere t#at (ai,)re $as t#e res),t o(
t#e (ai,)re o( t#e intermediary'
Canada
Certificate
It is proposed t#at a %ro$d()ndin& o((er do%)ment m)st %ontain a %erti(i%ate* si&ned +y t#e
iss)er* statin& t#at t#e o((er do%)ment does not %ontain a misrepresentation* and t#at
investors #ave ri&#ts o( a%tion and $it#dra$a, in t#e %ase o( a misrepresentation'
"#is re<)irement is intended to make mana&ement and dire%tors o( t#e iss)er a%%o)nta+,e
(or t#e dis%,os)re* $#i,e makin& investors a$are o( t#eir ri&#ts o( a%tion'
A,so* i( a %erti(i%ate %eases to +e tr)e a(ter it #as +een made avai,a+,e to a potentia,
investor* t#e iss)er is pro#i+ited (rom a%%eptin& any o((er (rom t#at investor to a%<)ire
se%)rities )nti,.
an amended o((er and %erti(i%ate is p)+,is#ed on t#e intermediary $e+site and made
avai,a+,e to t#e investor* and
t#e investor re%on(irms its o((er to a%<)ire se%)rities* or does not $it#dra$ its o((er* to
p)r%#ase t#e se%)rities d)rin& t#e o((er period'
-iabi"ity for misrepresentation
"#e 5SC %onsidered it important (or market %on(iden%e t#at investors #ave a %ontra%t)a,
ri&#t to s)e (or misrepresentation' 8or t#is p)rpose* t#e iss)er m)st provide a %ontra%t)a,
ri&#t o( a%tion (or res%ission or dama&es to ea%# investor and se%)rity #o,der in t#e event
o( a misrepresentation* s)+Ce%t to a d)e di,i&en%e de(en%e and a de(en%e t#at t#e investor
kne$ o( t#e misrepresentation'
!.1!.2 Su,missions
Eario)s respondents %onsidered t#at t#e prin%ip,es in ss 728-7!! o( t#e Corporations A%t
1dea,in& $it# ,ia+i,ity (or misstatements in* or omission (rom* a dis%,os)re do%)ment2
s#o),d a,so app,y to dis%,os)res +y an iss)er in t#e %onte0t o( CS98'
-o$ever* one respondent %onsidered t#at some adC)stments to t#e avai,a+,e de(en%es
)nder t#ose provisions $o),d +e needed* ar&)in& t#at t#e %osts o( (),, veri(i%ation*
re<)ired $it# t#e %)rrent de(en%es to mis,eadin& and de%eptive statements (or p)+,i%
%ompany o((ers* %o),d +e pro#i+itive and ne&ate t#e via+i,ity o( CS98' :at#er* t#ere
s#o),d +e a spe%i(i% de(en%e in t#e CS98 %onte0t (or t#ose dire%tors o( iss)ers $#o #ave
a%ted #onest,y and reasona+,y* $it#o)t re<)irin& t#at t#is invo,ve (),, veri(i%ation'
In re&ard to dire%tors/ d)ties and ,ia+i,ity $#en a %ompany is inso,vent* t#e &enera, vie$
$as t#at dire%tors o( entities emp,oyin& CS98 s#o),d +e in t#e same ,e&a, position as
dire%tors o( ot#er %ompanies'
!.1!. CAMAC position
"#ere is a stron& %ase (or makin& any ,ia+i,ity and de(en%e re&ime (or t#e %ontent o( a,,
iss)er dis%,os)res to t#e %ro$d &enera,,y %onsistent $it# t#e approa%# adopted in
ss 728-7!! o( t#e Corporations A%t in re&ard to o((er and ot#er dis%,os)re do%)ments
)nder C#apter 6; o( t#e Corporations A%t' -o$ever* as s)&&ested in s)+missions* t#ere
may +e merit in t#e %onte0t o( CS98 in #avin& a de(en%e o( a%tin& #onest,y and
reasona+,y* $it#o)t t#e re<)irement o( (),, veri(i%ation'
"#ere may a,so +e merit in t#e Canadian proposa, (or a si&ned %erti(i%ate +y t#e iss)er* as
part o( t#e o((er do%)ment to t#e %ro$d* statin& t#at t#ere is no misrepresentation in t#at
do%)ment* to&et#er $it# t#e %onse<)en%es i( t#e %erti(i%ate is )ntr)e or %eases to +e tr)e
a(ter its p)+,i%ation'
"#is %erti(i%ation re<)irement $o),d dra$ to t#e attention o( +ot# iss)ers and %ro$d
investors t#e dis%,os)re o+,i&ations o( iss)ers in makin& e<)ity o((ers to t#e %ro$d and t#at
dire%tors or ot#er %ontro,,ers o( iss)ers may +e s)+Ce%t to %ivi, ,ia+i,ity (or
misrepresentations or materia, omissions'
A,so* ASIC s#o),d +e &ranted a +annin& po$er* to +e )sed $#ere iss)ers #ave serio)s,y* or
repeated,y* +rea%#ed t#eir o+,i&ations )nder t#e CS98 provisions'
CAMAC a,so a&rees $it# respondents t#at dire%tors o( entities emp,oyin& CS98 s#o),d +e
in t#e same ,e&a, position as dire%tors o( ot#er %ompanies in re,ation to dire%tors/ d)ties
and ,ia+i,ity $#en a %ompany is inso,vent'
!.1%Communication ,etween crowd investors
)ss#e$ what1 if an'1 o3ligation sho#ld iss#ers have to provide a means for its crowd
and other investors to comm#nicate with each other6
!.1%.1 CAMAC position
CAMAC e,se$#ere proposes t#at intermediaries +e re<)ired to provide (a%i,ities (or %ro$d
investors to %omm)ni%ate $it# ea%# ot#er and $it# t#e iss)er' -o$ever* t#is o+,i&ation on
t#e intermediary s#o),d on,y app,y d)rin& s)%# time as t#e iss)er is )ti,isin& t#e
intermediary/s $e+site 1Se%tion '212'
8o,,o$in& t#e %omp,etion o( an o((er* %ro$d and ot#er s#are#o,ders may $is# to
%omm)ni%ate $it# ea%# ot#er (or vario)s p)rposes* in%,)din& to %onsider possi+,e
responses to t#e %ond)%t o( %ompany dire%tors or ot#er o((i%ers 1see Se%tion !'42' "#is
%o),d +e (a%i,itated i( s#are#o,ders #ad a ready on&oin& means o( on,ine %onta%t* say*
t#ro)&# t#e iss)er/s $e+site or t#ro)&# a so%ia, media site 1$it#* (or instan%e* s#are#o,ders
#avin& pass$ord a%%ess to t#e on,ine site2'
S)%# an initiative +y iss)ers may +e one means o( more e((e%tive en&a&ement o(
s#are#o,ders $it# ea%# ot#er and $it# t#e %ompany' Beyond t#at* #o$ever* t#e <)estion is
$#et#er t#is s#o),d +e a stat)tory o+,i&ation'
An ar&)ment (or a mandatory approa%# is t#at an iss)er t#at is e0perien%in& di((i%),ties
may %#oose to %,ose do$n t#e e,e%troni% %omm)ni%ation porta, at t#e very time t#at it may
most +e needed +y s#are#o,ders'
A %ontrary position is t#at $it#o)t a &enera, stat)tory re<)irement app,i%a+,e to a,, p)+,i%
%ompanies* t#e %onse<)en%e $o),d +e t#at on,y t#ose iss)ers t#at #ad raised ()nds t#ro)&#
CS98 $o),d #ave t#is o+,i&ation' CAMAC %onsiders t#at t#is matter s#o),d +e %onsidered
in t#is +roader %onte0t* and not +e introd)%ed (or CS98 iss)ers a,one'
% The crowdfunding process=
intermediaries
This chapter sets out the proposa"s for intermediaries to conduct equity offers to the crowd
through their websites!
%.1 .verview
Intermediaries p,ay t#e %entra, ro,e in +rin&in& to&et#er iss)ers and %ro$d investors' -o$
t#ey per(orm t#at ro,e is ()ndamenta, to t#e inte&rity o( t#e CS98 pro%ess'
It is proposed t#at ea%# e<)ity o((er to t#e %ro$d +e %ond)%ted t#ro)&# one intermediary
on,y* operatin& on,ine on,y 1Se%tion '22' "#e iss)er $o),d %#oose t#e intermediary*
s)+Ce%t to t#e intermediary a&reein& to #ost t#e iss)er on its $e+site'
"#e CAMAC proposa,s %on%ernin& intermediaries seek to en&ender iss)er and investor
%on(iden%e in t#e CS98 pro%ess +y re<)irin& intermediaries to take a (),,y pro(essiona,
approa%# to t#eir ro,e' A,so* intermediaries $o),d +ene(it (rom si&ni(i%ant e%onomies o(
s%a,e as more iss)ers are #osted on t#eir p,at(orms* t#ere+y red)%in& t#eir %omp,ian%e
%osts'
%.1.1.,#igations
"o %ond)%t any CS98 o((er* an intermediary s#o),d +e appropriate,y ,i%ensed and %omp,y
$it# t#e vario)s o+,i&ations atta%#ed to t#at ,i%en%e 1Se%tion '! to Se%tion '62'
It is a,so proposed t#at intermediaries m)st.
%ond)%t ,imited d)e di,i&en%e %#e%ks on iss)ers 1Se%tion '8 and Se%tion '92
provide a &eneri% risk dis%,os)re statement to %ro$d investors 1Se%tion '12
%#e%k %omp,ian%e $it# investor %aps in some instan%es 1Se%tion '162
provide %omm)ni%ation (a%i,ities +et$een iss)ers and investors 1Se%tion '212
#ave* and dis%,ose in(ormation a+o)t* disp)te reso,)tion pro%ed)res and indemnity
ins)ran%e 1Se%tion '222
dis%,ose t#e (ees t#ey %#ar&e 1Se%tion '2!2'
Intermediaries m)st a,so noti(y a%%eptin& investors o( materia, adverse %#an&es
1Se%tion 4'112'
Intermediaries s#o),d not +e o+,i&ed to s%reen %ro$d investors 1Se%tion '142' -o$ever*
t#ey s#o),d +e re<)ired to re%eive investor a%kno$,ed&ements o( risk dis%,os)re
statements +e(ore permittin& t#em to a%<)ire s#ares t#ro)&# CS98 1Se%tion 6'2'
The crowdfunding process% intermediaries
%.1.21rohi,itions
It is proposed t#at intermediaries %annot.
p)+,is# o((ers o( ine,i&i+,e iss)ers 1Se%tion '72
en&a&e in %on(,i%t o( interest sit)ations 1Se%tion '122
provide investment advi%e to %ro$d investors 1Se%tion '172
so,i%it %ro$d investors to a%%ept CS98 o((ers on t#eir $e+sites 1Se%tion '182
,end to %ro$d investors to a%<)ire s#ares o((ered on t#eir $e+sites 1Se%tion '192'
%.1.'ia,i#ities
It is proposed t#at intermediaries +e ,ia+,e on,y $#ere t#ey #ave actua" kno$,ed&e o(.
materia,,y mis,eadin& iss)er in(ormation 1Se%tion '102
iss)er (ra)d 1Se%tion '112'
%.1.!Administration
Administrative matters $#i%# intermediaries $i,, need to per(orm as part o( an e((e%tive
CS98 pro%ess dea, $it#.
#o,din& %ro$d investor ()nds 1Se%tion '202
monitorin& t#e iss)er %ap 1Se%tion 4''42
iss)er a%%ess to %ro$d investor ()nds 1Se%tion '1!2
%an%e,,ed o((ers 1Se%tion '242
t#e priva%y o( in(ormation a+o)t %ro$d investors 1Se%tion '22'
A 1ermitted types of intermediary
%.2 So#e@intermediary and on#ine@on#y
requirement
)ss#e$ sho#ld there 3e a sole7intermediar' and online7onl' re5#irement for each
CS! offer6
%.2.1.ther /urisdictions
USA
A key )nder,yin& prin%ip,e in t#e S9C approa%# to CS98 )nder "it,e III o( t#e >5BS A%t
is t#at any o((er to investors to take )p se%)rities in an iss)er )ti,isin& t#ese provisions
m)st +e %ond)%ted e0%,)sive,y t#ro)&# a so,e intermediary* operatin& on,ine-on,y.
a %entra, tenet o( t#e %on%ept o( %ro$d()ndin& is presentin& mem+ers o( t#e %ro$d
$it# an idea or +)siness so mem+ers o( t#e %ro$d %an s#are in(ormation and eva,)ate
t#e idea or +)siness' A,,o$in& an iss)er to %ond)%t a sin&,e o((erin& or sim),taneo)s
o((erin&s in re,ian%e on L"it,e III o( t#e >5BS A%tM t#ro)&# more t#an one
intermediary $o),d diminis# t#e a+i,ity o( t#e mem+ers o( t#e %ro$d to e((e%tive,y
s#are in(ormation* +e%a)se essentia,,y* t#ere $o),d +e m),tip,e B%ro$ds'/
A,so.
an Son,ine-on,yT re<)irement ena+,es t#e p)+,i% to a%%ess o((erin& in(ormation and
s#are in(ormation p)+,i%,y in a $ay t#at $i,, a,,o$ mem+ers o( t#e %ro$d to de%ide
$#et#er or not to parti%ipate in t#e o((erin& and ()nd t#e +)siness or idea K 5((erin&s
made +y ot#er means $o),d not +e $ide,y a%%essi+,e +y t#e p)+,i%* $#i%# $o),d
de(eat t#e +ene(it o( t#e %o,,e%tive $isdom o( t#e mem+ers o( t#e %ro$d'
"#e proposed r),es $o),d re<)ire t#at a re&istered intermediary e0e%)te CS98
transa%tions on,y t#ro)&# its on,ine p,at(orm' An intermediary or its asso%iated persons
$o),d +e pro#i+ited (rom a%%eptin& an investment %ommitment )nti, t#e investor #as
opened an a%%o)nt $it# t#e intermediary and t#e intermediary #as o+tained t#e investor/s
%onsent to e,e%troni% de,ivery o( materia,s.
"#is re<)irement $o),d #e,p ens)re t#at %ertain +asi% in(ormation a+o)t t#e investor
is on (i,e $it# t#e intermediary and t#at a,, investors are on noti%e o( t#e primary
met#od o( de,ivery (or %omm)ni%ations (rom t#e intermediary'
"#e on,ine p,at(orm re<)irement is intended to +ene(it +ot# iss)ers and investors.
"#is re<)irement s#o),d #e,p iss)ers &ain e0pos)re to a $ide ran&e o( potentia,
investors* $#o a,so may +ene(it (rom #avin& n)mero)s investment opport)nities
a&&re&ated in one p,a%e* res),tin& in ,o$er sear%# %osts or +)rdens re,ated to
identi(yin& s)ita+,e investment opport)nities'
Canada
An iss)er $i,, on,y +e permitted to o((er its se%)rities to t#e %ro$d t#ro)&# one
intermediary d)rin& t#e distri+)tion period esta+,is#ed +y t#e iss)er' An o((er do%)ment
%annot +e posted on any ot#er $e+site'
"#e 5SC ar&)ed t#at.
A,, re,evant in(ormation s#o),d +e in%,)ded in one p,a%e 1i'e'* t#e porta,/s $e+site2 (or
ease o( investor re(eren%e and to (a%i,itate t#e e0%#an&e o( in(ormation and vie$s t#at
is %ond)%ive to e,i%itin& t#e B$isdom o( t#e %ro$d/' It $i,, a,so make it easier to
monitor +ot# t#e distri+)tion and investment ,imits'
UK
"#e 8CA re&),ation is desi&ned to +e Bmedia-ne)tra,/ in t#at it app,ies to a,, intermediaries
marketin& o((ers* (or Bnon-readi,y rea,isa+,e se%)rities/ $#et#er )sin& on,ine p,at(orms or
ot#er media.
"#is $as done $it# Lt#e 8CA/sM %ompetition o+Ce%tive in mind and in order to provide
appropriate prote%tion (or a,, investors #o$ever t#ey invest K In o)r vie$* t#e same
prote%tion s#o),d app,y to investors $#et#er t#ey en&a&e $it# (irms on,ine or o((,ine
as a res),t o( dire%t marketin& or t#ro)&# te,ep#one-se,,in& o( investments'
%.2.2Su,missions
"#e vie$ $as e0pressed in s)+missions t#at any CS98 re&ime s#o),d re<)ire t#at an o((er
+y an iss)er to t#e %ro$d to take )p se%)rities s#o),d +e %ond)%ted t#ro)&# a so,e
intermediary* operatin& on,ine on,y* %onsistent $it# t#e proposed %ro$d()ndin& r),es
p)+,is#ed +y t#e FS S9C' "#is approa%#* it $as ar&)ed* s)pports transparen%y and a ,eve,
p,ayin& (ie,d +y ens)rin& t#at a,, %ro$d investors #ave a%%ess to t#e same in(ormation in a
sin&,e ,o%ation' "#e s#arin& o( kno$,ed&e and in(ormation amon& investors $i,, #e,p to
disseminate in(ormation t#at $i,, (orm t#e rep)tations o( iss)ers* intermediaries and ot#er
a%tors* $#i%# is %riti%a, &iven t#e division o( ,a+o)r in t#e market assessment pro%ess'
%.2.CAMAC position
CAMAC #as %onsidered $#et#er* in re,ation to ea%# CS98 o((er* t#at o((er %an +e
%ond)%ted on,y t#ro)&# one intermediary 1so,e-intermediary2 and t#at intermediary %an
make t#e o((er and pro%ess t#e a%%eptan%es on,y t#ro)&# its on,ine $e+site 1on,ine-on,y2'
An iss)er %o),d approa%# any intermediary to %ond)%t a parti%),ar o((er'
"#e prin%ipa, ar&)ment (or t#ese re<)irements* as re(,e%ted in t#e FS and Canadian
approa%#es* and in s)+missions* is to ens)re t#at a,, re,evant in(ormation provided to t#e
%ro$d %on%ernin& an iss)er and its e<)ity o((er is avai,a+,e at one* readi,y a%%essi+,e*
internet ,o%ation'
4ossi+,e %on%erns a+o)t t#is re<)irement are t#at it mi&#t red)%e prod)%tive %ompetition
+et$een intermediaries 1as t#e intermediary t#at is %ond)%tin& a parti%),ar o((er $o),d
#ave a monopo,y in t#at re&ard2* and %o),d in some instan%es en%o)ra&e a B#erd menta,ity/
amon&st %ro$d investors* as t#ey see ot#er internet parti%ipants take )p an o((er (rom a
parti%),ar iss)er'
5n +a,an%e* CAMAC %onsiders t#at t#e +ene(its to t#e %ro$d o( a sin&,e internet ,o%ation
(or a,, re,evant in(ormation %on%ernin& a CS98 o((er o)t$ei&# t#e possi+,e
anti-%ompetitive dra$+a%ks $it# t#is approa%#'
"#e FG Bmedia-ne)tra,/ approa%# re(,e%ts a di((erent re&),atory str)%t)re t#at in%,)des* +)t
is not %on(ined to* CS98 o((ers'
%. 'icensing
)ss#e$ sho#ld CS! intermediaries 3e re5#ired to 3e licensed or registered in some
manner6
"ypi%a,,y* in t#e A)stra,ian %onte0t* ,i%ensin& re<)irements are more onero)s (or
app,i%ants t#an re&istration-on,y re<)irements* &iven t#at ,i%ensin& invo,ves %,oser vettin&
+y t#e re&),ator o( t#e s)ita+i,ity o( app,i%ants as $e,, as t#e a+i,ity o( t#e re&),ator to
impose tai,ored %onditions on any ,i%en%e &ranted'
%..1.ther /urisdictions
UK
Intermediaries m)st +e a)t#orised +y t#e 8CA +e(ore +ein& permitted to market non-
readi,y rea,isa+,e se%)rities to e,i&i+,e investors* $#et#er t#ro)&# t#e internet or ot#er$ise'
New Zealand
4art 6 o( t#e 8inan%ia, Markets Cond)%t A%t 201! and t#e asso%iated :e&),ations provide
(or app,i%ations to +e made to t#e 8inan%ia, Markets A)t#ority 18MA2 to +e ,i%ensed (or
t#e p)rposes o( providin& a B%ro$d ()ndin& servi%e/'
A person provides a %ro$d ()ndin& servi%e i(.
it provides a (a%i,ity +y means o( $#i%# o((ers o( s#ares in a %ompany are madeU and
t#e prin%ipa, p)rpose o( t#e (a%i,ity is to (a%i,itate t#e mat%#in& o( %ompanies $#o
$is# to raise ()nds $it# many investors $#o are seekin& to invest re,ative,y sma,,
amo)nts
"o +e ,i%ensed* an intermediary m)st.
#ave (air* order,y* and transparent systems and pro%ed)res (or providin& t#e servi%e'
satis(y %apa+i,ity standards'
In addition* t#e dire%tors and senior mana&ers o( t#e intermediary m)st +e (it and proper
persons to #o,d t#eir respe%tive positions' "#e 8MA #as ,aid do$n minim)m standards in
t#is re&ard'
A n)m+er o( ot#er ,i%ensin& re<)irements app,y* in%,)din& in re,ation to t#e interna,
&overnan%e* (inan%ia, reso)r%es* indemnity ins)ran%e* and in(ormation te%#no,o&y
arran&ements o( intermediaries* and a p,an to prote%t t#e interests o( re,evant iss)ers or
investors i( t#e intermediary servi%es are terminated'
USA
CS98 o((ers m)st +e %ond)%ted t#ro)&# an Bintermediary/ t#at is re&istered $it# t#e S9C
eit#er as a +roker-dea,er or as a B()ndin& porta,/'
A ()ndin& porta, $i,, +e re<)ired to #ave $ritten po,i%ies and pro%ed)res reasona+,y
desi&ned to a%#ieve %omp,ian%e $it# its CS98 stat)tory o+,i&ations and S9C :),es* as
$e,, as %omp,yin& $it# anti-money ,a)nderin& re<)irements' A ()ndin& porta, m)st a,so
maintain (ide,ity +ond %overa&e* as some prote%tion to CS98 investors (rom potentia, ,oss
t#ro)&# (ra)d' Non-resident ()ndin& porta,s $i,, +e permitted provided t#at %ertain
%onditions are met'
As e0p,ained +y t#e S9C.
"#e )se o( a re&istered intermediary to mat%# iss)ers and investors $o),d re<)ire t#at
t#ey in%)r %ertain transa%tions %osts ne%essary to s)pport t#e intermediation a%tivity*
+)t a,so $o),d provide %entra,iDed ven)es (or %ro$d()ndin& a%tivities t#at s#o),d
,o$er investor and iss)er sear%# %osts'
Iss)ers and investors may a,so +ene(it (rom %ompetition +et$een re&istered intermediaries.
It a,so is ,ike,y t#at t#ere $i,, +e si&ni(i%ant deve,opments in t#e types and ran&es o(
%ro$d()ndin& prod)%ts and servi%es o((ered to potentia, iss)ers and investors*
parti%),ar,y as %ompetitors ,earn (rom t#eir e0perien%es'
Intermediaries m)st %o,,e%t and transmit CS98 transa%tion data to t#e S9C (or
administration and data ana,ysis' "#ey m)st a,so maintain and preserve %ertain re%ords
re,atin& to t#eir +)siness* in%,)din& a,, re%ords re,ated to persons t#at )se t#e
%omm)ni%ation servi%es provided +y a ()ndin& porta, to promote an iss)er/s se%)rities or
to %omm)ni%ate $it# potentia, investors* as $e,, as re%ords o( a,, CS98 a&reements.
7e Lt#e S9CM +e,ieve t#at it is important (or ()ndin& porta,s to +e s)+Ce%t to a
re%ordkeepin& re<)irement in order to %reate a meanin&(), a)dit trai, o( t#e
%ro$d()ndin& transa%tions and %omm)ni%ations'
Canada
CS98 o((ers m)st +e %ond)%ted t#ro)&# an on,ine intermediary re&istered as a restri%ted
dea,er'
"#e 5SC des%ri+ed t#is ,i%ensin& re<)irement (or intermediaries as a key investor
prote%tion e,ement in CS98.
:e&istration is ne%essary to address* amon& ot#er t#in&s* potentia, inte&rity*
pro(i%ien%y and so,ven%y %on%erns t#at may app,y to ()ndin& porta,s and t#e persons
operatin& t#em* as $e,, as potentia, %on%erns re,atin& to %on(,i%ts o( interest and se,(-
dea,in&' "#e re&istration re<)irement is a,so intended to serve as a sa(e&)ard a&ainst
()ndin& porta,s +ein& )sed to (a%i,itate (ra)d),ent o((erin&s o( se%)rities t#ro)&# t#e
internet'
Intermediaries m)st %omp,y $it# &enera, re&istrant re<)irements* in%,)din& a%%o)nt
openin&* reportin&* re%ord-keepin& and re%ord-retention re<)irements* +)t $it# %ertain
adC)stments to ot#er ,i%ensin& re<)irements to take into a%%o)nt t#e CS98 provisions
app,i%a+,e to t#em'
Intermediaries $i,, a,so +e s)+Ce%t to a minim)m net %apita, re<)irement o( O0*000 and a
(ide,ity +ond ins)ran%e o+,i&ation providin& (or %overa&e o( at ,east O0*000 1to #e,p
ins)re a&ainst t#e ,oss o( investor ()nds t#at may o%%)r i(* (or e0amp,e* an intermediary or
any o( its o((i%ers or dire%tors +rea%#es t#e pro#i+itions on #o,din&* mana&in&* possessin&
or ot#er$ise #and,in& investor ()nds or se%)rities2'
Simi,ar to ot#er re&istrants* t#e intermediary $i,, +e re<)ired to a%t #onest,y* (air,y and in
&ood (ait#'
An intermediary m)st provide <)arter,y reports to t#e re&),ator on vario)s aspe%ts o( t#e
CS98 a%tivities on its $e+site' Iss)ers $i,, #ave o+,i&ations to provide some o( t#is
in(ormation* +)t t#e o+,i&ation %o),d +e de,e&ated to t#e intermediary' "#e re&),ator may
a,so re<)est ot#er in(ormation or in(ormation on a more (re<)ent +asis'
A,so* %#an&es in %ontro, o( t#e intermediary $i,, re<)ire re&),atory approva,'
"#e re&),ator #as e0emption po$ers in re&ard to t#e o+,i&ations app,i%a+,e to CS98
intermediaries'
Ital*
CS98 investments m)st +e arran&ed t#ro)&# Bpermitted mana&ers/* %overin& +roker-
dea,ersN(inan%ia, instit)tions and ot#er persons $#o mat%# re<)irements o( pro(essiona,ism
and tr)st$ort#iness* to %omp,y $it# anti-,a)nderin& ,a$s and t#e 9F Markets in 5inancia"
)nstruments #irective 1Mi8I;2'
%..2Su,missions
:espondents di((ered +et$een t#ose $#o s)pported.
,i%ensin& o( CS98 intermediaries
re&istration o( t#ese intermediaries
neit#er ,i%ensin& nor re&istration o( t#ese intermediaries'
5ne approa%# in s)+missions $as t#at $#et#er ,i%ensin& or re&istration* or neit#er* $as
appropriate s#o),d t)rn on t#e ,eve, o( a%tive invo,vement in t#e CS98 pro%ess e0pe%ted
o( intermediaries' ?i%ensin& may not +e appropriate i( t#e on,y stat)tory ro,es o(
intermediaries are to provide an on,ine p,at(orm $#ere iss)ers may advertise t#eir o((ers
and to administer t#e o((er and a%%eptan%e pro%ess' In t#at %ase* a%%ordin& to some
respondents* re&istration may sti,, +e ne%essary to avoid B(,y-+y-ni&#t/ intermediaries $#o
(ai, to per(orm even t#ese ()n%tions' Converse,y* ,i%ensin& may +e appropriate i(
intermediaries are o+,i&ed to p,ay an a%tive ro,e in s%r)tinisin& iss)ers and ot#er$ise
sa(e&)ardin& t#e interests o( %ro$d investors and deterrin& (ra)d'
Some respondents %onsidered t#at intermediaries s#o),d* at most* on,y #ave to +e
re&istered 1$it# an ind)stry-+ased %ode o( %ond)%t2 i( t#ey are pro#i+ited (rom &ivin&
(inan%ia, advi%e to potentia, investors and are a,so pro#i+ited (rom #o,din& investors/
()nds or se%)rities' It $as a,so ar&)ed t#at any ()rt#er re&),ation t#ro)&# ,i%ensin& in t#ese
%ir%)mstan%es may +e too onero)s and %ost,y (or intermediaries* $#o $o),d ),timate,y
pass s)%# %osts on to t#e iss)er* t#)s de(eatin& t#e p)rpose o( CS98 as a ,o$ %ost option
(or sma,, +)siness'
Anot#er vie$ $as t#at intermediaries t#at provide an on,ine p,at(orm +et$een t#e iss)ers
and t#e investors s#o),d +e s)+Ce%t to an appropriate ,i%ensin& arran&ement to provide
some minim)m standard o( prote%tion to t#ose iss)ers and investors parti%ipatin& in t#e
marketp,a%e' "#e ro,e t#e operators p,ay in t#e intermediation o( investors and iss)ers
s#o),d determine $#at type o( ,i%en%e t#ey #ave and t#e re&),atory o+,i&ations t#e
operator s#o),d meet'
7it#in t#is %onte0t* t#e vie$ $as e0pressed t#at intermediaries s#o),d not +e re<)ired to
#o,d an A)stra,ian Market ?i%en%e 1AM?2 to operate a CS98 on,ine p,at(orm* as t#is
$o),d p,a%e an )nd)e pe%)niary and %omp,ian%e +)rden on t#em* t#e %ost o( $#i%# $o),d
),timate,y +e passed on to iss)ers and investors' It $as a,so ar&)ed t#at t#e +a,an%e s#eet
reso)r%es re<)ired (or an AM? $o),d a,most %ertain,y +e +eyond t#e %apa%ity o(
%andidates to operate as CS98 intermediaries. -o$ever* to +)i,d investor %on(iden%e t#at
t#ese intermediaries #ave t#e appropriate e0pertise and reso)r%es to %arry o)t t#eir ro,e
and %an +e #e,d a%%o)nta+,e* t#ey s#o),d #o,d an A)stra,ian 8inan%ia, Servi%es ?i%en%e
1A8S?2* tai,ored spe%i(i%a,,y (or CS98 intermediaries* possi+,y in t#e manner +ein&
adopted in Ne$ Hea,and' It $as pointed o)t t#at a %apita, or se%)rity +ond re<)irement (or
t#e ,i%ensin& o( intermediaries may #e,p ens)re t#at on,y appropriate,y ()nded +)sinesses
a%t as intermediaries* $#i,e a,so o((erin& some (inan%ia, prote%tion to a((e%ted parties in
t#e event t#at an intermediary a%ts dis#onest,y'
It $as a,so ar&)ed t#at a red)%tion in ,i%ensin& re<)irements* in%,)din& %ond)%t standards*
re,ative to se%)rities iss)ed +y ot#er means %o),d invite iss)ers and intermediaries ,ookin&
to e0p,oit re&),atory ar+itra&e and may tarnis# t#e CS98 ind)stry/s rep)tation'
%..CAMAC position
3iven t#e %entra, ro,e o( intermediaries in t#e CS98 pro%ess* in%,)din& to %ond)%t some
d)e di,i&en%e vettin& o( app,i%ant iss)ers 1Se%tion '8 and Se%tion '92* and t#e need (or
t#em to a%t at a,, times in a pro(essiona, manner* (ree o( %on(,i%ts o( interest* t#ey s#o),d
+e re<)ired to +e ,i%ensed +y ASIC as a pre%ondition to %ond)%tin& CS98 o((ers on t#eir
$e+sites'
Mere re&istration o( intermediaries and re,ian%e on ind)stry-+ased vo,)ntary %odes o(
%ond)%t $o),d not ne%essari,y s)((i%e to ens)re t#e %ontin)in& %on(iden%e o( iss)ers and
%ro$d investors in t#e impartia, ro,e o( intermediaries' A,so* t#e ,i%ensin& o( s)ita+,e
intermediaries $o),d not +e over,y onero)s* %ost,y or time-%ons)min&'
An intermediary t#at intends to %ond)%t a se%ondary market in s#ares iss)ed t#ro)&# t#e
CS98 pro%ess $o),d a,so need to +e appropriate,y ,i%ensed'
CAMAC notes t#at* dependin& )pon t#e interpretation o( key ,e&is,ative %on%epts*
in%,)din& $#at %onstit)tes operatin& a (inan%ia, market* a <)estion may arise $#et#er an
A)stra,ian 8inan%ia, Servi%es ?i%en%e 1A8S?2 or an A)stra,ian Market ?i%en%e 1AM?2
$o),d +e ne%essary )nder t#e %)rrent ,a$'
CAMAC does not seek to reso,ve matters o( stat)tory interpretation' It notes t#at "reas)ry
is present,y %onsiderin& t#e interre,ations#ip +et$een t#ese t$o ,i%en%es' CAMAC
%onsiders t#at t#e appropriate %o)rse in t#e %onte0t o( CS98 is a tai,ored ,i%ensin& re&ime
(or intermediaries* $#i%# %overs t#e re,evant matters (or t#ose parties set o)t e,se$#ere in
t#is report'
%.! Capacity to conduct ro#e
)ss#e$ what financial1 h#man1 technolog' and risk management capa3ilities sho#ld
an intermediar' have for carr'ing o#t its role6
%.!.1.ther /urisdictions
New Zealand
"o operate a %ro$d ()ndin& servi%e* an intermediary m)st satis(y vario)s standards
identi(ied +y t#e 8MA %on%ernin&.
(it and proper
%apa+i,ity
operationa, in(rastr)%t)re
(inan%ia, reso)r%es
&overnan%e'
See ()rt#er t#e s)mmary in Se%tion '!'1'
UK
A)t#orised intermediaries* and t#eir representatives* m)st %omp,y $it# t#e 8CA -and+ook
re<)irements'
%.!.2Su,missions
It $as s)&&ested in s)+missions t#at intermediaries* as $e,, as #avin& #i&# inte&rity* m)st
disp,ay t#e te%#ni%a, %apa%ity and %ompeten%e to %ond)%t a (),,y se%)re and ()n%tionin&
on,ine porta,* in%,)din&.
to (a%i,itate %omm)ni%ations +et$een investors as $e,, as +et$een investors and
iss)ers
to ens)re se%)re on,ine payments
to ena+,e investors to ,o& in and vie$ t#eir investment* and
to &)ard a&ainst on,ine (ra)d* )na)t#orised a%%ess to investor detai,s* and money
,a)nderin&'
A,so* dependin& )pon t#eir ro,e* and potentia, ,ia+i,ities* $it# iss)ers and investors*
intermediaries may need some ,e&a, %ompeten%e and (inan%ia, ,itera%y 1or a%%ess to s)%#2
to dete%t misrepresentations +y iss)ers in marketin& materia,s* in%,)din& t#e CS98 o((er
do%)ment'
"#e vie$ $as a,so e0pressed t#at intermediaries s#o),d #ave t#e %apa%ity to &)ide iss)ers
as to t#e e<)ity ()ndraisin& pro%ess* &iven t#at se,dom do start-)p or ear,y sta&e
%ompanies #ave t#e kno$,ed&e and e0pertise to raise ()nds'
Anot#er %omment $as t#at intermediaries spe%ia,isin& in ear,y sta&e te%#no,o&y
%ompanies %o),d +)i,d t#eir rep)tation in t#e CS98 market +y %#oosin& to %ond)%t
si&ni(i%ant d)e di,i&en%e assessment o( an iss)er +e(ore #ostin& it on t#eir p,at(orm' 8or
t#is p)rpose* t#eir #)man reso)r%es $o),d need to in%,)de individ)a,s e0perien%ed in ear,y
sta&e investin& andNor a%%ess to ot#er re,evant e0pertise 1(or instan%e B+)siness in%)+ators/
$#o %o),d )ndertake a d)e di,i&en%e vettin& pro%ess2' It $as ar&)ed t#at intermediaries
$i,, +)i,d t#eir +rand and rep)tation aro)nd t#e <)a,ity o( t#e investment opport)nities
#osted'
5t#er respondents e0pressed t#e vie$ t#at intermediaries s#o),d not +e o+,i&ed to #ave t#e
%apa+i,ity to %arry o)t t#is (orm o( d)e di,i&en%e assessment o( iss)ers* as t#is $o),d
re<)ire invo,vin& persons $it# spe%ia,ised (inan%ia, and ,e&a, <)a,i(i%ations* $it# potentia,
#i&# %osts to t#e intermediary' "#e more e((i%ient and e%onomi% option $o),d +e to p,a%e
t#e dis%,os)re o+,i&ations so,e,y on iss)ers' :at#er* ea%# intermediary %o),d +e o+,i&ed to
e0p,ain on its $e+site $#at* i( any* s%reenin& o( iss)ers it )ndertakes 1or arran&es to +e
)ndertaken2'
%.!.CAMAC position
CAMAC %onsiders t#at t#e Ne$ Hea,and ,i%ensin& re<)irements (or CS98 intermediaries
provide a )se(), pre%edent (or t#e ne%essary minim)m ski,,s +ase o( an intermediary*
$#i%# %o),d +e +,ended into t#e %)rrent &enera, ,i%ensee re<)irements in s 912A112 o( t#e
Corporations A%t'
CAMAC a,so s)pports t#e o+servation in s)+missions t#at* in addition to any re&),atory
o+,i&ations %on%ernin& t#e %apa%ity o( an intermediary to %ond)%t its ro,e* an intermediary
%o),d %#oose to +)i,d its +rand and rep)tation aro)nd t#e <)a,ity o( any additiona,
assessment it %#ooses to make o( iss)ers +e(ore a&reein& to #ost t#em on its $e+site'
CAMAC e,se$#ere dis%)sses $#et#er intermediaries s#o),d +e re<)ired to %ond)%t d)e
di,i&en%e assessments o( app,i%ant iss)ers* and $#at t#is may invo,ve 1Se%tion '8 and
Se%tion '92'
%.% 1rocesses to fu#4# ro#e
)ss#e$ what fair1 orderl' and transparent processes sho#ld the intermediar' 3e
re5#ired to have for its online platform6
%.%.1.ther /urisdictions
UK
A)t#orised intermediaries* and t#eir representatives* m)st %omp,y $it# t#e 8CA -and+ook
re<)irements'
New Zealand
"#e pro%ed)res emp,oyed +y an intermediary (or attra%tin& ne$ %,ients 1+ot# iss)ers and
investors2 m)st ens)re t#at t#ey &et s)((i%ient in(ormation to make in(ormed de%isions
a+o)t t#e (inan%ia, servi%es o((ered* and t#at t#ese servi%es are not inappropriate,y
marketed'
"#e intermediary* in makin& its ,i%en%e app,i%ation* $i,, need to des%ri+e #o$ it intends to
attra%t %,ients to its servi%e* s)%# as )sin& advertisin& or re(erra,s'
"#e intermediary $i,, a,so need to demonstrate #o$ its pro%ed)res $i,, ens)re it meets
vario)s o+,i&ations* in%,)din&.
t#e re<)irement (or a $ritten %,ient a&reement $it# investors
(air dea,in& o+,i&ations* in%,)din& t#e pro%ess to ens)re its advertisements are not
mis,eadin& or de%eptive'
t#e o+,i&ation to provide a dis%,os)re do%)ment to investors* $it# parti%),ar attention
to dis%,os)re in respe%t o( t#e nat)re and e0tent o( d)e di,i&en%e %ond)%ted on iss)ers
and t#e )se o( t#e (a%i,ity +y persons asso%iated $it# asso%iated $it# t#e intermediary
t#e o+,i&ation to provide a $arnin& statement to investors* and to &et t#eir
%on(irmation t#at t#ey #ave seen t#e $arnin&'
Intermediaries m)st provide a servi%e dis%,os)re statement to retai, investors and enter into
$ritten %,ient a&reements $it# t#em* dea,in& ade<)ate,y $it#.
#o$ t#e p,at(orm/s investment pro%esses operate
t#e me%#anisms to dea, $it# intera%tions +et$een iss)ers and investors
any on&oin& monitorin& o( iss)ers t#at t#e p,at(orm proposes to per(orm
#o$ any investor money is #and,ed +y t#e intermediary
t#e (ees and %#ar&es t#at $i,, app,y to investors
#o$ investors %an make %omp,aints'
"#e servi%e dis%,os)re statement m)st a,so %ontain t#e risk $arnin& statement'
%.%.2Su,missions
"#ere $as a vie$ in s)+missions t#at t#e prin%ipa, ro,e o( an on,ine intermediary is to #ost
investment opport)nities in an e((i%ient and transparent manner (or t#e +ene(it o( +ot#
iss)ers and %ro$d investors'
A n)m+er o( respondents %onsidered t#at t#e Ne$ Hea,and proposa,s provided a )se(),
mode, 1in%,)din& +y re<)irin& intermediaries to dis%,ose t#e pro%esses +y $#i%# iss)ers
and investors a%%ess t#e servi%e* t#eir (air mat%#in& to a servi%e* t#eir #and,in& o(
investment ()nds and pro%esses and %#e%ks to avoid pri%e manip),ation2'
%.%.CAMAC position
CAMAC %onsiders t#at t#e Ne$ Hea,and re<)irements in t#e CS98 %onte0t provide a very
)se(), pre%edent* $#i%# %o),d +e +,ended into t#e %)rrent ,i%ensee re<)irements in
s 912A112 o( t#e Corporations A%t'
CAMAC notes t#at i( intermediaries are re<)ired to #o,d an A8S?* t#ey $i,, need to
provide a (inan%ia, servi%es &)ide to %ro$d investors t#at $o),d provide detai,s a+o)t t#e
servi%e t#at is +ein& provided' CAMAC e,se$#ere in t#is report makes vario)s
re%ommendations %on%ernin& parti%),ar matters to +e in%,)ded in t#at &)ide
1Se%tions '6'! and '22'!2'
%.& 0ispute reso#ution
)ss#e$ sho#ld an intermediar' 3e re5#ired to have an internal disp#te resol#tion
mechanism and 3e a mem3er of an e+ternal disp#te resol#tion 3od'1 s#ch as the
!inancial Services ,m3#dsman6
%.&.1.ther /urisdictions
UK
Intermediaries are e0pe%ted to mana&e any %on(,i%ts o( interest (air,y* +ot# +et$een
t#emse,ves and t#eir iss)er or investor %,ients* and +et$een t#e iss)er and investor %,ients'
New Zealand
Intermediaries are e0pe%ted to #ave a %omp,aints pro%ess* in%,)din& +e,on&in& to a disp)te
reso,)tion s%#eme* as re<)ired )nder t#e 8inan%ia, Servi%e 4roviders 1:e&istration and
;isp)te :eso,)tion2 A%t 2008' "#is is one o( t#e re<)irements o( re&isterin& to +e%ome a
(inan%ia, servi%e provider to retai, %,ients'
%.&.2Su,missions
A n)m+er o( respondents s)pported a re<)irement t#at an intermediary +e re<)ired to #ave
an interna, me%#anism to reso,ve disp)tes $it# iss)ers or investors and +e a mem+er o( an
e0terna, disp)te +ody* s)%# as t#e 8inan%ia, Servi%es 5m+)dsman 185S2' It $as a,so
s)&&ested t#at t#e 85S %o),d iss)e &)ide,ines on t#eir ro,e in t#is CS98 %onte0t and #o$
%,aims +y iss)ers or investors a&ainst intermediaries $i,, +e assessed' "#ese &)ide,ines
%o),d avoid parties seekin& disp)te reso,)tion in inappropriate %ir%)mstan%es'
In t#is %onte0t* it $as ar&)ed t#at any disp)te me%#anism re<)irement (or intermediaries
+e ,imited to t#e ()n%tionin& o( t#e intermediary on,ine p,at(orm* as it a((e%ts iss)ers or
investors* and not %over* (or instan%e* t#e per(orman%e o( iss)ers in $#i%# individ)a,s #ave
invested'
A %ontrary approa%# $as t#at $#ere investors +e,ieve intermediaries #ave +rea%#ed any o(
t#eir o+,i&ations or d)ties 1)nder t#e terms o( any ,i%ensin& or re&istration re<)irements2*
t#ey $i,, #ave re%o)rse to ASIC' 3iven t#at* it $o),d s)((i%e to en%o)ra&e intermediaries
to in%,)de disp)te reso,)tion on a vo,)ntary Bopt-in/ +asis* or at ,east set o)t t#eir stated
po,i%y (or #and,in& disp)tes'
%.&.CAMAC position
"o promote %on(iden%e amon& iss)ers and %ro$d investors* t#ere s#o),d +e a pro%ess +y
$#i%# t#ey %an make %omp,aints t#ro)&# interna, and e0terna, disp)te reso,)tion
pro%ed)res %on%ernin& any aspe%t o( t#e %ond)%t o( t#e intermediary* as it a((e%ts t#em* or
t#eir dea,in&s $it# t#e intermediary'
CAMAC a&rees $it# t#e %omment in s)+missions t#at t#e per(orman%e o( iss)ers in $#i%#
individ)a,s #ave invested s#o),d ,ie o)tside t#e disp)te reso,)tion pro%ed)re %on%ernin&
t#e %ond)%t o( intermediaries'
CAMAC notes t#at #o,ders o( A8S?s m)st #ave interna, and e0terna, disp)te reso,)tion
pro%ed)res $#ere retai, %,ients are invo,ved 1s 912A1121&2* 1222' It %onsiders t#at t#e same
o+,i&ation s#o),d app,y to a ,i%ensed intermediary in t#e %onte0t o( CS98* and +e avai,a+,e
to iss)ers as $e,, as %ro$d investors'
"#e need (or s)%# a re<)irement is rein(or%ed in t#e %onte0t o( CS98* &iven t#at 1as
proposed e,se$#ere in t#is report2 t#e intermediary $i,, #ave a monopo,y on t#e %arria&e
o( a parti%),ar o((er to t#e %ro$d'
In t#e A)stra,ian %onte0t* a s)ita+,e e0terna, disp)te reso,)tion +ody %o),d +e t#e 8inan%ia,
Servi%es 5m+)dsman'
In(ormation a+o)t t#e interna, and e0terna, disp)te reso,)tion pro%ed)res s#o),d +e
dis%,osed on t#e intermediary/s $e+site* as $e,, as +ein& dis%,osed in t#e (inan%ia, servi%es
&)ide &iven to %ro$d investors +y intermediaries'
In t#e event t#at an intermediary is not p,a%ed )nder an o+,i&ation to #ave an interna, or
e0terna, disp)te reso,)tion pro%ed)re* ea%# intermediary s#o),d +e o+,i&ed to dis%,ose on
its $e+site $#et#er it #as any s)%# pro%ed)re and* i( so* t#e detai,s'
"#is matter is ()rt#er dis%)ssed in Se%tion '22'
8 "ntermediary matters re#ated to issuers
%.7 )$c#uded issuers
)ss#e$ what1 if an'1 pro2ects and;or iss#ers sho#ld intermediaries not permit to raise
f#nds thro#gh CS!6
%.7.1.ther /urisdictions
Canada
An intermediary m)st not a,,o$ an iss)er a%%ess to t#e on,ine porta, to p)+,is# its o((er i(
t#e intermediary* or any o((i%er* dire%tor or si&ni(i%ant s#are#o,der o( t#e intermediary or
o( any a((i,iate o( t#e intermediary.
1a2 #as +ene(i%ia, o$ners#ip o(* or %ontro, or dire%tion over* more t#an 10P o( t#e
iss)ed and o)tstandin& se%)rities o( t#e iss)er* or se%)rities %onverti+,e into
se%)rities o( t#e iss)er* or
1+2 e0%ept as permitted )nder 1a2* ot#er$ise #as an e%onomi% interest in t#e iss)er'
%.7.2Su,missions
:espondents re(erred to e0%,)din& proCe%ts $#i%# %annot ,a$(),,y +e p)rs)ed'
5t#er s)&&estions (or possi+,e e0%,)sion in%,)ded ()nds mana&ementNinvestment proCe%ts
and proCe%ts (or tradin& in se%)rities or ot#er (inan%ia, instr)ments'
%.7.CAMAC position
An intermediary s#o),d +e pro#i+ited (rom p)+,is#in& an e<)ity o((er o( a parti%),ar iss)er
on its $e+site $#ere.
t#e iss)er is ine,i&i+,e to )ti,ise t#e CS98 pro%ess 1see Se%tion 4'22
t#e intermediary 1in%,)din& any o( its %ontro,,in& persons2 #as any materia, interest in
t#e iss)er' "#is di((ers (rom t#e Canadian approa%# o( a,,o$in& an e<)ita+,e interest
)p to a t#res#o,d 1see ()rt#er Se%tion '122'
%.: 0ue di#igence on issuers and their
management
)ss#e$ what preliminar' and ongoing d#e diligence checks sho#ld intermediaries 3e
re5#ired to cond#ct on iss#ers and their management6
%.:.1.ther /urisdictions
New Zealand
Intermediaries m)st #ave anti-(ra)d and (air dea,in& po,i%ies t#at ena+,e t#em to assess
iss)ers and t#eir mana&ement* and i( needed* e0%,)de an iss)er (rom )sin& t#e on,ine
(a%i,ity'
Anti1fraud
Intermediaries are re<)ired to %ond)%t %#e%ks to e0%,)de o((ers +y iss)ers on t#eir
$e+sites $#ere t#ere is eviden%e t#at dire%tors* senior mana&ers or %ontro,,in& o$ners o(
t#e iss)er are not o( &ood %#ara%ter and rep)tation'
At a minim)m* t#is m)st invo,ve.
%#e%kin&* a&ainst p)+,i%,y avai,a+,e and readi,y a%%essi+,e in(ormation* t#e identity o(
t#e iss)er and in(ormation provided +y t#e iss)er re,atin& to t#e identity and %#ara%ter
o( its dire%tors and senior mana&ersU and
e0%,)din& an iss)er (rom )sin& t#e servi%e i( t#e provider is not satis(ied as to t#e
identity o( t#e iss)er or o( t#e iss)er/s dire%tors and senior mana&ers* #as reason to
+e,ieve t#at any o( t#e iss)er/s dire%tors or senior mana&ers are not o( &ood %#ara%ter
or #as reason to +e,ieve t#at t#e iss)er is not ,ike,y to %omp,y $it# t#e o+,i&ations
imposed on it )nder t#e servi%e'
"#e intermediary m)st #ave ade<)ate systems and pro%ed)res to imp,ement t#is po,i%y'
"#e 8MA #as indi%ated t#at t#e anti-(ra)d po,i%y m)st* at a minim)m* %on(irm t#e identity
and %#ara%ter o( t#e iss)er/s dire%tors and senior mana&ers (rom p)+,i%,y avai,a+,e and
readi,y assessa+,e in(ormation' "#is s#o),d in%,)de sear%#in& re,evant p)+,i% re&isters
1s)%# as t#e Companies :e&ister and Inso,ven%y :e&ister2 and t#e internet 1(or re,evant
ne$s arti%,es or ot#er %ommentary2 to identi(y eviden%e o(.
+ankr)pt%y or invo,vement $it# inso,vent %ompanies
in(ormation t#at may <)estion t#e identity o( dire%tors or senior mana&ers
%onvi%tions (or (ra)d or dis#onesty Q or invo,vement in ,iti&ation or ot#er disp)tes'
"#e intermediary m)st a,so identi(y t#e %riteria to #e,p assess t#is in(ormation and to make
de%isions a+o)t a,,o$in& iss)ers to )se t#e servi%e'
5air dea"ing
An intermediary m)st #as an ade<)ate po,i%y (or e0%,)din& an iss)er (rom )sin& t#e
servi%e i( t#e provider #as in(ormation 1(or e0amp,e* (rom %#e%ks or assessments it %arries
o)t 1i( any22 t#at &ives it reason to +e,ieve t#at t#e iss)er* in re,ation to any dea,in& in
s#ares )sin& t#e servi%e* #as.
en&a&ed in %ond)%t t#at is mis,eadin& or de%eptive or ,ike,y to mis,ead or de%eiveU or
made a (a,se or mis,eadin& representation in %ontravention o( s 22 o( t#e A%tU or
made an )ns)+stantiated representation in %ontravention o( s 2! o( t#e A%t'
"#e intermediary m)st #ave ade<)ate systems and pro%ed)res in p,a%e to imp,ement t#is
po,i%y'
"#e 8MA #as indi%ated t#at t#e (air dea,in& po,i%y o( an intermediary m)st ena+,e it to
e0%,)de an iss)er (rom )sin& t#e servi%e in %ertain %ir%)mstan%es' An intermediary/s (air
dea,in& po,i%y s#o),d set o)t.
t#e steps t#e intermediary $i,, take i( it identi(ies identi(y a%t)a, or s)spe%ted eviden%e
o( mis%ond)%t o( t#e type set o)t in :e&),ation 171121e21see a+ove2
t#e pro%ess an intermediary $i,, )se to e0%,)de an iss)er* and #o$ t#at e0%,)sion $i,,
+e &iven e((e%t to* (or e0amp,e t#ro)&# appropriate provisions in a&reements $it#
iss)ers'
USA
Intermediaries m)st take s)%# meas)res to red)%e t#e risk o( (ra)d as $i,, +e esta+,is#ed
+y t#e S9C* in%,)din& +a%k&ro)nd and re&),atory %#e%ks on dire%tors* o((i%ers and
si&ni(i%ant s#are#o,ders o( iss)ers'
"#e S9C #as taken t#e vie$ t#at p,a%in& a responsi+i,ity on intermediaries to %ond)%t
%#e%ks o( iss)ers 1$#i%# mi&#t +e done +y t#ird parties emp,oyed +y intermediaries (or
t#is p)rpose2 so,ves an iss)er assessment pro+,em t#at $o),d +e pro#i+itive,y %ost,y i( ,e(t
to individ)a, investors* and t#at.
to t#e e0tent t#ese %#e%ks ,essened t#e ,ike,i#ood o( inappropriate or ne(ario)s
a%tivity* t#ey %o),d in%rease investor $i,,in&ness to p)r%#ase %ro$d()ndin& se%)rities*
t#ere+y potentia,,y res),tin& in iss)ers #avin& &reater a%%ess to %apita,'
Fnder t#e proposed r),es* t#e S9C $o),d permit an intermediary to re,y on an iss)er/s
representations %on%ernin& %omp,ian%e $it# t#e vario)s spe%i(i% re&),atory re<)irements
)n,ess t#e intermediary #as reason to <)estion t#e re,ia+i,ity o( t#e representations.
"#e proposed r),es $o),d permit intermediaries to reasona+,y re,y on representations
o( t#e iss)er* a+sent kno$,ed&e or ot#er in(ormation or indi%ations t#at t#e
representations are not tr)e'
-o$ever an intermediary $o),d +e re<)ired to deny a%%ess to an iss)er i( it #as a
reasona+,e +asis (or +e,ievin& t#at t#e iss)er or any o( its o((i%ers* dire%tors 1or any person
o%%)pyin& a simi,ar stat)s or per(ormin& a simi,ar ()n%tion2 $as s)+Ce%t to a
dis<)a,i(i%ation )nder t#e proposed r),es' A,so* t#e proposed r),es $o),d re<)ire an
intermediary to deny a%%ess to its p,at(orm i( t#e intermediary +e,ieves t#at t#e iss)er or
t#e o((er presents t#e potentia, (or (ra)d or ot#er$ise raises %on%erns re&ardin& investor
prote%tion' "#e po$er o( an intermediary to deny a%%ess.
$o),d ()rt#er en#an%e investor prote%tion +y &ivin& ()ndin& porta,s t#e (,e0i+i,ity to
deny a%%ess to potentia, +ad a%tors'
"#e S9C #as re%o&nised t#e ,imits o( t#ese r),es in red)%in& t#e risk o( (ra)d* +)t #as a,so
identi(ied some %o)nter-vei,in& %onsiderations.
7e a,so re%o&niDe t#at permittin& an intermediary to re,y on an iss)er/s
representations )n,ess t#e intermediary #as reason to <)estion t#e re,ia+i,ity o( t#e
representations %o),d potentia,,y ,essen t#e in%entive (or an intermediary to
t#oro)&#,y investi&ate t#e iss)ers and se%)rities to +e o((ered on its p,at(orm' S)%# an
o)t%ome %o),d res),t in a #i&#er ,eve,s o( (ra)d %ompared to a re<)irement t#at
intermediaries per(orm a t#oro)&# investi&ation to ens)re t#at t#e iss)er %omp,ied
$it# a,, t#e re<)irements' A #i&#er ,eve, o( (ra)d $o),d ne&ative,y a((e%t +ot#
investors in %ro$d()ndin& o((erin&s and non-(ra)d),ent iss)ers K #o$ever* $e
+e,ieve it is ,ike,y t#at investors and interested parti%ipants $o),d provide re,evant
adverse in(ormation a+o)t an iss)er or an o((erin& t#ro)&# postin&s on %#at sites*
messa&e +oards* and ot#er %omm)ni%ation %#anne,s* in%,)din&* +)t not ,imited to* t#e
%omm)ni%ation %#anne,s to +e provided +y t#e intermediary'
Canada
Intermediaries $i,, +e re<)ired to %ond)%t +a%k&ro)nd %#e%ks on iss)ers* and t#eir
dire%tors* e0e%)tive o((i%ers* promoters and %ontro, persons* to veri(y t#e <)a,i(i%ations*
rep)tation and tra%k re%ord o( t#e parties invo,ved in t#e key aspe%ts o( t#e o((er' "#e
%#e%ks $i,, in%,)de identi(yin& %rimina, and re&),atory iss)es'
"#e 5SC #as indi%ated t#at* at a minim)m* an intermediary s#o),d %ond)%t t#e (o,,o$in&
%#e%ks.
1a2 (or iss)ers.
1i2 t#e e0isten%e o( t#e iss)er and its +)siness re&istration* in%,)din& a revie$
o( t#e iss)er/s %onstit)tiona, do%)ments
1ii2 %rimina, re%ord and se%)rities en(or%ement #istory %#e%ks
1iii2 +ankr)pt%yN,i<)idation %#e%ks* and
1iv2 %o)rt re%ord %#e%ks* $#ere avai,a+,e
1+2 (or dire%tors* e0e%)tive o((i%ers* %ontro, persons and promoters o( t#e iss)er.
1i2 %rimina, re%ord and se%)rities en(or%ement #istory %#e%ks
1ii2 +ankr)pt%y %#e%ks* and
1iii2 %o)rt re%ord %#e%ks* $#ere avai,a+,e'
An intermediary may retain a t#ird party to per(orm t#ese %#e%ks' -o$ever* t#e stat)tory
o+,i&ation remains $it# t#e intermediary'
An intermediary m)st deny a%%ess to an iss)er i(* +ased )pon its revie$ o( t#e iss)er/s
app,i%ation and in(ormation o+tained t#ro)&# +a%k&ro)nd %#e%ks* it +e,ieves t#at t#e
+)siness o( t#e iss)er may not +e %ond)%ted $it# inte&rity and in t#e +est interests o(
se%)rity #o,ders +e%a)se o(* amon& ot#er reasons* t#e %ond)%t o( t#e iss)er* or any o( t#e
iss)er/s e0e%)tive o((i%ers* dire%tors* promoters* or %ontro, persons'
UK
See Se%tion '9* post'
Ital*
Intermediaries are responsi+,e (or veri(yin& t#at t#e start-)ps #ave satis(ied a,, t#e
ne%essary re<)irements to re&ister on t#e porta,'
%.:.2Su,missions
:espondents +asi%a,,y divided +et$een.
t#ose $#o s)pported some ,eve, o( %omp),sory d)e di,i&en%e %#e%ks +y
intermediaries*
t#ose $#o %onsidered t#at intermediaries s#o),d #ave no d)e di,i&en%e ro,e and
t#ose $#o %onsidered t#at investors $o),d +e prote%ted +y market (or%es* $#i%#
$o),d provide a satis(a%tory se,(-re&),atory o)t%ome'
#imited mandator* due dilience
5ne proposa, $as t#at intermediaries +e re<)ired to %ond)%t pre,iminary d)e di,i&en%e*
$it# Bkno$ yo)r %)stomer/ minim)m type %#e%ks o( iss)ers 1e& an ASIC in%orporation
e0tra%t* any avai,a+,e %redit report* %#e%ks t#at dire%tors are not dis<)a,i(ied* t#at t#e iss)er
#as provided ,e&a, and a%%o)ntant si&n-o(( (or o((er do%)ments and (inan%ia, in(ormation
respe%tive,y* and a statement +y dire%tors as to t#e so,ven%y o( t#e iss)er2' ;ire%tors o( t#e
iss)er mi&#t a,so +e re<)ired to provide a statement to t#e intermediary t#at t#ere is not
any )ndis%,osed in(ormation %on%ernin& t#e iss)er t#at $o),d +e materia, to its +ein&
,isted $it# t#e intermediary'
Beyond t#at* it s#o),d +e at t#e dis%retion o( intermediaries $#et#er to %ond)%t on&oin&
d)e di,i&en%e s)rvei,,an%e o( iss)ers $#i,e ,isted on t#eir on,ine p,at(orm* t#o)&# it may +e
in t#e %ommer%ia, interest o( intermediaries to do so' "#e %omment $as made t#at any
re<)irement (or an intermediary to vet every statement made +y an iss)er on its CS98
on,ine p,at(orm $o),d &reat,y in%rease an intermediary/s %osts'
No due dilience obliation
"#e vie$ )nder t#is approa%# $as t#at t#ere s#o),d not +e any re<)irement (or
intermediaries to )ndertake any parti%),ar d)e di,i&en%e o( intendin& iss)ers'
Intermediaries s#o),d mere,y provide a p,at(orm (or investor-iss)er mat%#in& 1and a
pro%ess to mana&e t#e p)re,y administrative a%tions re,atin& to an o((er2' Any d)e
di,i&en%e o+,i&ation on intermediaries %o),d e0pose t#em to ,iti&ation (or any inevita+,e
errorsNomissions +y iss)ers 1&iven t#e start-)p nat)re o( most iss)ers and t#e ,imited
reso)r%es avai,a+,e to intermediaries2'
Self&reulation
It $as ar&)ed t#at to +)i,d and prote%t t#eir market position* intermediaries* o( t#eir o$n
vo,ition and $it#o)t any need (or a d)e di,i&en%e o+,i&ation* $i,, )ndertake +asi% en<)iries
a+o)t iss)ers and t#eir key personne, 1e& sear%#es to esta+,is# %ompany identity* re&istered
o((i%e* (inan%ia, a%%o)nts (i,in&s )p-to-date* any %#ar&es over t#e %ompany/s +)siness and
assets* any pendin& ,e&a, a%tions or C)d&ments* and any dire%tor dis<)a,i(i%ation2 +e(ore
determinin& $#et#er to ,ist app,i%ant iss)ers on t#eir $e+sites' "#is (orm o( se,(-re&),ation
s#o),d +e e((e%tive* &iven t#at intermediaries #ave a %ommer%ia, interest in maintainin&
t#eir rep)tation'
A variation o( t#is approa%# $as to ,eave to t#e dis%retion o( intermediaries $#at* i( any*
d)e di,i&en%e to %ond)%t %on%ernin& an iss)er* +)t to o+,i&e intermediaries to dis%,ose on
t#eir $e+sites $#et#er t#ey #ad %ond)%ted any d)e di,i&en%e on t#e iss)er* and t#e nat)re
o( any s)%# d)e di,i&en%e'
%.:.CAMAC position
/"e problem to be addressed
Fn,ess proper,y re&),ated* t#e CS98 pro%ess %o),d +e%ome an opport)nity (or (ra)d or
ot#er a+)se'
8or instan%e* individ)a,s may +e%ome adept at preparin& do%)mentation des%ri+in& a
+)siness idea or p,an in a manner desi&ned to attra%t attention and %ro$d interest* +)t
$it#o)t t#ere +ein& any rea, s)+stan%e +e#ind it* and $it#o)t any intention* or %apa%ity* o(
pro%eedin& $it# t#e idea' Any ()nds raised (rom t#e %ro$d may +e )sed (or private
p)rposes* $it# t#e +)sinesses +ein& dis%arded and %ro$d investors ,e(t $it# s#ares o( no
va,)e'
?e(t to t#emse,ves* %ro$d investors $o),d #ave ,itt,e %apa%ity to distin&)is# +et$een
&en)ine and <)estiona+,e iss)ers' 7#i,e a +)siness or ot#er idea may appear so)nd* t#ese
investors $i,, #ave no ready means to $ork o)t $#et#er t#e individ)a,s +e#ind t#e idea
#ave t#e intention or a+i,ity to make t#e idea s)%%eed or $#et#er t#ey are simp,y &oin&
t#ro)&# t#e ()ndraisin& e0er%ise to o+tain money (or t#eir persona, )se'
"#o)&# t#is pro+,em may o%%)r $it# any (orm o( ()ndraisin&* it is e0a%er+ated $it#
CS98* $#i%# $i,, ,ike,y invo,ve start-)p or ot#er sma,,-s%a,e enterprises t#at ,a%k a proved
+)siness p,an or prod)%t* and are $e,, s#ort o( +ein& deve,oped to t#e point t#at t#ey %an
seek ()nds (rom t#e p)+,i% t#ro)&# a re&),ated initia, p)+,i% o((er 1I452'
9,se$#ere* CAMAC #as proposed meas)res to %o)nter t#e possi+i,ity o( individ)a,s
seekin& to manip),ate t#e CS98 pro%ess +y )sin& a series o( %ompanies (or t#is p)rpose
1Se%tion !'2'2* dea,in& $it# ,inked and p#oeni0 %ompanies* and Se%tion 4''4* $#i%#
app,ies t#e iss)er %ap to t#e Biss)er &ro)p/2' A,so re,evant is t#e CAMAC proposa, t#at
iss)ers +e re<)ired to dis%,ose in t#eir o((er dis%,os)re do%)ments in(ormation a+o)t ,inked
or re,evant past %ompanies t#at #ave en&a&ed in CS98 1Se%tion 4'7'!2'
In t#e CAMAC response in t#is Se%tion* and Se%tion '9* t#e %r)%ia, ro,e o( intermediaries
in %o)nterin& possi+,e a+)se +y vettin& iss)ers is %onsidered'
Importance of intermediar* c"ec's
?imited d)e di,i&en%e %#e%ks +y intermediaries on iss)ers and t#eir mana&ement s#o),d +e
mandatory* &iven t#e important investor prote%tion (i,terin& ()n%tion t#at t#ose %#e%ks
serve' 7#i,e s)%# d)e di,i&en%e s#o),d not +e %onsidered as a &)arantee o( t#e inte&rity o(
t#e iss)er and its mana&ement* %ro$d investors need some %on(iden%e in t#is re&ard* and it
$o),d +e )nrea,isti% to e0pe%t ea%# o( t#em to %ond)%t s)%# %#e%ks t#emse,ves' 4ermittin&
<)estiona+,e iss)ers to o+tain %as# (rom t#e %ro$d t#ro)&# CS98 $it#o)t any (orm o( d)e
di,i&en%e si(tin& +y intermediaries %o),d )ndermine t#e rep)tation o( CS98 $it# t#e
investin& p)+,i% and red)%e its ro,e in assistin& $ort#$#i,e enterprises to s)%%eed' It %o),d
a,so dama&e t#e %ommer%ia, position o( intermediaries'
CAMAC does not s)pport se,(-re&),ation in t#is area* as proposed in some s)+missions'
?eavin& it to intermediaries to de%ide $#at d)e di,i&en%e %#e%ks to )ndertake* i( any* on
iss)ers and t#eir mana&ement* provided $#at t#ey do or don/t do is dis%,osed to investors*
may provide ,itt,e or no prote%tion to investors* parti%),ar,y i( intermediaries take t#e vie$
t#at t#ey mi&#t more easi,y attra%t iss)ers to t#eir $e+site i( t#ey %#oose not to %ond)%t
d)e di,i&en%e' By %ontrast* re<)irin& a,, intermediaries to %ond)%t some d)e di,i&en%e 1t#e
%osts o( $#i%# $o),d +e %#ar&ed to iss)ers2 over%omes t#is ar+itra&e possi+i,ity'
Initial c"ec's
CAMAC %onsiders t#at a temp,ate ,imited d)e di,i&en%e approa%# ens)res t#at a,,
intermediaries $i,, %ond)%t at ,east t#e same minim)m d)e di,i&en%e %#e%ks on iss)ers and
t#eir mana&ement' Intermediaries s#o),d not +e re<)ired to desi&n a d)e di,i&en%e %#e%k
(or ea%# iss)er'
"#e overseas approa%#es to d)e di,i&en%e o+,i&ations* in%,)din& t#e Ne$ Hea,and
anti-(ra)d and (air dea,in& re<)irements* and t#e %ir%)mstan%es in t#ose C)risdi%tions
$#ere intermediaries s#o),d deny a%%ess +y iss)ers provide )se(), dire%tion (or t#e
%ontent o( a temp,ate d)e di,i&en%e %#e%k +y intermediaries' "#ese vario)s approa%#es
%o),d +e inte&rated into a mana&ea+,e* yet e((e%tive* d)e di,i&en%e temp,ate in A)stra,ia'
In t#at %onte0t* (or instan%e* intermediaries $o),d +e a+,e to %#e%k (or any %rimina,
re%ords o( an iss)er or its mana&eria, personne, +y o+tainin& a)t#orisations (rom t#ose
parties (or po,i%e to %ond)%t s)%# sear%#es'
"o assist intermediaries in %ond)%tin& d)e di,i&en%e* CAMAC s)pports t#e prin%ip,es t#at.
intermediaries s#o),d +e entit,ed to re,y on vario)s representations o( t#e iss)er
p)rs)ant to t#e temp,ate re<)irements* ot#er t#an $#ere t#e intermediary #as a%t)a,
kno$,ed&e t#at t#e representations are not tr)e
ea%# iss)er s#o),d +e o+,i&ed to %erti(y to t#e intermediary t#at t#ere is no )ndis%,osed
in(ormation %on%ernin& t#e iss)er and its mana&ement t#at $o),d +e materia, to a
de%ision +y t#e intermediary $#et#er to in%,)de t#e iss)er on t#e intermediary/s
$e+site'
Intermediaries %o),d e,e%t to %ommission ot#er parties to %ond)%t d)e di,i&en%e %#e%ks on
iss)ers and t#eir mana&ement' 7#i,e t#is de,e&ation $o),d not a,,o$ intermediaries to
%ontra%t o)t o( t#eir d)e di,i&en%e responsi+i,ities* it may provide eviden%e o( t#e means
+y $#i%# t#ey #ave so)&#t to (),(i, t#ese ,imited responsi+i,ities'
Intermediaries $#o proper,y %omp,y $it# t#e temp,ate re<)irements s#o),d not +e ,ia+,e
mere,y +e%a)se it ,ater transpires t#at in(ormation %on%ernin& an iss)er or its mana&ement
$as )ntr)e' CAMAC e,se$#ere re%ommends t#at intermediaries $i,, +e ,ia+,e on,y $#ere
t#ey #ave a%t)a, kno$,ed&e o( some $ron&doin& +y t#e iss)er 1Se%tions '10 and '112'
"#e same test s#o),d app,y in t#is %onte0t'
Subse0uent c"ec's
An iss)er s#o),d +e o+,i&ed to noti(y its intermediary o( any materia, %#an&es to t#e
in(ormation previo)s,y provided 1(or instan%e* a %#an&e o( dire%tor2 and provide
a)t#orisations (or %rimina, %#e%ks to +e %ond)%ted on any ne$ personne,' In addition* an
intermediary s#o),d +e o+,i&ed to %ond)%t a s)pp,ementary %#e%k i( it ot#er$ise #as a%t)a,
kno$,ed&e 1not mere,y %onstr)%tive kno$,ed&e2 o( s)%# a materia, %#an&e or #as a%t)a,
kno$,ed&e o( a (a%t t#at p)ts into <)estion some matter on $#i%# it re,ied in an ear,ier
+a%k&ro)nd %#e%k'
S)+Ce%t to t#ese re<)irements* an intermediary s#o),d not #ave an o+,i&ation o( %ontin)in&
in<)iry* or +e e0pe%ted to provide some &)arantee to t#e %ro$d %on%ernin& t#e propriety o(
t#e iss)er and its mana&ement'
It $o),d not +e appropriate (or ASIC to #ave to %ond)%t d)e di,i&en%e %#e%ks on iss)ers
+eyond t#ose t#at %)rrent,y app,y $#en %ompanies are re&istered'
%.; 0ue di#igence on the ,usiness of issuers
)ss#e$ what preliminar' and ongoing d#e diligence checks sho#ld intermediaries 3e
re5#ired to cond#ct on the 3#siness cond#cted 3' iss#ers6
%.;.1.ther /urisdictions
UK
)ntermediary checks on issuers
Apart (rom %ond)%tin& some +asi% %#e%ks* (or instan%e t#at an iss)er is in (a%t
in%orporated and t#e persons a%tin& on +e#a,( o( t#e iss)er are in (a%t %orporate o((i%ers*
intermediaries are not o+,i&ed to %ond)%t d)e di,i&en%e %#e%ks o( iss)ers t#at )se t#eir
$e+sites' :at#er* as indi%ated in 4S14N4* t#ey #ave dis%,os)re o+,i&ations in re&ard to
$#et#er t#ey #ave %ond)%ted d)e di,i&en%e.
In satis(yin& t#e (inan%ia, promotion r),es $e e0pe%t s)((i%ient detai, to +e provided to
&ive a +a,an%ed indi%ation o( t#e +ene(its and t#e risk invo,ved* in%,)din& $#et#er or
not any d)e di,i&en%e #as +een %arried o)t on Lan iss)erM* t#e e0tent o( t#e d)e
di,i&en%e* and t#e o)t%ome o( any ana,ysis'
-o$ever* t#e 8CA #as a,so indi%ated t#at* in ,ine $it# 8CA 4rin%ip,es* (irms t#at operate
investment-+ased %ro$d()ndin& p,at(orms are e0pe%ted to %ond)%t t#eir +)sinesses $it#
inte&rity and #ave system and %ontro,s to miti&ate t#e risk o( o((ers +ein& made in
%ontravention o( app,i%a+,e ,e&is,ation'
)ntermediary ob"igations in re"ation to issuer promotions
Intermediaries t#at %omm)ni%ate or approve (inan%ia, promotions %on%ernin&
%ro$d()ndin& o((ers $i,, need to ens)re t#at t#ey %omp,y $it# app,i%a+,e (inan%ia,
promotion r),es* parti%),ar,y t#e re<)irement (or t#e promotion to +e (air* %,ear and not
mis,eadin&'
A,so* intermediaries* as $e,, as iss)ers* m)st satis(y t#emse,ves t#at iss)ers are meetin&
any re<)irement to p)+,is# a prospe%t)s 1or satis(y t#emse,ves t#at an e0emption app,ies2'
New Zealand
An intermediary m)st maintain %,ear and transparent in(ormation a+o)t $#at d)e di,i&en%e
t#e intermediary #as and #as not %arried o)t in t#is area* so investors %an make reasona+,e
C)d&ments a+o)t t#e risks o( investin&'
More spe%i(i%a,,y* t#e intermediary m)st dis%,ose t#e nat)re and e0tent o( t#e %#e%ks* i(
any* o( t#e risks invo,ved $it# t#e s#ares t#at are s)+Ce%t to t#e o((er* or dis%,ose t#at s)%#
%#e%ks are not part o( t#e intermediary/s servi%e'
Canada
"#is #as a n)m+er o( e,ements'
#ue di"igence on the issuer6s offer
An intermediary m)st #ave t#e pro(i%ien%y t#at a reasona+,e person $o),d %onsider
ne%essary to per(orm its ro,e %ompetent,y* in%,)din& to )nderstand t#e str)%t)re* (eat)res
and risks o( ea%# se%)rity %omin& $it#in a CS98 o((er on its $e+site'
An intermediary is e0pe%ted to deve,op t#is )nderstandin& +ased on a revie$ o( t#e
iss)er/s arti%,es o( in%orporation* ot#er re,evant %onstit)tiona, do%)ments and ot#er
materia,s in%,)ded in t#e iss)er/s app,i%ation (or a%%ess to t#e intermediary/s porta, 1see
)ssuer access agreements post2' 8or e0amp,e* i( an iss)er proposes to o((er se%)rities t#at
%ontain restri%tions on votin&* or %ontain redemption ri&#ts t#at a,,o$ t#e iss)er to redeem
t#e s#ares in %ertain %ir%)mstan%es* or t#at insiders or promoters o( t#e iss)er #o,d anot#er
%,ass o( se%)rities t#at #ave m),tip,e votes* t#e intermediary s#o),d )nderstand t#at it may
+e mis,eadin& to investors i( t#e iss)er des%ri+es t#e se%)rities as B%ommon s#ares/ or does
not dis%,ose t#e e0isten%e and materia, terms o( t#e se%)rities #e,d +y t#e insiders and
promoters'
?ike$ise* i( an iss)er is part o( a %orporate &ro)p* and t#e iss)er/s interest in t#e +)siness
or t#e assets o( t#e +)siness are o$ned t#ro)&# one or more s)+sidiaries* t#e intermediary
s#o),d )nderstand t#e (eat)res and risks o( t#e %apita, str)%t)re o( t#e %orporate &ro)p and
assess $#et#er t#e iss)er/s dis%,os)re ade<)ate,y dis%,oses t#ese risks'
7it#in t#is (rame$ork* an intermediary m)st revie$ t#e in(ormation intended to +e
presented +y t#e iss)er on t#e porta,/s $e+site (or t#e p)rpose o( (ormin& a reasona+,e
+e,ie( t#at t#e in(ormation ade<)ate,y sets o)t.
t#e &enera, (eat)res and str)%t)re o( t#e se%)rity to +e o((ered
iss)er-spe%i(i% risks
parties invo,ved and any in#erent %on(,i%ts o( interest* and
t#e intended )se o( ()nds raised t#ro)&# t#e iss)e'
-o$ever* t#is o+,i&ation does not in%,)de an o+,i&ation to assess.
t#e merits or e0pe%ted ret)rns o( an investment to p)r%#asers* or
t#e %ommer%ia, via+i,ity o( a proposed +)siness or o((er'
A,so* +)siness p,ans m)st +e prepared +y t#e iss)er/s mana&ement' Intermediaries $i,, not
+e re<)ired to assess t#e %ommer%ia, via+i,ity o( t#ese p,ans'
In addition* t#e intermediary is not o+,i&ed to determine $#et#er an iss)er/s mi,estones are
rea,isti% or a%#ieva+,e or to assess t#e e0perien%e o( t#e dire%tors or e0e%)tive o((i%ers o(
t#e iss)er'
"#e 5SC $as o( t#e vie$ t#at.
Many LintermediariesM $i,, rea,iDe t#e importan%e o( %ond)%tin& d)e di,i&en%e on
iss)ers* espe%ia,,y i( t#e porta, e0pe%ts to maintain its +)siness in $#at is e0pe%ted to
+e a very %ompetitive market'
7#i,e an intermediary $i,, not +e a)tomati%a,,y ,ia+,e (or t#e a%%)ra%y or %omp,eteness o(
t#e iss)er in(ormation* it may not in%,)de on its $e+site any iss)er in(ormation or
%omm)ni%ation t#at appears to +e (a,se* de%eptive* mis,eadin& or %ontains a
misrepresentation' ?ike$ise* an intermediary m)st deny a%%ess +y an iss)er to its on,ine
porta, i( t#e intermediary #as reason to +e,ieve t#at t#e iss)er or its o((er is (ra)d),ent' "#e
intermediary m)st terminate any s)%# o((er and m)st a,so report immediate,y to t#e
prin%ipa, re&),ator i( (ra)d is dis%overed d)rin& t#e distri+)tion period'
)ssuer access agreements
Be(ore an intermediary may permit an iss)er to a%%ess its on,ine porta,* t#e intermediary
m)st enter into an Biss)er a%%ess a&reement/ $it# t#at iss)er'
"#e iss)er a%%ess a&reement m)st %ontain vario)s provisions* in%,)din& a %on(irmation
(rom t#e iss)er t#at it $i,, %omp,y $it# t#e intermediary/s postin& po,i%ies* in%,)din&
%on(irmation t#at t#e in(ormation t#at t#e iss)er provides to t#e intermediary or posts on
t#e intermediary/s $e+site $i,,.
%omp,y $it# app,i%a+,e se%)rities ,e&is,ation
not %ontain )nd),y promotiona, statements or materia, t#at %annot +e reasona+,y
s)pported or any misrepresentation
+e presented in a (air and +a,an%ed manner* and
not +e mis,eadin&'
Assistance to issuers
An intermediary may assist an iss)er in t#e preparation o( an o((er do%)ment* +)siness
p,an or ot#er permissi+,e do%)ment* provided t#at t#e servi%e is ,imited to assistin& t#e
iss)er to %omp,y $it# its dis%,os)re o+,i&ations and to ens)re t#at t#e in(ormation is
presented in a (air* +a,an%ed and reasona+,e manner'
Intermediaries may a,so assist iss)ers to meet t#eir dis%,os)re and re%ord-keepin&
o+,i&ations' -o$ever* t#e provision o( s)%# assistan%e is at t#e dis%retion o( t#e
intermediary and $i,, not +e a %ondition o( intermediary re&istration'
<b"igations that intermediaries may p"ace on issuers
As part o( its &atekeepin& ro,e* an intermediary may* at its dis%retion* impose )pon iss)ers
s)%# ot#er re<)irements as t#e porta, %onsiders desira+,e to prote%t t#e interests o(
investors' An intermediary may deve,op standard (orm do%)ments (or t#at p)rpose'
USA
See t#e response in Se%tion '8'1'
%.<.2 S#3missions
Some respondents s)pported a very ,imited (orm o( initia, d)e di,i&en%e +y intermediaries
o( t#e +)siness o( t#e iss)er* (or instan%e* to ens)re t#at t#e iss)er is in%orporated in a
manner t#at permits it to iss)e t#e s#ares in t#e o((er do%)ment* and* possi+,y* t#at any
initia, (ore%asts in t#e o((er do%)ment are not )nrea,isti% or )nreasona+,e'
Beyond t#at* it $as ar&)ed* any ()rt#er* or on&oin&* d)e di,i&en%e o+,i&ations $o),d p,a%e
an )nreasona+,e %ost and reso)r%e +)rden on intermediaries' A,so* t#e on&oin& +)siness
%ond)%ted +y an iss)er is prin%ipa,,y a matter +et$een t#e iss)er and its e<)ity investors'
"#ere is ,itt,e t#at d)e di,i&en%e +y intermediaries %o),d o((er in t#ese %ir%)mstan%es as an
added ,eve, o( investor prote%tion'
Anot#er vie$ in s)+missions $as t#at any d)e di,i&en%e or <)a,ity %ontro, on t#e +)siness
%ond)%ted +y iss)ers* i( re<)ired* s#o),d +e done +y non-p,at(orm sponsors 1e& investment
+ankers* a%%o)ntants or %orporate advisers2* $it# iss)ers +ein& re<)ired to o+tain t#eir
si&n-o(( +e(ore intermediaries %o),d p)+,is# t#eir o((ers on t#eir $e+sites'
Anot#er perspe%tive in s)+missions $as t#at %onsideration mi&#t +e &iven to a means o(
tra%kin& t#e per(orman%e o( %ompanies #osted on on,ine CS98 p,at(orms and makin& t#is
in(ormation p)+,i%,y avai,a+,e on t#e $e+site to assist in(ormed de%ision-makin& +y
investors' "#is dis%,os)re o( an intermediary/s iss)er port(o,io per(orman%e may a,so (o%)s
t#e attention o( intermediaries on t#e <)a,ity o( t#e %ompanies t#ey #ost'
%.<.3 CAMAC position
Cond)%tin& d)e di,i&en%e on t#e +)siness o( iss)ers $o),d provide some prote%tion to
investors a&ainst p,a%in& t#eir ()nds $it# $#o,,y )ns)ita+,e iss)ers'
CAMAC %onsiders* #o$ever* t#at t#e task (or intermediaries in %ond)%tin& d)e di,i&en%e
on t#e +)siness o( an iss)er* in%,)din& t#e iss)er/s o((er* %o),d invo,ve a m)%# more
%omp,e0 and te%#ni%a, e0er%ise t#an %ond)%tin& d)e di,i&en%e on iss)ers and t#eir
mana&ement 1Se%tion '82'
I( d)e di,i&en%e on t#e +)siness o( an iss)er is to +e introd)%ed* t#e Canadian approa%#
provides a )se(), temp,ate mode, o( re&),ation* t#ere+y ens)rin& t#at t#e same key %#e%ks
are )ndertaken in a,, %ir%)mstan%es' Intermediaries %o),d e,e%t to %ommission ot#er parties
to %ond)%t t#ese +)siness %#e%ks' 7#i,e t#is de,e&ation $o),d not a,,o$ intermediaries to
%ontra%t o)t o( t#eir d)e di,i&en%e responsi+i,ities* it may provide eviden%e o( t#e means
+y $#i%# t#ey #ave so)&#t to (),(i, t#ese responsi+i,ities'
CAMAC notes t#e reservations in some s)+missions a+o)t imposin& any (orm o( d)e
di,i&en%e o+,i&ation (or intermediaries %on%ernin& t#e +)siness o( t#e iss)er* ot#er t#an (or
some +asi% %#e%ks' "#e Ne$ Hea,and dis%,os)re-on,y approa%#* $#ere+y an intermediary
indi%ates t#e e0tent to $#i%#* i( at a,,* t#e intermediary #as )ndertaken %#e%ks on t#e
+)siness o( t#e iss)er* may +e more pra%ti%a+,e' "#is may %onstit)te an appropriate
%ompromise position +et$een mandatory %#e%ks and no e0pe%tation o( any %#e%ks'
%.1<'ia,i#ity for mis#eading issuer information
)ss#e$ to what e+tent sho#ld intermediaries 3e held lia3le for investor losses res#lting
from materiall' misleading information1 or omissions1 from iss#ers made on their
we3sites6
%.1<.1 Su,missions
By $ay o( ,e&a, ana,ysis* one respondent re(erred to t#e de%ision o( t#e -i&# Co)rt in
9oog"e )nc v ACCC L191!M -CA 1* $#i%# #e,d t#at $#ere a party #as no %ontro, over t#e
s)+Ce%t matter p)+,is#ed on its $e+site* it %annot +e #e,d responsi+,e (or any mis,eadin&
statement t#erein' -o$ever* $#ere an intermediary #as &reater %ontro, over t#e p)+,i%ation
o( in(ormation provided +y an iss)er* it %o),d +e #e,d responsi+,e (or t#e %ontents. C"arke
v 'ationwide 'ews .ty -td 120122 8CA !07' In %onse<)en%e* it $as ar&)ed* )nder t#e
%)rrent ,a$ )n,ess amended* CS98 intermediaries $o),d potentia,,y +e ,ia+,e (or
mis,eadin& statements made +y iss)ers 1p)rs)ant to s 1041- o( t#e Corporations A%t2'
Eario)s respondents started (rom t#e prin%ip,e t#at t#e intermediary ro,e in CS98 is
essentia,,y one o( a +)siness introd)%tion servi%e* and t#)s t#ey s#o),d not +e
a)tomati%a,,y ,ia+,e (or investor ,osses res),tin& (rom mis,eadin& statements (rom iss)ers
made on t#e intermediary/s $e+sites' It may +e in t#e %ommer%ia, interests o(
intermediaries to monitor and %)rate iss)er statements iss)ed on t#eir $e+sites* as +est
t#ey %an* in order to +)i,d and retain investor tr)st' -o$ever* it $as ar&)ed* it $o),d +e
too +)rdensome on intermediaries to +e )nder an o+,i&ation to vet a,, iss)er statements*
$it# t#e prospe%t o( persona, ,ia+i,ity in t#e event t#at a statement t)rns o)t to +e
materia,,y mis,eadin& in some manner'
5ne s)&&estion $as t#at* to #e,p prote%t investors as $e,, as intermediaries* iss)ers s#o),d
+e re<)ired to si&n a de%,aration t#at a,, in(ormation provided +y t#em to t#e intermediary
%on%ernin& its o((er and its +)siness is tr)e and %orre%t and in%,)des a,, in(ormation
materia, to t#e o((er' "#is de%,aration $o),d ne&ate intermediary ,ia+i,ity (or materia,,y
mis,eadin& statements +y iss)ers p)+,is#ed on t#e intermediary $e+site* e0%ept $#ere t#e
intermediary #ad a%t)a, kno$,ed&e o( t#e (a,se#ood'
Anot#er vie$ in s)+missions $as t#at an intermediary s#o),d not +e ,ia+,e (or mis,eadin&
statements +y an iss)er p)+,is#ed on t#e intermediary/s $e+site* provided t#e intermediary
e0er%ised reasona+,e %areNd)e di,i&en%e to veri(y t#e a%%)ra%y o( t#ese statements and #ad
no kno$,ed&e or reason to s)spe%t t#at any iss)er statement $as materia,,y mis,eadin&' An
a,ternative s)&&ested (orm),ation $as t#at t#e intermediary $o),d not +e ,ia+,e $#ere it
%o),d not reasona+,y #ave kno$n t#at a statement made +y an iss)er $as mis,eadin&' It
$as a,so s)&&ested t#at to avoid any vettin& o+,i&ation on intermediaries +ein& too
+)rdensome* and to a,ert investors* intermediaries s#o),d post noti%es on t#eir $e+sites
statin& $#en t#ey #ave not +een a+,e to veri(y materia, statements and t#at investors
s#o),d make t#eir o$n en<)iries'
A distin%tion $as a,so dra$n in s)+missions +et$een statements made +y an iss)er and
statements +y an intermediary' An intermediary s#o),d +e ,ia+,e* a%%ordin& to &enera, ,a$
prin%ip,es* (or any mis,eadin& statements t#at it mi&#t %#oose to make %on%ernin& an
iss)er* in%,)din&* (or instan%e* a mis,eadin& em+e,,is#ment +y an intermediary o( te0t
provided +y an iss)er'
%.1<.2 CAMAC position
S)+Ce%t to %omp,ian%e $it# t#e ,imited d)e di,i&en%e o+,i&ations 1Se%tions '8 and '92* an
intermediary s#o),d +e %ivi,,y ,ia+,e (or investor ,osses (or materia,,y mis,eadin&
in(ormation* or omissions* %on%ernin& an iss)er on its $e+site* on,y $#ere t#e
intermediary #ad a%t)a, kno$,ed&e t#at t#e in(ormation provided +y t#e iss)er $as
mis,eadin& or t#at t#e iss)er #ad omitted materia, in(ormation* and t#ere)pon (ai,ed to a%t'
"#is $o),d +e in addition to iss)er ,ia+i,ity (or t#is $ron&doin&'
In t#e vie$ o( CAMAC* &oin& ()rt#er and imposin& %ivi, ,ia+i,ity on t#e intermediary (or
%onstr)%tive kno$,ed&e $o),d p,a%e too #eavy a +)rden on t#e intermediary to %ond)%t
%#e%ks' "#e intermediary may +e%ome ,ia+,e even $#ere it $as not a$are o( a materia,
misrepresentation or omission* +)t* in #indsi&#t* it $as C)d&ed t#at it s#o),d #ave +een so
a$are' ?ike$ise* in%,)din& a Bre%k,ess/ test o( %ivi, ,ia+i,ity* as s)&&ested in some
s)+missions* may* in e((e%t* impose a po,i%in& ro,e on t#e intermediary t#at %o),d +e
)nd),y +)rdensome in some %ir%)mstan%es'
%.11'ia,i#ity where fraud invo#ved
)ss#e$ to what e+tent sho#ld intermediaries 3e held lia3le for investor losses res#lting
from their we3sites 3eing #sed to defra#d investors6
%.11.1 Su,missions
"#e predominant vie$ in s)+missions $as t#at* over and a+ove any d)e di,i&en%e
o+,i&ations and ,ia+i,ities on intermediaries* t#ey s#o),d not +e )nder an additiona,
,ia+i,ity (or (ra)d +y anot#er party* )n,ess t#ey %an +e s#o$n to #ave +een a kno$in& or
re%k,ess party to t#e (ra)d' As o+served +y one respondent.
An intermediary s#o),d +e a $at%#do& and not a +,ood#o)nd* i'e' i( t#ey %ome a%ross
(ra)d),ent a%tivity t#ey s#o),d +e o+,i&ed to report it +)t t#ey s#o),d not +e e0pe%ted
to &o o)t and sear%# (or (ra)d),ent a%tivity'
Anot#er vie$ $as t#at intermediaries s#o),d make reasona+,e en<)iries o( iss)ers 1e&
re%eive re&),ar a)dited (inan%ia, statements2 +e(ore permittin& t#em to )se t#eir p,at(orm
to #e,p ens)re t#ey are not en&a&in& in (ra)d),ent %ond)%t'
%.11.2 CAMAC position
Consistent $it# t#e approa%# in Se%tion '10 and t#e t#r)st o( vie$s in s)+missions* an
intermediary s#o),d +e %ivi,,y ,ia+,e (or investor ,osses $#ere (ra)d is invo,ved on,y
$#ere t#e intermediary $as a party to t#e (ra)d* or ot#er$ise #ad a%t)a, kno$,ed&e o( t#e
(ra)d and t#ere)pon (ai,ed to a%t' "#is $o),d +e in addition to iss)er ,ia+i,ity (or t#is
$ron&doin&'
%.12ConAict of interest
)ss#e$ what possi3le conflict of interest or self7dealing sit#ations ma' arise 3etween
iss#ers and intermediaries and how might these sit#ations 3est 3e dealt with6
%.12.1 .ther /urisdictions
USA
.ayment from issuers
7#i,e intermediaries may re%eive %ompensation (rom t#e iss)er* i( (),,y dis%,osed* o((i%ers
o( intermediaries* or persons per(ormin& simi,ar ()n%tions* are pro#i+ited (rom #avin& any
(inan%ia, interest in any iss)er )sin& its servi%es' "#e S9C a,so proposes t#at t#ese persons
+e pro#i+ited (rom re%eivin& a (inan%ia, interest in t#e iss)er as %ompensation (or servi%es
provided to* or (or t#e +ene(it o(* t#e iss)er* in %onne%tion $it# t#e o((er and sa,e o( its
se%)rities'
"o avoid a possi+,e %on(,i%t o( interest* t#e S9C $o),d e0tend t#ese pro#i+itions on #avin&
a (inan%ia, interest* ot#er t#an %ompensation* to t#e intermediary itse,(.
S)%# a pro#i+ition $o),d +e +ene(i%ia, to investors and iss)ers +e%a)se i( an
intermediary $ere to #ave a (inan%ia, interest in one or more iss)ers t#at p,an to )se
its servi%es* t#e intermediary %o),d #ave an in%entive not +ased so,e,y on merit to
promote t#at iss)er/s o((erin&* potentia,,y to t#e detriment o( investors and ot#er
iss)ers'
Canada
An intermediary m)st dis%,ose a,, %ompensation* in%,)din& (ees* %osts and ot#er e0penses*
t#at it may %#ar&e to* or impose on* an iss)er'
In re&ard to t#e (orms o( payment* t#e 5SC noted t#at i( an intermediary #as a (inan%ia,
stake in a parti%),ar iss)er* it may #ave an in%entive to promote t#at iss)er over ot#er
iss)ers on its porta,' -o$ever* t#e 5SC a,so noted t#at t#at many start-)ps and sma,, and
medi)m enterprises may #ave ,imited reso)r%es to pay intermediary (ees' "#e 5SC
t#ere(ore proposes t#at iss)ers +e permitted to pay t#ese (ees in se%)rities o( t#e iss)er 1i(
a&reed +y t#e intermediary2* provided t#is %ompensation is (),,y dis%,osed to investors*
and t#e investment $o),d not res),t in t#e intermediary o$nin& or %ontro,,in& more t#an
10P o( t#e iss)er'
Beyond t#at* an intermediary may not invest in an iss)er or )nder$rite an iss)er on its
$e+site'
"#e Mar%# 2014 5SC 4aper raised t#e <)estion $#et#er permittin& iss)ers to pay
intermediary (ees in se%)rities o( t#e iss)er is appropriate.
"#e Lre<)irementsM $o),d a,,o$ LintermediaryM (ees to +e paid in se%)rities o( t#e
iss)er so ,on& as t#e Lintermediary/sM investment in t#e iss)er does not e0%eed 10P' Is
t#e investment t#res#o,d appropriateA In ,i&#t o( t#e potentia, %on(,i%ts o( interest
(rom t#e porta,/s o$ners#ip o( an iss)er* s#o),d LintermediariesM +e pro#i+ited (rom
re%eivin& (ees in t#e (orm o( se%)ritiesA
Conf"icts of interest
Intermediaries m)st identi(y and appropriate,y dea, $it# any %on(,i%ts o( interest t#at may
arise in t#e a%tivities o( t#e on,ine porta,s'
New Zealand
An intermediary $i,, +e re<)ired to identi(y and dea, $it# %on(,i%ts o( interest in a (air*
order,y and transparent $ay'
An intermediary m)st #ave ade<)ate systems and pro%ed)res (or #and,in& %on(,i%ts
+et$een its %ommer%ia, interests 1or o( its asso%iated persons2 and t#e need to #ave (air*
order,y* and transparent systems and pro%ed)res (or providin& t#e servi%e'
8or t#is p)rpose* an intermediary m)st %,ear,y and prominent,y dis%,ose.
i( t#e intermediary or anyone %ommer%ia,,y asso%iated $it# t#e intermediary #as a
dire%t or indire%t interest in any o((er made t#ro)&# t#e intermediary/s (a%i,ity
t#e nat)re and e0tent o( t#e interest 1or intended investment2 and any (ees t#e iss)er
pays t#e intermediary a+ove t#e standard dis%,osed amo)nt'
More spe%i(i%a,,y* intermediaries $i,, +e permitted to invest in o((ers made on t#e
intermediary/s $e+site* provided t#ey provide detai,s o( t#e ,ike,y nat)re and e0tent o(
s)%# investment 1i( kno$n2' I( an intermediary* or an asso%iated person* $is#es to invest in
t#is manner* t#e intermediary m)st e0p,ain #o$ its systems and pro%ed)res (or #and,in&
%on(,i%ts o( interest $i,, ens)re ot#er investors are not preC)di%ed' An intermediary m)st
a,so ens)re t#at potentia, %on(,i%ts are dis%,osed %,ear,y and prominent,y on its on,ine
(a%i,ity'
%.12.2 Su,missions
Interest in t"e issuer
Eario)s respondents s)pported t#e prin%ip,e o( a %ro$d()ndin& p,at(orm +ein& a Bne)tra,
porta,/ in re&ard to t#e iss)ers $#i%# it #osts on its $e+site' "o ens)re t#is* some
s)+missions proposed t#at intermediaries and t#eir o((i%ers s#o),d +e pro#i+ited (rom
#o,din& any ,e&a, or +ene(i%ia, interest in t#e e<)ity o( any iss)er )sin& its p,at(orm* or
#ave any ot#er %ommer%ia, interest in t#e iss)er* apart (rom t#e ri&#t o( t#e intermediary to
re%eive rem)neration (rom t#e iss)er'
5ne s)&&ested <)a,i(i%ation $as t#at any pro#i+ition on an intermediary or its o((i%ers
#o,din& an e<)ity or any ot#er interest in an iss)er s#o),d +e ,i(ted a(ter some period* say
12 mont#s* (rom t#e %omp,etion o( a CS98 proCe%t +y t#e iss)er on t#e intermediary/s
$e+site'
A %ontrary vie$ $as t#at t#ere s#o),d not +e a pro#i+ition on an intermediary or its
o((i%ers #avin& an e<)ity or %ommer%ia, interest in an iss)er on t#eir $e+site* provided any
(inan%ia, asso%iation is (),,y dis%,osed in t#e CS98 o((er do%)ment' It $as a,so s)&&ested
t#at ear,y sta&e %ompanies may ask t#e intermediary i( t#ey %an pay t#eir )p-(ront (ees in
s#ares o( t#e iss)er in ,ie) o( %as# 1&iven t#at t#ey may #ave ,itt,e avai,a+,e %apita, and t#e
e<)ity o((er to t#e %ro$d may not +e s)%%ess(),2' It $as a,so noted t#at &iven t#e ,imited
se%ondary market* a pe%)niary interest o( t#is nat)re may $e,, +e ,ost or on,y &ain va,)e
many years do$n t#e tra%k'
%.12. CAMAC position
1eneral approac"
"#e approa%#es in ot#er C)risdi%tions di((er +et$een a &enera, pro#i+ition* $it# ,imited
e0%eptions* and permittin& potentia, %on(,i%t o( interest sit)ations* provided t#ere is (),,
dis%,os)re'
CAMAC s)pports t#e &enera, pro#i+ition $it# e0%eptions approa%#' It <)estions $#et#er
an emp#asis on dis%,os)re $o),d ens)re a&ainst an intermediary #avin& a se,(-interest
$#i%# %o),d %ompromise its ro,e as a ne)tra, (a%i,itator o( o((ers on its $e+site' CAMAC
is a,so %on%erned t#at dis%,os)re +y an intermediary o(* say* some interest in an iss)er
%o),d +e a (orm o(* not so s)+t,e* advertisin& or so,i%itin& 1intended or ot#er$ise2 (or t#at
iss)er' 8or instan%e* %ro$d investors %o),d take t#e vie$ t#at i( an intermediary #as an
interest in one* +)t not anot#er* iss)er t#at it is #ostin& on its $e+site* it m)st +e (or a &ood
reason* and t#ere(ore may +e in(,)en%ed to p,a%e t#eir ()nds $it# t#e (ormer iss)er on t#at
+asis' :e<)irin& an intermediary to state its reasons (or investin& in a parti%),ar iss)er
$o),d take it even ()rt#er (rom its Bne)tra, porta,/ ro,e'
!ro"ibition on a financial interest
"o avoid any possi+,e %on(,i%t o( interest* and to ens)re t#at an intermediary is* and is seen
to +e* a ne)tra, (a%i,itator* t#ere s#o),d +e a &enera, pro#i+ition on an intermediary or its
o((i%ers #avin& any (inan%ia, interest* o( $#atever (orm* in an iss)er* ot#er t#an t#e ri&#t o(
t#e intermediary to +e rem)nerated (or t#e iss)er )sin& its $e+site 1$it# some e0%eptions*
dis%)ssed +e,o$2'
As noted a+ove* to permit an intermediary to #ave an interest in an iss)er and re,y on,y on
p)+,i% dis%,os)re o( t#at (a%t may )nd),y in(,)en%e t#e %ro$d in (avo)r o( t#at iss)er*
re&ard,ess o( t#e merits o( its o((er* on t#e vie$ t#at t#e o((er m)st +e $ort#$#i,e +e%a)se
t#e intermediary itse,( #as an interest in it'
It $as s)&&ested in s)+missions t#at any pro#i+ition on an intermediary or its o((i%ers
#o,din& an e<)ity interest in an iss)er s#o),d +e ,i(ted a(ter some period* say 12 mont#s*
(rom t#e %omp,etion o( a CS98 proCe%t +y t#e iss)er on t#e intermediary/s $e+site'
CAMAC %onsiders t#at t#e pro#i+ition s#o),d remain on,y $#i,e t#e iss)er is #osted on
t#e intermediary/s $e+site' An intermediary %o),d a%<)ire a (inan%ia, interest in an iss)er
$#i%# it #as previo)s,y #osted* +)t t#is iss)er %o),d not %ond)%t any s)+se<)ent CS98
o((er t#ro)&# t#at intermediary $#i,e t#e intermediary retained t#at interest'
.emuneration
"#e ri&#t o( an intermediary to +e rem)nerated +y an iss)er s#o),d +e s)+Ce%t to a n)m+er
o( restri%tions to avoid possi+,e %on(,i%ts o( interest (or t#e intermediary'
.ayment according to funds raised
An intermediary s#o),d +e pro#i+ited (rom +ein& rem)nerated a%%ordin& to t#e amo)nt o(
()nds raised +y an iss)er t#ro)&# an o((er %ond)%ted on t#e intermediary/s on,ine porta,'
"o permit t#is (orm o( payment may en%o)ra&e an intermediary to promote t#e o((er to
ma0imise its ret)rn* t#ere+y %ompromisin& its ne)tra, ro,e +et$een iss)ers and %ro$d
investors'
.ayment in shares
CAMAC #as a,so &iven %onsideration to t#e Canadian proposa,* ,ike$ise re(erred to in
some s)+missions* to a,,o$ an iss)er 1$it# t#e %onsent o( t#e intermediary2 to pay a,, or
part o( its (ees to t#e intermediary +y providin& its se%)rities to t#e intermediary* provided
t#at* in %onse<)en%e* t#e intermediary does not o$n or %ontro, more t#an 10P o( t#e
iss)er'
"#is raises %ompetin& %onsiderations' 4ermittin& t#is (orm o( payment +y t#e iss)er may
red)%e t#e (inan%ia, +arriers to ear,y-sta&e enterprises )ti,isin& CS98' -o$ever* as $it#
any ot#er interests o( an intermediary in an iss)er* t#e dis%,os)re o( t#is arran&ement %o),d
+e seen as a (orm o( endorsement +y t#e intermediary o( t#at iss)er* %ontrary to t#e ro,e o(
t#e intermediary as a Bne)tra, porta,/ +et$een iss)ers and t#e %ro$d'
CAMAC notes t#at permittin& intermediaries to a%%ept any se%)rities in t#e iss)er 1even
$it#in a %ap2 a,so raises t#e ()rt#er <)estion o( $#et#er t#is type o( transa%tion s#o),d
disentit,e t#e intermediary (rom a%tin& in any s)+se<)ent CS98 o((ers +y t#e iss)er $#i,e
it #o,ds t#ose se%)rities o( t#e iss)er'
-ere* a,so* t#ere are %ompetin& (a%tors to %onsider'
5n t#e one #and* an intermediary may +e re,)%tant to a&ree to a%%ept se%)rities o( t#e
iss)er as payment in t#e (irst p,a%e i( t#e %onse<)en%e is t#at t#e iss)er m)st %ond)%t any
s)+se<)ent CS98 e0er%ise t#ro)&# anot#er intermediary $#i,e t#e ori&ina, intermediary
retains t#ose se%)rities'
5n t#e ot#er #and* an intermediary $it# any interest in se%)rities o( an iss)er 1$#et#er
o+tained as payment (or an ear,ier CS98 o((er or ot#er$ise2 %o),d +e seen as #avin& a
se,(-interest in any s)+se<)ent CS98 o((er +y t#e iss)er' "#is %o),d p,a%e t#e intermediary
in a position o( %on(,i%t o( interest* %ontrary to its ne)tra, ro,e' A,so* t#e dis%,os)re o( an
intermediary/s e0istin& interest in se%)rities mi&#t a%t as a (orm o( endorsement +y t#e
intermediary o( t#at iss)er'
5n +a,an%e* CAMAC %onsiders t#at iss)es o( %on(,i%t o( interest s#o),d +e paramo)nt in
t#is sit)ation' In %onse<)en%e* an intermediary s#o),d not +e permitted to a%%ept any
se%)rities* or ot#er interest* in t#e iss)er in payment o( its (ees (or a CS98 o((er %ond)%ted
t#ro)&# its $e+site'
%.1Access to crowd investor funds
)ss#e$ what controls sho#ld intermediaries e+ercise on iss#ers having access to f#nds
provided 3' crowd investors6
USA
Intermediaries m)st prevent t#e iss)er #avin& a%%ess to CS98 pro%eeds )nti, a desi&nated
()nds tar&et (or t#at %ompany is rea%#ed and a,,o$ a,, investors to %an%e, t#eir
%ommitments to invest as determined +y S9C :),es'
Intermediaries t#emse,ves are pro#i+ited (rom #o,din& or mana&in& any investor ()nds or
se%)rities' "#e proposed r),es $o),d o+,i&e intermediaries to dire%t investors to transmit
t#e ()nds dire%t,y to an a%%o)nt $it# a <)a,i(ied t#ird party +ank* $#i%# #as a&reed in
$ritin& to #o,d t#e ()nds and to transmit t#em to t#e iss)er or t#e investors* dependin& on
$#et#er t#e o((er $as %omp,eted or $as %an%e,,ed' A,so.
t#e re<)irement t#at t#e L+ankM a%%o)nt in $#i%# ()nds are deposited +e e0%,)sive,y
(or t#e +ene(it o( investors and t#e iss)er $o),d #e,p prevent t#e intermediary or ot#er
parties (rom %,aimin& or ot#er$ise )n,a$(),,y takin& ()nds (rom t#at a%%o)nt'
Canada
Intermediaries m)st arran&e (or rep)ta+,e t#ird parties to #and,e investor ()nds in a tr)st or
es%ro$ arran&ement )nti, t#e o((er minim)m #as +een a%#ieved'
%.1.2 Su,missions
"#ere $as a vie$ in s)+missions t#at )nti, an o((er $as s)%%ess(),,y %omp,eted* investor
()nds s#o),d +e #e,d +y an appropriate independent t#ird party 1s)%# as a +ank2' It $as
ar&)ed t#at pro#i+itin& intermediaries (rom #o,din& or mana&in& any investor ()nds $o),d
permit ,ess strin&ent ,i%ensin& arran&ements (or intermediaries $#i,e not %ompromisin&
investor prote%tion'
Some ot#er respondents %onsidered t#at it $o),d s)((i%e (or t#e ()nds to +e #e,d in a
separate tr)st a%%o)nt o( t#e intermediary'
In t#e event o( (ai,)re to meet t#e ()ndin& t#res#o,d* %ontri+)ted ()nds s#o),d +e ret)rned
to t#e investors'
%.1. CAMAC position
"#e prin%ip,es in s 981B o( t#e Corporations A%t* to&et#er $it# any re,evant terms or
%onditions o( t#e intermediary ,i%en%e* s#o),d app,y to ()nds provided +y investors 1see
a,so Se%tion '202'
7#ere intermediaries are a)t#orised to #o,d %ro$d investor ()nds in a tr)st arran&ement*
t#ey s#o),d ens)re t#at iss)ers #ave no a%%ess to t#ese ()nds )nti, t#e o((er #as +een
%omp,eted 1see Se%tion 4'122'
C "ntermediary matters re#ated to investors
%.1!Screening of crowd investors
)ss#e$ what1 if an'1 screening or vetting sho#ld intermediaries cond#ct on crowd
investors6
%.1!.1 .ther /urisdictions
UK
"#e FG* )n,ike ot#er C)risdi%tions* %on(ines CS98 to sop#isti%ated investors and some
%ate&ories o( retai, investors'
Intermediaries m)st ens)re t#at t#eir retai, %,ients %ome $it#in one o( t#e e,i&i+i,ity
%riteria +e(ore %omm)ni%atin& dire%t o((er promotions to t#em' -o$ever* in re&ard to
some o( t#ese %riteria* t#e 8CA 4o,i%y Statement 4S14N4 indi%ates t#at repeat
appropriateness assessments +y intermediaries o( retai, %,ients $#o #ave not re%eived
advi%e $i,, not +e re<)ired i( it is reasona+,e to %onsider t#at an ear,ier assessment is sti,,
%)rrent' A,so* $#ere retai, %,ients %erti(y t#at t#ey $i,, not invest more t#an 10P o( t#eir
net investi+,e assets in non-readi,y rea,isa+,e se%)rities* intermediaries %an %omm)ni%ate
s)%# o((ers to t#at individ)a, (or 12 mont#s a(ter t#e date o( t#e statement $it#o)t a ne$
%erti(i%ation (rom t#at individ)a,' ;)rin& t#at period intermediaries do not need to ens)re
t#at individ)a,s %ontin)e to <)a,i(y on an on&oin& +asis'
Canada
An intermediary $i,, not +e s)+Ce%t to B%,ient-spe%i(i%/ kno$-yo)r-%,ient and s)ita+i,ity
re<)irements (or investors $#o are takin& )p iss)er o((ers t#at are posted on t#e
intermediary/s $e+site'
%.1!.2 Su,missions
Some respondents proposed t#at intermediaries %#e%k t#at intendin& investors #ave
%omp,ied $it# any investor a%%reditation prere<)isite t#at mi&#t +e imposed 1e0%ept $#ere
any s)%# re<)irement is on t#e +asis o( se,(-%erti(i%ation +y t#e investor2.
"#ere $as some s)pport in s)+missions (or t#e prin%ip,e o( intermediaries )ndertakin&
some s%reenin& o( %ro$d investors a%%ordin& to t#e )nderstandin& o( t#ose investors o( t#e
()ndamenta,s o( investin& in CS98 o((ers* and t#e in#erent risks and ot#er imp,i%ations o(
s)%# investments' S)&&estions in%,)ded investors #avin& to satis(a%tori,y ans$er an on,ine
<)estionnaire on t#e intermediary/s $e+site +e(ore +ein& permitted to a%%ept a CS98 o((er'
An a,ternative approa%# $as (or an e0terna, entity to o((er an ed)%ationa, servi%e (or
investors* s)%# as an a%%reditation $orks#op* $it# %erti(i%ation +ein& a pre%ondition to
retai, investors a%%eptin& CS98 o((ers on intermediary $e+sites'
Some ot#er respondents (avo)red any vettin& o( investors +y intermediaries +ein&
%on(ined to identity %#e%ks o( investors and s%reenin& (or money ,a)nderin&* in
%omp,ian%e $it# money ,a)nderin& re&),ations'
-o$ever* some s)+missions %onsidered t#at intermediaries s#o),d #ave no o+,i&ation to
vet or s%reen investors* t#o)&# t#eir on,ine p,at(orms s#o),d state %,ear,y t#at investors
m)st #ave ,e&a, %apa%ity to o$n s#ares' Beyond t#at* it $as ar&)ed* investors s#o),d +e
responsi+,e (or in(ormin& t#emse,ves a+o)t t#e merits o( makin& an investment t#ro)&#
CS98' Any re<)irement t#at investors provide an a%kno$,ed&ement o( t#e risks invo,ved
in CS98 s#o),d s)((i%e'
%.1!. CAMAC position
3iven t#at CS98 o((ers %o),d +e a%%epted +y %ro$d investors $#erever ,o%ated* t#ere
s#o),d not +e any initia, investor s%reenin& or vettin& o+,i&ation on intermediaries 1s)%# as
a Bkno$ yo)r %,ient/ or an investor s)ita+i,ity r),e2'
CAMAC notes t#e terms o( t#e anti-money ,a)nderin& and %o)nter-terrorism (inan%in&
,e&is,ation 1AM?NC"8 A%t2' In t#e event t#at t#e servi%e provided +y an intermediary to
%ro$d investors meets t#e de(inition o( a Bdesi&nated servi%e/* t#e intermediary $i,, #ave
vario)s o+,i&ations )nder t#e AM?NC"8 A%t in re,ation to its investors* in%,)din& Bkno$
yo)r %)stomer/ o+,i&ations and on&oin& d)e di,i&en%e and s)spi%io)s matter reportin&' "#e
AM?NC"8 A%t #as a n)m+er o( e0emptions t#at app,y in di((erent %onte0ts* +ased on t#e
siDe o( t#e transa%tion' Simi,ar e0emptions %o),d +e %onsidered in re,ation to CS98* i( t#e
3overnment %onsiders it appropriate'
7#et#er t#ere s#o),d +e some (orm o( risk appre%iation test to +e a %ro$d investor is
dis%)ssed in Se%tion '1* +e,o$'
%.1%Ris( disc#osure
)ss#e$ what risk disclos#res sho#ld intermediaries 3e re5#ired to make to crowd
investors and sho#ld these investors 3e re5#ired to complete a risk appreciation test6
%.1%.1 .ther /urisdictions
New Zealand
An intermediary m)st ens)re t#at a $arnin& statement is prominent,y disp,ayed on t#e
#ome pa&e o( its on,ine siteU and on a pa&e on t#e site* immediate,y +e(ore t#e investor
)ses t#e site to app,y (or* or ot#er$ise a%<)ire* e<)ity'
"#e $arnin& statement m)st +e in t#e (o,,o$in& (orm.
9<)ity %ro$d ()ndin& is risky'
Iss)ers )sin& t#is (a%i,ity in%,)de ne$ or rapid,y &ro$in& vent)res' Investment in
t#ese types o( +)sinesses is very spe%),ative and %arries #i&# risks' L5mit t#ese
senten%es i( t#e (a%i,ity is %on(ined to iss)ers (or $#om t#e senten%es $o),d +e
inapp,i%a+,eM
=o) may ,ose yo)r entire investment* and m)st +e in a position to +ear t#is risk
$it#o)t )nd)e #ards#ip'
Ne$ Hea,and ,a$ norma,,y re<)ires peop,e $#o o((er (inan%ia, prod)%ts to &ive
in(ormation to investors +e(ore t#ey invest' "#is re<)ires t#ose o((erin& (inan%ia,
prod)%ts to #ave dis%,osed in(ormation t#at is important (or investors to make an
in(ormed de%ision'
"#e )s)a, r),es do not app,y to o((ers +y iss)ers )sin& t#is (a%i,ity' As a res),t* yo)
may not +e &iven a,, t#e in(ormation )s)a,,y re<)ired' =o) $i,, a,so #ave (e$er ot#er
,e&a, prote%tions (or t#is investment'
Ask <)estions* read a,, in(ormation &iven %are(),,y* and seek independent (inan%ia,
advi%e +e(ore %ommittin& yo)rse,('
USA
)nvestment risk disc"osure
Intermediaries m)st provide &enera, dis%,os)res to investors re,ated to t#e in#erent risks
invo,ved in CS98 1in%,)din& t#e spe%),ative nat)re o( start-)p %ompanies and t#e i,,i<)id
nat)re o( t#eir se%)rities2 and s)%# ot#er investor ed)%ation materia,s as t#e S9C deems
appropriate* and ens)re t#at investors revie$ s)%# dis%,os)res* a((irm t#e risk o( ,oss and
ans$er vario)s <)estions'
In t#is %onte0t* t#e S9C #as indi%ated t#at t#e intermediary $o),d +e re<)ired to )ndertake
t#is e0er%ise ea%# time an investor seeks to make an investment %ommitment' A,so* t#e
<)estionnaire re<)ired )nder t#e proposed r),es $o),d #e,p address %on%erns t#at not#in&
more is re<)ired o( an investor t#an a mere se,(-%erti(i%ation'
"#e re<)ired ed)%ationa, materia,s $o),d +e set o)t in t#e S9C :),es' In re&ard to t#eir
)ti,ity* t#e S9C #as o+served t#at.
t#e e((e%tiveness o( t#e ed)%ationa, materia,s to en#an%e investor prote%tion $o),d
vary dependin& )pon t#e ed)%ation and e0perien%e o( retai, investors' In addition* a
presentation t#at #i&#,i&#ts t#e risks o( se%)rities-+ased %ro$d()ndin& %o),d
dis%o)ra&e investor parti%ipation'
Ital*
"#e 9F Mi8I; in%,)des o+,i&ations on Bpermitted mana&ers/ %on%ernin& mat%#in& an
investor/s pro(i,e to investment risk' -o$ever* t#ere $i,, +e an e0emption (rom Mi8I; (or
sma,, investments 1investments not e0%eedin& V00 (rom ea%# investor* and V1*000 tota,
per year in CS98 (or ea%# investor2 provided t#e investors* $#en %ontri+)tin& t#ro)&# a
%ro$d()ndin& p,at(orm* take a test to demonstrate t#at t#ey are a$are o( t#e risks t#ey are
takin& $#en investin&* and t#at t#ey %an a((ord t#e possi+,e ,oss o( t#e amo)nt invested'
UK
"#e 8CA noted in 4S14N4 t#at investors (a%e si&ni(i%ant in#erent risks $#en +)yin&
non-readi,y rea,isa+,e se%)rities' "#ese in%,)de.
t#e risk o( %apita, ,oss 1$#i%# is e0a%er+ated i( t#e pri%e paid (or a se%)rity is +ased on
an over-va,)ation o( t#e +)siness2
t#e risk o( di,)tion o( s#are#o,der va,)e
t#e risk t#at dividends $i,, not +e de%,ared* and
i,,i<)idity risk 1t#e ,a%k o( a se%ondary market2'
"#e 8CA indi%ated t#at intermediaries are o+,i&ed to provide (air* %,ear and prominent risk
$arnin&s' -o$ever* +oi,er-p,ate standard $arnin&s may not s)((i%e.
As t#e risks invo,ved $#en investin& in di((erent non-readi,y rea,isa+,e se%)rities vary
&reat,y* dependin& on t#e nat)re o( t#e investment o((ered* it may not a,$ays +e
meanin&(), or #e,p(), to present %ons)mers $it# a sin&,e* )ni(orm 8CA-approved risk
$arnin&' ;i((erent $arnin&s $i,, +e needed in di((erin& %ir%)mstan%es* (or di((erent
investments and a)dien%es'
Canada
:isk $arnin&s to investors m)st +e set o)t at t#e top o( t#e iss)er o((er'
In addition* an intermediary m)st prominent,y state on its on,ine porta, t#at.
no se%)rities re&),atory a)t#ority or re&),ator #as approved or e0pressed an opinion
a+o)t t#e se%)rities o((ered on t#e porta,
BA %ro$d()ndin& investment is #i&#,y risky' =o) may ,ose a,, yo)r investment and yo)
may not +e a+,e to se,, any se%)rities yo) p)r%#ase/'
A,so* an intermediary m)st take reasona+,e steps to ens)re t#at investors )nderstand t#e
risks o( a %ro$d()ndin& investment' In t#at respe%t.
Lan intermediaryM s#o),d not re,y so,e,y on t#e risk a%kno$,ed&ement (orm si&ned +y
an investor'
7it#o)t +ein& pres%riptive* t#e 5SC #as indi%ated t#at (or t#e p)rpose o( ens)rin& t#at
investors )nderstand t#e risks o( a %ro$d()ndin& investment* an intermediary mi&#t
re<)ire investors to.
%orre%t,y ans$er <)estions in an intera%tive <)estionnaire %ond)%ted at t#e time o( t#e
a%%o)nt openin& t#at demonstrates t#at t#e investor )nderstands t#e ,eve, o( risk
&enera,,y app,i%a+,e to investments in start-)ps* emer&in& +)sinesses* and sma,,
iss)ers and t#e risk o( i,,i<)idity* and
%orre%t,y ans$er <)estions in an intera%tive <)estionnaire %ond)%ted ann)a,,y
t#erea(ter'
%.1%.2 Su,missions
"#ere $as stron& s)pport in s)+missions (or intermediaries +ein& re<)ired to provide
investors $it# a &eneri% risk statement %overin& t#e in#erent risks o( investin& t#o)&#
CS98* $it# t#at risk statement +ein& prominent,y sit)ated on t#e on,ine p,at(orm* to&et#er
$it# an a%%ompanyin& indi%ation t#at t#e &eneri% risk statement does not %onstit)te t#e
&ivin& o( (inan%ia, advi%e in any $ay' Investors s#o),d +e o+,i&ed to a%kno$,ed&e t#at
t#ey #ave read or are a$are o( t#e &eneri% risk statement +e(ore +ein& permitted to a%%ept
any CS98 o((er on t#e intermediary $e+site'
:espondents made a ran&e o( s)&&estions as to t#e %ontent o( a &eneri% risk statement'
8or instan%e* one s)&&estion $as t#at t#is statement s#o),d indi%ate t#at CS98 proCe%ts are
typi%a,,y spe%),ative vent)res* $it# no &)arantee o( pro(it and a #i&# risk o( ,oss o( %apita,
and t#at t#e prod)%tNidea +ein& promoted may not ever %ome to (r)ition'
Anot#er s)&&estion $as t#at t#e &eneri% risk statement +e in t#e (orm o( s#ort $arnin&s 1as
t#ey may +e more ,ike,y to +e read +y investors2* $#i%# $o),d t#en dire%t investors to
more detai,ed in(ormation settin& o)t t#e risks ,inked to s)%# matters as.
(easi+i,ityNte%#no,o&y risk asso%iated $it# a start-)p idea
market risk
inte,,e%t)a, property risk
t#e risk o( %ompetin& prod)%ts
t#e risk o( di,)tion o( initia, s#are#o,din& +y ,ater ()ndraisin&s
t#e i,,i<)id nat)re o( investments in start-)ps
t#e potentia, impa%t o( pre(erentia, s#are#o,der ri&#ts on ret)rns to %ro$d
s#are#o,dersU and
t#e )s)a, ,a%k o( dividends in t#e ear,y sta&es'
A n)m+er o( respondents a,so s)&&ested t#at t#e risk dis%,os)re statement s#o),d
re%ommend to prospe%tive investors t#at t#ey o+tain ,e&a, and (inan%ia, advi%e +e(ore
investin& in CS98 o((ers or makin& any serio)s (inan%ia, de%isions in t#at re&ard'
%.1%. CAMAC position
.is' disclosure statement
In t#e interests o( a,, invo,ved parties* iss)ers and intermediaries as $e,, as investors* t#ere
s#o),d +e a %,ear (orma, en)n%iation o( t#e in#erent risks (or %ro$d investors in p,a%in&
t#eir ()nds t#ro)&# t#e CS98 pro%ess' No re&),atory str)%t)re (or t#is (orm o( %orporate
()ndraisin& %an over%ome t#ese risks* and investors s#o),d not +e mis,ed into t#inkin& t#at
iss)ers or intermediaries are promisin& or &)aranteein& any (orm o( (inan%ia, ret)rn (or
t#eir investment* or ret)rn o( t#e %apita, invested'
3iven t#e importan%e o( risk dis%,os)re* CAMAC proposes t#at t#ere +e a risk dis%,os)re
temp,ate* %ontainin& %,ear and dire%t $arnin&s to %ro$d investors a+o)t t#e risks
asso%iated $it# CS98 investments'
In re&ard to t#e %ontents o( t#e temp,ate* CAMAC notes t#e )se(), ideas and te0t in t#e
Ne$ Hea,and* t#e FG and t#e Canadian approa%#es* as $e,, as in t#e s)+missions'
"#e temp,ate %o),d point o)t* (or instan%e* t#at.
most start-)ps (ai,
even i( a proCe%t is s)%%ess(),* any ret)rn on t#e investment %o),d +e red)%ed t#ro)&#
s#are di,)tion or o%%)r on,y a(ter a ,on& period d)rin& $#i%# t#ere may +e ,itt,e or no
means to se,, t#e s#ares
even t#o)&# investors may #ave remedies (or iss)er mis%ond)%t* t#e %#an%es o( a%t)a,
monetary re%overy (rom t#e iss)er or invo,ved individ)a,s may +e ,o$'
"#ese* and ot#er* matters %o),d +e disti,,ed into one standard do%)ment* to +e provided +y
a,, intermediaries to %ro$d investors'
Any dra(t risk dis%,os)re statement s#o),d +e %ons)mer tested +e(ore it is adopted* to
ens)re t#at %ro$d investors %an readi,y )nderstand and a+sor+ t#e %ontent o( t#e
dis%,os)re'
An intermediary s#o),d +e re<)ired to provide t#e risk dis%,os)re statement to a %ro$d
investor* and re%eive a%kno$,ed&ement +y t#at investor o( #avin& read and )nderstood t#e
statement* +e(ore t#at investor makes ea%# CS98 investment 1see ()rt#er Se%tion 6' in
re&ard to investor a%kno$,ed&ement2' "#e pro%ess o( providin& t#e statement %o),d +e
a)tomated 1(or instan%e* a so(t$are &enerated standard emai, and atta%#ment response to
an in<)iry (rom a %ro$d investor2* t#ere+y avoidin& any materia, re&),atory +)rden on t#e
intermediary'
Imposin& t#is re<)irement +e(ore ea%# investment* not C)st +e(ore t#e (irst CS98
investment +y t#at investor t#ro)&# an intermediary/s $e+site* $o),d %ontin)e to dra$ to
t#e attention o( t#e investor t#e risks asso%iated $it# CS98* $it# t#e a)tomated pro%ess
1re(erred to a+ove2 minimisin& any %ost'
.is' appreciation test
CAMAC #as a,so &iven %onsideration to $#et#er* in addition to t#e risk dis%,os)re
statement and t#e risk a%kno$,ed&ement +y t#e %ro$d investor* t#ere s#o),d +e some (orm
o( risk appre%iation test (or a %ro$d investor +e(ore +ein& permitted to a%%ept CS98 o((ers'
"#is raises %ompetin& %onsiderations'
5n t#e one #and* CAMAC notes t#at risk appre%iation initiatives #ave +een )ndertaken
$it# %omp,e0 derivatives and ot#er (inan%ia, prod)%ts 1see ASIC :e&),atory 3)ide 227*
$#i%# provides ind)stry dire%tion2' 7#i,e t#e (inan%ia, risks asso%iated $it# investin& in
derivatives di((er (rom t#e (inan%ia, risks in investin& t#ro)&# CS98* introd)%tion o( a risk
appre%iation assessment (or %ro$d investors may &o some $ay to$ard improvin& t#eir
)nderstandin& t#at CS98 is not a dire%t s)+stit)te (or more traditiona,* ,i<)id and ,o$er
risk e<)ity investments o((ered to t#e p)+,i%'
5n t#e ot#er #and* it may +e )nd),y +)rdensome to o+,i&e intermediaries to %ond)%t s)%#
tests +e(ore a %ro$d investor is permitted to enter into a CS98 transa%tion (or t#e (irst time
t#ro)&# t#at intermediary* &iven t#e n)m+er o( %ro$d investors t#at may +e invo,ved'
CAMAC #as e,se$#ere proposed t#at %ro$d investors m)st a%kno$,ed&e ea%# o( t#e risks
set o)t in t#e risk dis%,os)re statement 1Se%tion 6'2' "#is is desi&ned to en%o)ra&e %ro$d
investors to t)rn t#eir minds to ea%# o( t#ese risks* t#ere+y a%tin& as a (orm o( risk
appre%iation* a,+eit $it#o)t any Btest/ e,ement' 5n +a,an%e* CAMAC %onsiders t#at t#is
may s)((i%e'
%.1&Comp#iance with investor caps
)ss#e$ what meas#res sho#ld intermediaries 3e re5#ired to take to ens#re that an'
crowd investor caps are not 3reached6
"#e vario)s types o( investor %aps are ()rt#er dis%)ssed in Se%tion 6'4' "#e <)estion #ere
%on%erns t#e ro,e o( t#e intermediary in monitorin& %omp,ian%e $it# investor %aps'
%.1&.1 .ther /urisdictions
As indi%ated in Se%tion 6'4* t#e FSA and Canada #ave proposed investor %aps (or CS98
transa%tions* $#i,e Ne$ Hea,and #as no mandatory investor %ap' "#e FG #as a di((erent
(orm o( investor %ap' "#e C)risdi%tions take vario)s approa%#es in re&ard to t#e ro,e o( t#e
intermediary in po,i%in& t#ese %aps'
USA
Intermediaries m)st make s)%# e((orts as t#e S9C determines appropriate to ens)re t#at no
investor in a 12 mont# period e0%eeds t#e investor %aps'
UK
4S14N4 indi%ates t#at repeat appropriateness assessments o( retai, %,ients $#o #ave not
re%eived advi%e $i,, not +e re<)ired i( it is reasona+,e to %onsider t#at an ear,ier
assessment is sti,, %)rrent'
A,so* $#ere retai, %,ients %erti(y t#at t#ey $i,, not invest more t#an 10P o( t#eir net
investi+,e assets in non-readi,y rea,isa+,e se%)rities* intermediaries %an %omm)ni%ate s)%#
o((ers to t#at individ)a, (or 12 mont#s a(ter t#e date o( t#e statement $it#o)t a ne$
%erti(i%ation (rom t#at individ)a,' ;)rin& t#at period intermediaries do not need to ens)re
t#at individ)a,s %ontin)e to <)a,i(y on an on&oin& +asis'
Canada
Intermediaries m)st o+tain a $ritten %erti(i%ation (rom investors t#at t#ey are %omp,yin&
$it# t#e ann)a, investment ,imit' A,so* ()rt#er* %)m),ative investments made +y t#e same
investor on t#e intermediary/s p,at(orm m)st +e monitored +y t#e intermediary to ens)re
t#at t#e ann)a, investment ,imit is not e0%eeded'
New Zealand
"#ere are no investment ,imits on investors* e0%ept i( imposed +y t#e iss)er'
%.1&.2 Su,missions
"#e predominant vie$ o( respondents $as t#at investors t#emse,ves s#o),d +e responsi+,e
(or %omp,yin& $it# any investment ,imits* $#i%# are (or t#eir +ene(it' At most* investors
s#o),d +e re<)ired to se,(-%erti(y to t#e intermediary* $#en a%<)irin& e<)ity o((ered on t#e
intermediary/s on,ine p,at(orm* t#at t#ey are %omp,yin& $it# any app,i%a+,e investment
,imits' "o impose an independent o+,i&ation on intermediaries to veri(y %omp,ian%e $o),d
+e onero)s'
A %ontrary vie$ $as t#at intermediaries %o),d monitor %omp,ian%e +y investors $it# any
investment ,imits t#ro)&# t#e %reation o( a %entra, re&istry 1o( amo)nts invested to date +y
individ)a, investors2' Intermediaries %o),d %ons),t t#is re&istry +e(ore pro%essin& investor
app,i%ations' A,ternative,y* intermediaries providin& t#e %ro$d()ndin& p,at(orm %o),d
desi&n so(t$are t#at prevents ()rt#er s)+s%ription a(ter t#e investor %ei,in& is rea%#ed'
%.1&. CAMAC position
In any %onsideration o( $#at* i( any* monitorin& ro,e intermediaries reasona+,y s#o),d +e
e0pe%ted to p,ay* it is ne%essary to distin&)is# +et$een t$o types o( investor %ap (or %ro$d
investors 1as proposed in Se%tion 6'42.
investor cap on all issuers2 a %ap on t#e tota, amo)nt t#at a %ro$d investor %an invest
in a,, CS98 o((ers in any 12 mont# period
investor cap per issuer2 a %ap on t#e tota, amo)nt t#at a %ro$d investor %an invest in a
parti%),ar iss)er in any 12 mont# period'
Investor cap on all issuers
;)rin& any 12 mont# period* a %ro$d investor %o),d a%%ept a series o( CS98 o((ers* (rom
di((erent iss)ers )sin& di((erent intermediary $e+sites' "#ere(ore* s#ort o( some %entra,
re&istry o( e<)ity interests o( a,, %ro$d investors* it may +e impossi+,e (or anyone* apart
(rom t#e investor* to kno$ #o$ m)%# t#e investor #as invested %o,,e%tive,y in CS98 o((ers
in a parti%),ar period'
CAMAC does not s)pport t#e idea o( a %entra, re&istry (or vario)s reasons* in%,)din&
priva%y %on%erns a+o)t a%%ess to t#e %omp,ete CS98 tradin& #istory o( %ro$d investors'
In t#e a+sen%e o( a %entra, re&istry* CAMAC s)pports on,y a se,(-%erti(i%ation re<)irement
(or %ro$d investors in re&ard to %omp,ian%e $it# t#e investor cap on a"" issuers' "#at
%erti(i%ation s#o),d +e provided +y t#e investor to t#e re,evant intermediary ea%# time t#e
investor seeks to a%%ept a CS98 o((er' "#at %erti(i%ation $i,, dra$ t#e attention o( %ro$d
investors to t#is %ap* intended to prote%t t#em (rom over-e0pos)re to t#is type o(
investment'
Investor cap per issuer
An intermediary #as a %apa%ity to monitor t#e investor cap per issuer in one o( t$o
sit)ations'
$ach offer% 3iven t#at an intermediary $o),d #ave to keep a re%ord o( a,, a%%eptan%es +y
%ro$d investors %on%ernin& a parti%),ar o((er 1$#i%# as re%ommended +y CAMAC %an
on,y take p,a%e t#ro)&# one intermediary2* t#e intermediary %o),d easi,y impose an
a)tomati% Btransa%tion-stop/ i( t#e %ap on an investment in one iss)er $o),d ot#er$ise +e
+rea%#ed +y a %ro$d investor' "#is monitorin& task (or intermediaries* $#i%# $o),d not +e
administrative,y +)rdensome* %o),d +e made a %ondition o( t#eir ,i%en%e'
<ffers on various websites. "#e sit)ation t#at %annot +e monitored +y an intermediary is
$#ere an iss)er makes a n)m+er o( o((ers $it#in a 12 mont# period 1$it#in its %ap2* )sin&*
say* a di((erent intermediary (or ea%# o( t#ese o((ers* and t#e investor takes )p o((ers in
t#at iss)er on more t#an one $e+site' 9a%# intermediary $o),d +e )na$are o( t#e
investments +y an investor in t#e iss)er t#ro)&# anot#er $e+site* and %o),d not +e
e0pe%ted to seek o)t t#at in(ormation'
In a,, sit)ations %on%ernin& t#e investor cap per issuer in addition to t#e intermediary
#avin& a ,imited monitorin& ro,e 1as des%ri+ed a+ove2* %ro$d investors s#o),d +e o+,i&ed
to se,(-%erti(y in re&ard to t#is %ap +e(ore ea%# CS98 transa%tion' "#is %erti(i%ation s#o),d
+e provided +y t#e investor to t#e intermediary ea%# time t#e investor seeks to a%%ept a
CS98 o((er' "#is $o),d #e,p dra$ t#e attention o( %ro$d investors to t#e investor cap per
issuer* $#i%# is desi&ned* in t#e interests o( investor prote%tion* to ,imit t#eir e0pos)re to a
parti%),ar iss)er'
Identif*in a crowd investor
Investors* (or vario)s reasons* may operate t#ro)&# a series o( ,e&a, entities* in%,)din&
(ami,y or ot#er tr)sts or %ompanies* rat#er t#an* or in addition to* transa%tin& in t#eir o$n
name'
8or t#e p)rpose o( its ,imited monitorin& ro,e o( the investor cap per issuer an
intermediary s#o),d +e entit,ed to treat ea%# entity* in%,)din& a tr)st* as a separate investor*
)n,ess ot#er$ise dire%ted' "#e intermediary s#o),d not +e o+,i&ed to treat a n)m+er o(
parties as one investor simp,y +e%a)se t#ey #ad* say* +ene(i%ia, entit,ements in ea%# ot#er*
)n,ess t#ose parties so dire%ted t#e intermediary' I( an investor %reates m),tip,e ,e&a,
entities* $#i%#* in %om+ination* e0%eed eit#er or +ot# o( t#e investor %aps* t#at investor #as
intentiona,,y denied itse,( t#e investor prote%tions t#at t#ese %aps provide'
%.17"nvestment advice
)ss#e$ what controls sho#ld 3e placed on intermediaries offering investment advice to
crowd investors6
USA
Intermediaries are pro#i+ited (rom o((erin& investment advi%e or makin&
re%ommendations to investors' "#e %on%ept o( investment advi%e %o),d* (or instan%e*
in%,)de any promotion o( a parti%),ar o((er* s)%# as a ()ndin& porta, pointin& o)t t#at t#e
o((er is attra%tin& a n)m+er o( investors'
"o avoid ,imitin& t#e )ti,ity o( ()ndin& porta,s* t#e S9C is %onsiderin& introd)%in& a
%onditiona, sa(e #ar+o)r t#at $o),d permit ()ndin& porta,s to en&a&e in a ran&e o(
a%tivities $it#o)t +rea%#in& t#is pro#i+ition.
7e anti%ipate t#at some ()ndin& porta,s may $is# to ,imit* to some e0tent* t#e s%ope
o( t#eir +)sinesses +y* (or e0amp,e* spe%ia,iDin& in o((erin&s +y iss)ers in %ertain
ind)stries or &eo&rap#i% ,o%ations' In some %ir%)mstan%es* t#ese ,imitations %o),d +e
vie$ed as providin& investment advi%e' "o a%%ommodate reasona+,e ,imitations* t#e
proposed sa(e #ar+or $o),d permit a ()ndin& porta, to app,y o+Ce%tive %riteria to ,imit
t#e o((erin&s on its p,at(orm* $it#o)t +ein& deemed to +e providin& investment
advi%e' "#ose %riteria $o),d +e re<)ired to +e reasona+,y desi&ned to res),t in a +road
se,e%tion o( iss)ers o((erin& se%)rities t#ro)&# t#e ()ndin& porta,/s p,at(orm and +e
app,ied %onsistent,y to a,, potentia, iss)ers and o((erin&s* so as not to re%ommend or
imp,i%it,y endorse one iss)er or o((erin& over ot#ers' "#e %riteria a,so $o),d +e
re<)ired to +e %,ear,y disp,ayed on t#e ()ndin& porta,/s p,at(orm'
In t#e vie$ o( t#e S9C* t#is approa%# s#o),d #e,p investors +etter appre%iate any ni%#e
(o%)s o( a parti%),ar ()ndin& porta, and t#e s%ope o( t#e o((ers avai,a+,e on t#at ()ndin&
porta,/s p,at(orm'
Canada
9enera" prohibition
An intermediary is pro#i+ited (rom providin& re%ommendations or advi%e to investors
a+o)t spe%i(i% se%)rities' It %annot re%ommend or endorse a parti%),ar iss)er or o((er on its
$e+site'
8or instan%e* %ommentin& to investors on t#e merits o(* or e0pe%ted ret)rns (rom* an iss)er
o((er on its $e+site $o),d %onstit)te a re%ommendation or advi%e' A,so* #i&#,i&#tin&*
s#o$%asin& or spot,i&#tin& a parti%),ar iss)er on its $e+site %o),d +e %onsidered as a (orm
o( e0press or imp,ied re%ommendation* endorsement or advi%e to investors'
$,emptions
An intermediary may per(orm vario)s a%tions $#i%# ot#er$ise mi&#t +e seen as %omin&
$it#in t#e &enera, pro#i+ition on providin& advi%e to investors* provided t#at t#ose a%tions
$o),d not +e vie$ed +y a reasona+,e person as an assessment o( t#e <)a,ity or %ommer%ia,
via+i,ity o( a %ro$d()ndin& o((er* name,y to.
present or disp,ay in(ormation a+o)t an iss)er or a %ro$d()ndin& o((er on its $e+site*
i( t#e in(ormation is presented or disp,ayed in a (air* +a,an%ed and reasona+,e manner
)se o+Ce%tive %riteria to ,imit t#e CS98 o((ers on its p,at(orm* provided t#e %riteria are
dis%,osed on t#e $e+site* are app,ied %onsistent,y* and $o),d not +e vie$ed +y a
reasona+,e person as a re%ommendation or endorsement
pro#i+it %ro$d()ndin& o((ers on its $e+site +ased on a &ood (ait# determination t#at
an iss)er is not %omp,yin& $it# se%)rities ,a$
assist an iss)er in t#e preparation o( an o((er do%)ment* +)siness p,an or ot#er
permissi+,e do%)ment* provided t#at t#e servi%e is ,imited to assistin& t#e iss)er to
%omp,y $it# its dis%,os)re o+,i&ations and to ens)re t#e in(ormation is presented in a
(air* +a,an%ed and reasona+,e manner
provide &enera, in(ormation and ed)%ationa, materia,s to potentia, p)r%#asers a+o)t
%ro$d()ndin& o((ers* provided t#at t#e in(ormation and materia,s are presented in a
provide on its $e+site sear%# ()n%tions or ot#er too,s (or potentia, p)r%#asers to
sear%#* sort or %ate&orise %ro$d()ndin& o((ers avai,a+,e on t#e ()ndin& porta,/s
$e+site a%%ordin& to o+Ce%tive %riteria* and
provide %omm)ni%ation %#anne,s or dis%)ssion +oards to ena+,e potentia, p)r%#asers
p)rs)ant to a %ro$d()ndin& o((ers* to %omm)ni%ate $it# one anot#er and $it#
representatives o( t#e iss)er a+o)t a %ro$d()ndin& o((er disp,ayed on t#e
intermediary/s $e+site provided t#at %omm)ni%ation +y a person %an +e tra%ed +a%k to
its a)t#or'
%.17.2 Su,missions
"#e over$#e,min& vie$ in s)+missions $as t#at intermediaries s#o),d not +e permitted to
&ive investment advi%e* in%,)din& to re%ommend or to endorse parti%),ar investment
opport)nities* t#o)&# some respondents s)&&ested an e0emption (or intermediaries t#at are
,i%ensed as investment advisers 1in $#i%# %ase t#ey %o),d provide advi%e p)rs)ant to t#e
terms o( t#e ,i%en%e2'
"#ere $as some s)pport (or t#e +road approa%# adopted in t#e FSA o( $#at mi&#t amo)nt
to &ivin& investment advi%e* in%,)din& a statement +y an intermediary t#at a parti%),ar
o((er is attra%tin& investors'
It $as s)&&ested t#at t#e pro#i+ition on &ivin& advi%e +e prominent,y disp,ayed +y
intermediaries to ens)re investors are a$are t#at no s)%# advi%e %an +e &iven and t#at t#ey
s#o),d seek independent advi%e'
It $as s)&&ested in s)+missions t#at $#at %onstit)tes t#e &ivin& o( investment advi%e +y
intermediaries* or so,i%itin& transa%tions on t#eir $e+sites %o),d in%,)de s)%# t#in&s as
ta+s on t#eir $e+site s)%# as BSta(( pi%ks/* B7#at/s #ot/* or proa%tive s)&&estions* s)%# as
B=o) mi&#t ,ike t#isK/* or B=o)r (riend ,iked t#isU %#e%k it o)t/'
"#ere $as some s)pport (or sa(e #ar+o)r provisions 1a,on& t#e ,ines o( t#e FS S9C
proposa,s2 to ena+,e intermediaries to app,y %riteria to ,imit o((ers on t#eir $e+sites 1(or
instan%e* to spe%i(i% ind)stries2* $it#o)t t#is +ein& deemed to +e o((erin& investment
advi%e or so,i%itin& transa%tions'
"o +etter ens)re t#at intermediaries a%t as ne)tra, (a%i,itators +et$een iss)ers and %ro$d
investors* t#ere s#o),d +e a &enera, pro#i+ition on an intermediary o((erin& investment
advi%e* dire%t,y or indire%t,y* to t#ese investors in re&ard to any CS98 o((er on its $e+site'
:espondents a,so pointed to e0amp,es o( t#e type o( advi%e +y intermediaries* t#ro)&#
ta+s on t#eir $e+sites* t#at s#o),d +e pro#i+ited'
CAMAC %onsiders t#at t#e +an s#o),d app,y even $#ere an intermediary is ,i%ensed to
o((er investment advi%e* &iven t#at t#e provision o( any advi%e $o),d %,ear,y )ndermine
t#e ne)tra, ro,e o( t#e intermediary +et$een iss)ers and investors' S)%# a +an $o),d not +e
oppressive' I( approa%#ed +y a %ro$d investor (or advi%e %on%ernin& an o((er +y any iss)er
on t#e intermediary/s $e+site* t#e intermediary %o),d re(er t#at person to anot#er*
)nre,ated* investment adviser'
-o$ever* to prevent t#is +an (rom +ein& over-restri%tive +y app,yin& to sit)ations $#ere*
in e((e%t* investment advi%e is not +ein& o((ered* t#e e0emptions proposed in t#e FSA and
Canada* in%,)din& t#e ri&#t o( intermediaries to ,imit t#e o((ers on t#eir $e+sites to %ertain
%ommer%ia, se%tors* appear sensi+,e'
%.1:So#iciting share acquisitions
)ss#e$ sho#ld controls 3e placed on intermediaries soliciting crowd investors to accept
CS! offers on their we3sites6
%.1:.1 .ther /urisdictions
USA
(o"iciting transactions
Intermediaries are pro#i+ited (rom so,i%itin& transa%tions (or se%)rities o((ered or
disp,ayed on t#eir porta,s* or %ompensatin& emp,oyees or a&ents (or doin& so'
)dentifying information
Intermediaries are pro#i+ited (rom %ompensatin& promoters* (inders or ,ead &enerators (or
providin& t#e intermediary $it# persona, identi(yin& in(ormation %on%ernin& any potentia,
investor'
"#e S9C noted t#at t#is pro#i+ition $o),d #e,p to remove t#e in%entive (or #i&#-press)re
sa,es ta%ti%s and ot#er a+)sive pra%ti%es' "#e S9C noted* #o$ever* t#at intermediaries may
#ave a ,e&itimate need (or re(erra,s to t#e intermediary/s p,at(orm' A%%ordin&,y.
It $o),d +e a%%epta+,e )nder t#e proposed r),es* t#ere(ore* (or an intermediary to
make payments to advertise its e0isten%e* provided t#at in doin& so* it does not pay (or
t#e persona,,y identi(ia+,e in(ormation o( investors or potentia, investors'
Canada
An intermediary $i,, not +e a+,e to advertise t#e o((er or so,i%it transa%tions o( se%)rities
o((ered on its p,at(orm* ot#er t#an t#ro)&# postin& an o((er 1and ot#er permitted
do%)ments2 on its p,at(orm'

"#is pro#i+ition in%,)des an intermediary %ompensatin& its
emp,oyees or a&ents to so,i%it t#e sa,e o( se%)rities on t#e on,ine p,at(orm'
-o$ever* an intermediary may advertise its e0isten%e* t#e (a%t t#at %ro$d()ndin& o((ers
%an +e made t#ro)&# its on,ine porta,* and t#e (a%t t#at in(ormation a+o)t s)%# o((ers is
posted on its $e+site'
%.1:.2 Su,missions
"#ere $as s)pport in s)+missions (or a pro#i+ition on so,i%itation +y intermediaries' It
$as ar&)ed t#at t#e ro,e o( intermediaries s#o),d +e %on(ined to (a%i,itatin& t#e
introd)%tion o( e,i&i+,e investors to iss)ers +y #ostin& t#e iss)ers on t#eir on,ine p,at(orm*
and p)+,is#in& t#e in(ormation t#at is provided +y t#e iss)er 1p)rs)ant to re,evant CS98
provisions2' So,i%itation in t#is %onte0t %o),d take t#e (orm o( an intermediary )sin& its
o$n* not t#e iss)er/s* $ords to market an o((er'
Some respondents $ere %on%erned t#at any s)%# +an on so,i%itation s#o),d not in#i+it t#e
ri&#t o( investors to re%eive re,evant in(ormation' 8or instan%e* it $as ar&)ed t#at
intermediaries s#o),d #ave t#e ri&#t to o)t,ine on t#eir $e+site #ome pa&es t#e name and
type o( proCe%ts 1proCe%t B+ad&es/2* t#e ()ndin& tar&ets and time(rames o( ea%# o( t#ese
proCe%ts* and t#e amo)nt raised to date on ea%# proCe%t* $it#o)t t#is +ein& taken as
so,i%itation'
Anot#er vie$ $as t#at t#ere s#o),d +e no restri%tion on intermediaries so,i%itin&
transa%tions on t#eir $e+sites' "#e p)rpose o( s)%# intermediary on,ine sites is to %reate an
e((e%tive market p,a%e +y $#i%# investors %an (ind iss)ers and vi%e versa' Market (or%es
s#o),d +e a,,o$ed to %reate t#e B$inners/ o( t#e +est s)%# providers' 5ne <)a,i(i%ation
e0pressed $as t#at intermediaries s#o),d not +e permitted to so,i%it transa%tions on t#e
+asis o( proCe%ted or (ore%ast ret)rns to investors'
Anot#er vie$ $as t#at any pro#i+ition on intermediaries so,i%itin& transa%tions s#o),d not
pro#i+it t#em (rom advertisin& t#eir servi%es as a CS98 p,at(orm and s#o$%asin&
investment opport)nities (or t#e p)rpose o( demonstratin& $#at t#ey do'
%.1:. CAMAC position
"#ere s#o),d +e a &enera, pro#i+ition on dire%t or indire%t so,i%itation 1as t#at term is
)se(),,y des%ri+ed in t#e Canadian and FS approa%#es2 +y intermediaries* $it# t#e
e0emptions provided (or in t#ose C)risdi%tions to %over t#e provision o( %ertain
in(ormation to investors and $it# t#e e0emptions proposed in some s)+missions* name,y
t#at.
intermediaries s#o),d #ave t#e ri&#t to o)t,ine on t#eir $e+site #ome pa&es t#e name
and type o( proCe%ts 1proCe%t B+ad&es/2* t#e ()ndin& tar&ets and time(rames o( ea%# o(
t#ese proCe%ts* and t#e amo)nt raised to date on ea%# proCe%t* $it#o)t t#is +ein& taken
as so,i%itation'
In(ormation on ()nds raised to date* $#i,e #avin& t#e potentia, to %reate a B#erdin&/ e((e%t
amon&st %ro$d investors* %an a,so +e vita, to an in(ormed investment de%ision* and s#o),d
+e permitted'
-o$ever* Bs#o$%asin&/ one or more parti%),ar o((ers +y iss)ers* (or t#e p)rpose o( an
intermediary demonstratin& $#at it does in pra%ti%e* s#o),d +e seen as so,i%itation or t#e
o((erin& o( investment advi%e %on%ernin& t#ose parti%),ar o((ers'
%.1;'ending to crowd investors
)ss#e$ sho#ld there 3e a prohi3ition on intermediaries lending to crowd investors6
%.1;.1 .ther /urisdictions
Canada
Intermediaries $i,, +e pro#i+ited (rom ,endin& money* e0tendin& %redit or providin&
mar&in to any investor or re%ommend t#at an investor )se +orro$ed money to (inan%e any
p)r%#ase o( a se%)rity'
Fnder t#is approa%#* intermediaries 1as $e,, as iss)ers. see Se%tion 4'102 and t#eir
respe%tive dire%tors and e0e%)tive o((i%ers* m)st not ,end or (inan%e* or arran&e ,endin& or
(inan%in& 1(or instan%e* (rom an a((i,iate2* (or an investor to p)r%#ase se%)rities o( t#e
iss)er t#ro)&# CS98'
)sin& ,evera&e to invest t#ro)&# %ro$d()ndin&' A,so* to permit intermediaries to ()nd
investors in %ro$d-+ased ()ndraisin& B$o),d %reate a %on(,i%t o( interest $#i%# %annot +e
proper,y mana&ed/'
%.1;.2 CAMAC position
An intermediary s#o),d +e pro#i+ited (rom ,endin& money 1dire%t,y or indire%t,y*
in%,)din& +y e0tendin& %redit2 to any %ro$d investor to a%<)ire s#ares o((ered on its
$e+site' "o permit intermediaries to ()nd %ro$d investors in t#is manner $o),d %reate a
%,ear %on(,i%t o( interest* and a potentia, indire%t endorsement o( t#e o((er'
Simi,ar,y* to avoid a %on(,i%t o( interest* an intermediary s#o),d +e pro#i+ited (rom
re%ommendin& to any %ro$d investor t#at #e or s#e +orro$ money (rom any ot#er so)r%e
to (inan%e any CS98 o((er on its $e+site'
CAMAC %onsiders t#at t#is approa%# addresses some 1+)t not a,,2 %on%erns asso%iated
$it# retai, investors )sin& ,evera&e to make #i&#-risk investments t#ro)&# %ro$d()ndin&'
%.2<5o#ding crowd investor funds
)ss#e$ what controls sho#ld there 3e on intermediaries holding or managing crowd
investor f#nds6
%.2<.1 .ther /urisdictions
USA
Intermediaries are pro#i+ited (rom #o,din& or mana&in& any investor ()nds or se%)rities*
$#i%# m)st +e #e,d +y a <)a,i(ied t#ird party +ank'
UK
"o avoid %omp,e0 %omp,ian%e re<)irements (or intermediaries t#at $o),d ot#er$ise +e
app,i%a+,e* t#e pra%ti%e #as +een t#at intermediaries do not #o,d investor ()nds' :at#er*
()nds are not provided (rom investors )nti, a stip),ated tar&et amo)nt #as +een rea%#ed*
$#ere)pon t#ey are trans(erred dire%t,y (rom t#e investors to t#e iss)er'
Canada
Intermediaries $i,, not +e a+,e to #o,d* #and,e* or #ave a%%ess to* investor ()nds or assets
o( investors' Indi%ia o( #o,din& or #avin& a%%ess to an investor/s ()nds or assets in%,)de.
#o,din& an investor/s se%)rities* %erti(i%ates or %as# (or any period o( time
#avin& a)t#ority 1e'&'* a po$er o( attorney2 to $it#dra$ ()nds or se%)rities (rom an
investor/s a%%o)nt
a%%eptin& ()nds (rom an investor dire%t,y 1e'&'* a %#e<)e made paya+,e to t#e
intermediary2 or a%%eptin& ()nds on t#e investor/s +e#a,( (rom a %)stodian
a%tin& in t#e %apa%ity o( a tr)stee (or an investor
#avin&* in any %apa%ity* ,e&a, o$ners#ip o(* or a%%ess to* t#e investor/s ()nds or
se%)rities'
:at#er* intermediaries m)st arran&e (or rep)ta+,e t#ird parties to #and,e investor ()nds'
"#ese ()nds $o),d #ave to +e #e,d e0terna,,y in a tr)st or es%ro$ arran&ement )nti, t#e
o((er minim)m #as +een a%#ieved'
-o$ever* to a ,imited e0tent* intermediaries may +e a+,e to provide dire%tions as to $#en
and to $#om %,ient ()nds may +e re,eased' In t#is %onte0t* t#e intermediary m)st take
reasona+,e steps to %on(irm t#at t#e minim)m o((er t#res#o,d is a%#ieved +e(ore investor
()nds are trans(erred to t#e iss)er'
>ew Bea#and
I( intermediaries re%eive* #o,d* pay or trans(er ()nds (rom investors to pay (or investments*
t#ey m)st %omp,y $it# t#e +roker o+,i&ations in t#e 8inan%ia, Advisers A%t* meanin& t#at
t#e ()nds m)st +e #e,d in tr)st'
An intermediary m)st a,so dis%,ose #o$ investor money is re%eived and dea,t $it#'
%.2<.2 Su,missions
A n)m+er o( respondents (avo)red investor ()nds +ein& #e,d in a se&re&ated tr)st a%%o)nt
(or ea%# o((er* )nti, s)%# time as t#e iss)er is entit,ed to #ave t#ose ()nds re,eased to it'
5ne vie$ $as t#at t#e tr)st a%%o)nt +e esta+,is#ed and %ontro,,ed +y a re,ia+,e
independent t#ird party 1s)%# as a tr)stee %ompany2' Anot#er vie$ $as t#at an
intermediary itse,( s#o),d +e permitted to mana&e investor ()nds in t#is manner* provided
it #o,ds an A)stra,ian 8inan%ia, Servi%es ?i%en%e a)t#orisin& it to do so'
%.2<. CAMAC position
It is important t#at investors/ money not +e intermin&,ed $it# t#at o( an intermediary'
Consistent $it# t#e CAMAC approa%# in Se%tion '1!'!* t#ere s#o),d +e a pro#i+ition on
intermediaries #o,din& or mana&in& %ro$d investor ()nds 1)sin&* (or instan%e* t#e
Canadian indi%ia o( $#at t#at invo,ves2 e0%ept $#ere t#e intermediary is a)t#orised to do
so )nder t#e terms o( its ,i%en%e 1$#i%#* at a minim)m* s#o),d re<)ire t#at ()nds +e #e,d
in a separate se&re&ated tr)st a%%o)nt2'
In %onse<)en%e* t#e prin%ip,es in s 981B o( t#e Corporations A%t* to&et#er $it# any
re,evant terms or %onditions o( t#e intermediary ,i%en%e* s#o),d app,y to t#e #and,in& o(
()nds provided +y %ro$d investors'
%.21Communication faci#ities
)ss#e$ what facilities sho#ld intermediaries 3e re5#ired to provide to allow crowd
investors to comm#nicate with iss#ers and with each other6
USA
"#e proposed r),es $o),d re<)ire an intermediary to provide %#anne,s on its on,ine
p,at(orm t#ro)&# $#i%# investors %an %omm)ni%ate $it# one anot#er and $it#
representatives o( t#e iss)er a+o)t o((ers made avai,a+,e on t#at p,at(orm'
As o+served +y t#e S9C.
A premise o( %ro$d()ndin& is t#at investors $o),d re,y* at ,east in part* on t#e
%o,,e%tive $isdom o( t#e %ro$d to make +etter in(ormed investment de%isions
and t#at.
individ)a,s de%ide $#et#er or not to invest a(ter s#arin& in(ormation a+o)t t#e idea or
+)siness $it#* and ,earnin& (rom* ot#er mem+ers o( t#e %ro$d'
"#e %omm)ni%ation %#anne,s proposed +y t#e S9C are intended to provide a %entra,ised
and transparent means (or mem+ers o( t#e p)+,i% t#at #ave opened an a%%o)nt $it# an
intermediary to s#are t#eir vie$s a+o)t investment opport)nities and to %omm)ni%ate $it#
representatives o( t#e iss)er to +etter assess t#e iss)er and investment opport)nity'
A,so* t#o)&# %omm)ni%ations +et$een investors %o),d o%%)r o)tside t#e intermediary/s
p,at(orm* %omm)ni%ations +y an investor $it# a %ro$d()ndin& iss)er or its representatives
a+o)t t#e terms o( t#e o((er $o),d +e re<)ired to o%%)r t#ro)&# t#is sin&,e intermediary
on,ine p,at(orm t#ro)&# $#i%# t#e o((er is %ond)%ted' "#is re<)irement is desi&ned to
provide transparen%y and a%%o)nta+i,ity* and t#ere+y ()rt#er t#e prote%tion o( investors'
"#e proposed r),es $o),d a,so re<)ire t#e intermediary to make t#e %omm)ni%ations on
t#e on,ine %#anne,s p)+,i%,y avai,a+,e (or vie$in&* t#o)&# on,y persons $#o #ad opened
an a%%o)nt $it# t#e intermediary %o),d post %omments on t#e on,ine p,at(orm'
"#e S9C a,so proposes dis%,os)re r),es to dea, $it# possi+,e %on(,i%ts o( interest t#at
%o),d arise in t#e )se o( t#ese on,ine %omm)ni%ation %#anne,s* in%,)din& t#e )se o( #idden
promotiona, materia,' 8or instan%e.
)nder t#e proposed r),es* t#e intermediary m)st re<)ire t#at any person postin& a
%omment in t#e %omm)ni%ation %#anne,s Lo( t#e intermediary/s on,ine p,at(ormM
%,ear,y dis%,ose $it# ea%# postin& $#et#er #e or s#e is a (o)nder or an emp,oyee o( an
iss)er en&a&in& in promotiona, a%tivities on +e#a,( o( t#e iss)er* or is ot#er$ise
%ompensated* $#et#er in t#e past or prospe%tive,y* to promote t#e iss)er/s o((erin&'
Canada
Intermediaries may 1+)t are not o+,i&ed2 to provide on,ine %omm)ni%ation +et$een iss)ers
and investors' I( an intermediary %#ooses to o((er a dis%)ssion +oard or ot#er means o(
%omm)ni%ation +et$een investors andNor an iss)er and its investors 1(or e0amp,e* via %#at
rooms or a +,o&2* it m)st ens)re t#at a,, %omments made $it#in s)%# (or)m %an +e tra%ed
+a%k to t#eir a)t#ors'
"#e intermediary m)st a,so monitor postin&s to %on(irm t#at t#e iss)er is not makin&
statements or providin& in(ormation t#at are in%onsistent $it# t#e %ro$d()ndin& o((er
do%)ment and may remove any materia, t#at it deems inappropriate or raises investor
prote%tion %on%erns'
%.21.2 Su,missions
"#ere $as s)pport in s)+missions (or t#e prin%ip,e o( investors +ein& a+,e to dis%)ss
proCe%ts amon& t#emse,ves and $it# iss)ers' It $as ar&)ed t#at (a%i,itatin& t#ese
%omm)ni%ations #as t#e potentia, to improve CS98 investment de%ision makin& and a,so
a%t as a means to dete%t or e0pose apparent (ra)d in some instan%es'
It $as s)&&ested t#at in(ormation and opinion s#arin& %o),d +e done* (or instan%e* t#ro)&#
on,ine dis%)ssion (or)ms set )p +y t#e intermediary $it# %omments and dis%)ssion +y
investors* and <)estions posed to t#e iss)er and ans$ers provided* a%%essi+,e to ot#er
investors'
"#ere $ere di((eren%es o( vie$ amon& respondents on $#et#er an on,ine %omm)ni%ation
(a%i,ity (or ea%# CS98 o((er s#o),d +e mandatory* or +e ,e(t to t#e dis%retion o( t#e
intermediary or ea%# iss)er' "#ere $ere a,so di((eren%es o( vie$ as to $#et#er* or in $#at
%ir%)mstan%es* intermediaries or iss)ers s#o),d #ave t#e po$er to e0%,)de or remove
posted materia, 1(or instan%e* on t#e +asis o( its +ein& de(amatory2'
CAMAC notes t#e stron& s)pport in s)+missions (or t#e %on%ept o( on,ine investor-to-
investor and investor-to-iss)er %omm)ni%ations' -o$ever* t#ere $ere di((eren%es o( vie$
on $#et#er an intermediary s#o),d +e o+,i&ed to provide t#is %omm)ni%ation (a%i,ity on its
on,ine porta,'
CAMAC %onsiders t#at to ens)re a %onsistent approa%# (or intermediaries* and in t#e
interests o( en%o)ra&in& t#e e0%#an&e o( in(ormation and vie$s +et$een interested parties*
intermediaries s#o),d +e o+,i&ed to provide t#is (a%i,ity on t#eir $e+sites 1or t#ro)&# a
,ink to anot#er on,ine site2 in re&ard to ea%# iss)er it is #ostin& d)rin& s)%# time as t#e
iss)er is )ti,isin& its $e+site' "#is re<)irement $o),d not +e te%#no,o&i%a,,y di((i%),t (or
intermediaries or +e e0pensive'
CAMAC is a,so o( t#e vie$ t#at on,y t#ose persons $#o #ave an a%%o)nt $it# t#e
intermediary s#o),d +e entit,ed to parti%ipate on t#e $e+site as investors' A%%o)nt #o,ders
%o),d %omment on,ine in re&ard to any o((ers on t#e intermediary/s $e+site' 7it#o)t
%ontro,s o( t#is nat)re* %ompetitors and ot#er parties $#o #ave not re&istered $it# t#e
intermediary %o),d seek to in(,)en%e t#e %ro$d per%eption o( an iss)er t#ro)&# (a,se
postin&s' A re<)irement o( prior a%%o)nt re&istration $it# t#e intermediary may a%t as
some 1a,+eit in%omp,ete2 deterren%e in t#is re&ard' In t#e same manner* t#ere s#o),d +e
%ontro,s* as proposed in t#e FS* on #idden promotiona, materia,'
"#e intermediary s#o),d #ave po$er to remove materia, (rom its $e+site in ,imited
%ir%)mstan%es 1(or instan%e* $#ere materia, is (a,se* materia,,y mis,eadin& or de(amatory2'
Some ana,o&y %o),d #ere +e dra$n $it# t#e re,evant ,a$ %on%ernin& dire%tors o( a
%ompany e0%,)din& vario)s statements %ir%),ated in reso,)tions on t#e &ro)nds o(
de(amation'
"#ese re%ommendations %on%ern postin&s on t#e on,ine porta, o( t#e intermediary' "#ey do
not seek to re&),ate postin&s on $e+sites* or t#ro)&# ot#er (orms o( so%ia, media* not
%ontro,,ed +y t#e intermediary'
%.220ispute reso#ution and indemnity insurance
disc#osure
)ss#e$ what disclos#re sho#ld 3e made to crowd investors a3o#t 3eing a3le to make
complaints against the intermediar'1 and the intermediar'8s lia3ilit' ins#rance6
New Zealand
Intermediaries $i,, +e re<)ired to provide a servi%e dis%,os)re statement to retai, investors
and enter into $ritten %,ient a&reements $it# t#em* dea,in& ade<)ate,y $it# vario)s
matters* in%,)din& #o$ investors %an make %omp,aints' In t#is %onte0t* intermediaries are
e0pe%ted to #ave a %omp,aints pro%ess* in%,)din& +e,on&in& to a disp)te reso,)tion s%#eme*
t#is +ein& one o( t#e re<)irements o( re&isterin& to +e%ome a (inan%ia, servi%e provider to
retai, %,ients'
A,so* an intermediary m)st maintain an appropriate ,eve, o( pro(essiona, ,ia+i,ity
indemnity ins)ran%e %over (or its +)siness'
%.22.2 Su,missions
Complaints
A vie$ $as e0pressed t#at intermediaries s#o),d +e re<)ired to o)t,ine a %,ear* prominent
and )p-to-date pro%ed)re (or re(errin& any investor %omp,aints a&ainst t#em to an e0terna,
disp)te reso,)tion servi%e' "#e o+,i&ation o( intermediaries in t#is re&ard %o),d +e
imposed as one o( t#e %onditions o( an A)stra,ian 8inan%ia, Servi%e ?i%en%e 1ass)min&
t#at intermediaries $ere re<)ired to #o,d an A8S?2'
It $as a,so s)&&ested t#at in(ormation a+o)t t#e ri&#ts o( investors to make %omp,aints
a&ainst intermediaries s#o),d +e dis%,osed in t#e intermediary/s (inan%ia, servi%es &)ide
and s#o),d +e p,a%ed in an o+vio)s ,o%ation on t#e intermediary/s $e+site* s)%# as on a
separate $e+pa&e on t#eir on,ine p,at(orm %,ear,y tit,ed BComp,aints/'
#iabilit* insurance
5ne proposa, in s)+missions $as t#at* to prote%t investors* an intermediary s#o),d #ave
,ia+i,ity ins)ran%e to %over %,aims* in tota,* o( )p to O2 mi,,ion ann)a,,y* ass)min& t#at
(inan%ia, %aps on CS98 investments $o),d ,imit investor ,osses* and t#ere(ore any
%onse<)entia, %,aims t#at %o),d ,a$(),,y +e made a&ainst t#e %ond)%t o( intermediaries'
Anot#er vie$ $as t#at ins)ran%e re<)irements (or intermediaries s#o),d +e s)+stantia,,y
red)%ed i( intermediaries are pro#i+ited +y re&),ation (rom o((erin& investment advi%e or
so,i%itin& transa%tions'
Complaints
CAMAC e,se$#ere proposes t#at to promote %on(iden%e* t#ere s#o),d +e a pro%ess +y
$#i%# %ro$d investors and iss)ers %an make %omp,aints t#ro)&# interna, and e0terna,
disp)te reso,)tion pro%ed)res %on%ernin& any aspe%t o( t#e %ond)%t o( t#e intermediary* as
it a((e%ts t#em* or t#eir dea,in&s $it# t#e intermediary 1Se%tion '62'
CAMAC a&rees $it# t#e vie$ in s)+missions t#at in(ormation a+o)t t#e ri&#ts o(
investors to make %omp,aints a&ainst intermediaries s#o),d +e dis%,osed in t#e
intermediary/s (inan%ia, servi%es &)ide and s#o),d +e p,a%ed in an o+vio)s ,o%ation on t#e
intermediary/s $e+site* s)%# as on a separate $e+pa&e on t#eir on,ine p,at(orm %,ear,y
tit,ed BComp,aints/'
In t#e event t#at an intermediary is not p,a%ed )nder an o+,i&ation to #ave an interna, or
e0terna, disp)te reso,)tion pro%ed)re* ea%# intermediary s#o),d +e o+,i&ed to dis%,ose on
its $e+site $#et#er it #as any s)%# pro%ed)re and* i( so* t#e detai,s'
#iabilit* insurance
CAMAC notes t#at #o,ders o( A8S?s m)st #ave %ompensation arran&ements $#ere retai,
%,ients are invo,ved 1s 912B1221a2* Corp :e& 7'6'02AAA2' It %onsiders t#at t#e same
o+,i&ation s#o),d app,y to a ,i%ensed intermediary in t#e %onte0t o( CS98* and +e avai,a+,e
to iss)ers as $e,, as %ro$d investors* dependin& )pon t#e nat)re o( t#e +rea%# +y
intermediaries'
As $it# t#e approa%# to %omp,aints* in(ormation a+o)t indemnity ins)ran%e s#o),d +e
prominent,y dis%,osed on t#e intermediary/s $e+site* as $e,, as +ein& dis%,osed in t#e
(inan%ia, servi%es &)ide &iven to investors +y intermediaries'
In t#e event t#at an intermediary is not p,a%ed )nder an o+,i&ation to #ave indemnity
ins)ran%e* ea%# intermediary s#o),d +e o+,i&ed to dis%,ose on its $e+site $#et#er it #as
any s)%# ins)ran%e and* i( so* t#e detai,s'
%.2*ees charged ,y intermediaries
)ss#e$ what disclos#re sho#ld 3e made a3o#t the fees that intermediaries ma'
receive6
Canada
t#at it may %#ar&e to* or impose on* an investor'
New Zealand
An intermediary m)st %,ear,y and prominent,y dis%,ose a,, (ees paid +y iss)ers in
%onne%tion $it# t#e o((er* $#et#er dire%t or indire%t and #o$ever des%ri+ed'
%.2.2 Su,missions
"#ere $as s)pport in s)+missions (or t#e (),, dis%,os)re +y intermediaries* to iss)ers and
investors* o( a,, %ommissions and any ot#er (ees t#at intermediaries are to re%eive and #o$
t#ose (ees are derived' "#is $o),d in%,)de detai,s o( any part o( an intermediary/s
rem)neration t#at is ,inked to t#e amo)nt o( ()nds raised +y t#e iss)er' It $as ar&)ed t#at
t#e more transparent t#e dis%,os)re* t#e more e((e%tive t#e %ro$d $i,, +e at so)r%in& t#e
+est investments and se,e%tin& t#e most appropriate intermediary'
A <)a,i(ied vie$ $as to en%o)ra&e t#is dis%,os)re* +)t mandate it on,y to t#e e0tent t#at
s)%# in(ormation is materia, (or an investor and is not mis,eadin& or de%eptive in its o$n
ri&#t'
"#ere $as a &enera, vie$ t#at* in t#e interests o( transparen%y* intermediaries s#o),d
prominent,y dis%,ose t#is in(ormation on t#eir $e+site'
%.2. CAMAC position
"#is Se%tion dea,s $it# t#e dis%,os)re o( (ees %#ar&ed +y intermediaries' CAMAC #as
e,se$#ere proposed some %ontro,s on (ees paid +y iss)ers 1Se%tion 4'1!2'
In prin%ip,e* ea%# intermediary s#o),d #ave a transparent (ee str)%t)re and a%%ordin&,y a,,
rem)neration arran&ements +et$een an iss)er and an intermediary* o( $#atever nat)re*
s#o),d +e (),,y dis%,osed to t#e %ro$d'
Consistent,y $it# t#is prin%ip,e* CAMAC %onsiders t#at t#e approa%# taken in Ne$
Hea,and is appropriate'
"o a%#ieve t#is* as one o( t#e %onditions o( its ,i%en%e* an intermediary s#o),d +e o+,i&ed
to dis%,ose t#is in(ormation on its $e+site'
%.2!Cance##ed o?ers
)ss#e$ what sho#ld 3e the conse5#ences of a cancelled offer6
%.2!.1 .ther /urisdictions
Canada
Intermediaries $i,, +e re<)ired to noti(y %ommitted investors $it#in (ive +)siness days i(
t#e o((er is %an%e,,ed and m)st take appropriate steps so t#at investor money is ret)rned'
%.2!.2 CAMAC position
Intermediaries s#o),d +e re<)ired to noti(y %ommitted investors $it#in (ive +)siness days
o( %an%e,,ation o( t#e o((er and take appropriate steps to ens)re t#at t#e ()nds provided +y
investors (or t#e s#ares are ret)rned to t#em'
%.2%1rivacy
)ss#e$ how sho#ld the privac' of information a3o#t crowd investors 3e protected6
%.2%.1 .ther /urisdictions
USA
Intermediaries m)st a,so take s)%# steps as are re<)ired +y S9C :),es to prote%t t#e
priva%y o( in(ormation %o,,e%ted (rom investors' "#at in(ormation may in%,)de detai,s o(
t#e in%ome and net $ort# o( t#e investor* &iven t#e FS approa%# to t#e ma0im)m ()nds
t#at ea%# investor %an %ontri+)te 1see Se%tion 6'4'22'
"#e S9C #as %ommented t#at.
re<)irin& a ()ndin& porta, to %omp,y $it# priva%y o+,i&ations $o),d #e,p prote%t t#e
persona,,y identi(ia+,e in(ormation o( investors and potentia, investors* %onsistent
$it# #o$ it is prote%ted +y ot#er (inan%ia, intermediaries'
%.2%.2 CAMAC position
CAMAC %onsiders t#at t#e A)stra,ian 4riva%y 4rin%ip,es s#o),d address t#is iss)e 1i( not
app,i%a+,e a,ready2* $it# t#e FS approa%# providin& some &)idan%e in t#e CS98 %onte0t'
& The crowdfunding process= investors
This chapter sets out proposa"s concerning crowd investors!
&.1 .verview
It is proposed t#at.
any person o( ,e&a, %apa%ity %an +e a %ro$d investor 1Se%tion 6'22
t#ere +e no sop#isti%ated investor t#res#o,d 1Se%tion 6'!2
t#ere +e investment %aps (or %ro$d investors 1Se%tion 6'42
%ro$d investors m)st a%kno$,ed&e t#e risk dis%,os)re statement +e(ore investin&
1Se%tion 6'2
%ro$d investors #ave %oo,in&-o(( ri&#ts 1Se%tion 6'62
%ro$d investors #ave ot#er $it#dra$a, ri&#ts 1Se%tion 6'72
s#are resa,e restri%tions app,y on,y to persons asso%iated $it# t#e iss)er 1Se%tion 6'82
iss)ers #ave on&oin& reportin& o+,i&ations to %ro$d investors 1Se%tion 6'92
%ro$d investors #ave remedies in %ertain sit)ations 1Se%tions 6'102'
"#ese proposa,s seek to prote%t %ro$d investors in vario)s $ays* $#i,e dra$in& to t#eir
attention t#e in#erent risks t#at remain $it# t#is (orm o( investment'
&.2 )#igi,#e crowd investors
)ss#e$ sho#ld there 3e an' limitations on who ma' 3e a crowd investor6
&.2.1.ther /urisdictions
New Zealand, USA and Canada
No ,imitations are proposed on $#o may invest t#ro)&# CS98'
UK
Fn,ike ot#er C)risdi%tions* t#e %,asses o( investors to $#i%# dire%t o((ers o( non-readi,y
rea,isa+,e se%)rities %an +e made are ,imited to sop#isti%ated investors and some %,asses o(
retai, investors'
"#e 5%to+er 201! 8inan%ia, Cond)%t A)t#ority Cons),tation 4aper proposed t#at ,i%ensed
intermediaries* in addition to +ein& a+,e to %omm)ni%ate o((ers in non-readi,y rea,isa+,e
se%)rities to sop#isti%ated investors* +e permitted to make t#ese o((ers to t#e (o,,o$in&
%,asses o( retai, %,ient.
The crowdfunding process% investors
retai, %,ients $#o are vent)re %apita, %onta%ts or %orporate (inan%e %onta%ts
investment promoted* t#ey $i,, re%eive re&),ated investment advi%e or investment
port(o,io 1i'e' e0%,)din& t#eir primary residen%e* pensions and ,i(e %over2 in
non-readi,y rea,isa+,e se%)rities'
"#e Cons),tation 4aper proposed t#at $#ere re&),ated investment advi%e is not provided*
intermediaries s#o),d app,y an appropriateness test +e(ore sendin& retai, %,ients dire%t
o((er (inan%ia, promotions (or non-readi,y rea,isa+,e se%)rities' "#is $o),d #e,p ens)re
t#at on,y %,ients $#o #ave t#e kno$,ed&e or e0perien%e to )nderstand t#e risks $o),d
invest'
"#e Cons),tation 4aper a,so %ommented t#at.
3iven o)r %ons)mer prote%tion o+Ce%tive* o)r aim is to ens)re t#at on,y t#ose retai,
investors $#o %an )nderstand and +ear t#e vario)s risks invo,ved are invited to invest
in Lnon-readi,y rea,isa+,e se%)ritiesM' I( LintermediariesM tar&et t#is $ider +)t sti,,
restri%ted a)dien%e o( retai, investors appropriate,y* t#is may res),t in &reater a%%ess to
a,ternative 1non-+ank2 (inan%e options (or +)sinesses seekin& (inan%e'
"#e Mar%# 2014 8CA 4o,i%y Statement 4S14N4 %on(irmed t#e approa%# taken in t#e
Cons),tation 4aper 1des%ri+ed a+ove2 in re&ard to t#e %,asses o( retai, investors 1in
addition to sop#isti%ated investors2 to $#om o((ers o( non-readi,y rea,isa+,e se%)rities
%o),d +e made t#ro)&# a ,i%ensed intermediary' "#e re,evant r),es operate (rom
Apri, 2014'
A%%ordin& to an 8CA media re,ease a%%ompanyin& 4S14N4.
"#e ne$ r),es (or se%)rities-+ased %ro$d()ndin& keep t#e %ro$d in %ro$d()ndin& +y
a,,o$in& anyone to invest )p to 10 per %ent o( t#eir avai,a+,e assets'
4S14N4 noted t#at its approa%# to permit CS98 o((ers to +e made to vario)s %,asses o(
retai, investors* )nder %ertain %onditions.
LisM aimed to provide ordinary retai, investors* $#o may ,a%k t#e kno$,ed&e*
e0perien%e and reso)r%es to )nderstand and %ope $it# t#e risks* $it# +ot# t#e (reedom
to invest and proportionate prote%tion $#en t#ey are invited to invest in non-readi,y
rea,isa+,e se%)rities t#at invo,ve potentia, (or si&ni(i%ant %apita, ,osses'
&.2.2Su,missions
"#e over$#e,min& vie$ in s)+missions $as t#at CS98 s#o),d +e open to a,, investors
1s)+Ce%t to t#e %)rrent restri%tions on $#o may ,e&a,,y #o,d s#ares in a %ompany e& t#e
standard r),es o( %apa%ity2' 5ne o+servation $as t#at t#ere $as a need to +roaden t#e
()ndin& +ase (or sma,, or innovative A)stra,ian +)sinesses' ?ike$ise* any ,imitation $o),d
)nd),y restri%t t#e a+i,ity o( so%ia, enterprises to raise ()nds in t#eir %omm)nity'
A (e$ respondents s)&&ested t#at any CS98 investor s#o),d #ave to +e Ba%%redited/* (or
instan%e* +y )ndertakin& a (ree on,ine risk-)nderstandin& $orks#op* or passin& an on,ine
test to demonstrate a +asi% )nderstandin& o( investin& in se%)rities' It $as not made %,ear
$#o $o),d operate s)%# on,ine (a%i,ities'
&.2.CAMAC position
Consistent,y $it# t#e &enera, overseas approa%#es and t#e vie$s in s)+missions* t#ere
s#o),d +e no ,imitations on a person $it# ,e&a, %apa%ity +ein& a %ro$d investor'
"#e FG approa%#* $#i%# #as a ,imited %,ass o( e,i&i+,e retai, investors* is part o( a more
&enera, approa%# to t#e re&),ation o( a,, se%)rities t#at ,a%k a se%ondary market* in%,)din&
o((ers to t#e %ro$d'
CAMAC e,se$#ere #as %onsidered $#et#er t#ere s#o),d +e some risk appre%iation test
t#at %ro$d investors need to satis(y +e(ore +ein& permitted to invest t#ro)&# t#e CS98
pro%ess 1Se%tion '12'
&. Sophisticated investor thresho#d
)ss#e$ sho#ld there 3e a re5#irement that sophisticated investors hold at least a
certain threshold interest in an iss#er 3efore it can make CS! offers to crowd
investors6
&..1.ther /urisdictions
Ital*
4ro(essiona, investors andNor C5NS5B-re&istered instit)tions m)st o$n at ,east P o( t#e
e<)ity o( a %ro$d-()nded (irm a(ter t#e CS98 e0er%ise* (or t#at met#od o( ()ndraisin& to
+e va,id' "#e apparent intention is to &ive some (orm o( %om(ort to sma,, investors t#at t#e
investment is $ort#$#i,e* &iven t#at one or more sop#isti%ated investors #as %#osen to
invest'
&..2Su,missions
5ne vie$ $as t#at a sop#isti%ated investor minim)m invo,vement re<)irement 1(or
instan%e* t#at one or more sop#isti%ated investors m)st s)+s%ri+e at ,east -10P o( t#e
%apita, in ea%# o((er do%)ment to %ro$d investors2 $i,, assist in pri%in& t#e se%)rity +ein&
o((ered' "#e pri%e per s#are paidNto +e paid +y t#e sop#isti%ated investor1s2 s#o),d +e
dis%,osed in t#e o((er do%)ment to t#e %ro$d' A,so* to ens)re t#e a)t#enti%ity o( t#e
dis%,osed pri%e* sop#isti%ated investors s#o),d not &et any pre(erentia, treatment in re&ard
to %apita,* +ene(its or additiona, %apita, raised* +y virt)e o( t#at investment'
Anot#er vie$ $as t#at $#i,e t#ere s#o),d not +e a sop#isti%ated investor minim)m
invo,vement re<)irement* an iss)er s#o),d +e a+,e to demonstrate a parti%),ar ,eve, o(
e<)ity %ontri+)tion 1or &overnment &rant ()ndin&2 in t#e tar&et +)siness +e(ore +ein&
permitted to seek ()nds t#ro)&# CS98' It $as ar&)ed t#at s)%# a re<)irement $o),d
provide prote%tion to sma,, investors +y t#e iss)er %ommittin& its o$n ()nds at a ,eve, t#at
ens)res t#at t#ere is somet#in& more t#an a mere idea t#at is +ein& ()nded'
Most s)+missions* #o$ever* opposed a sop#isti%ated investor t#res#o,d re<)irement'
Ar&)ments p)t (or$ard +y respondents in%,)ded.
t#e essen%e o( CS98 is t#at it appea,s to t#e non-sop#isti%ated investor' "#e
re<)irement $o),d s)+stantia,,y de(eat t#e p)rpose o( CS98 and perpet)ate %)rrent
o+sta%,es to (inan%e a((e%tin& ,ar&e portions o( t#e pop),ation
sop#isti%ated investors are not ne%essari,y s)ita+,e investors (or a,, CS98 o((ers' "#e
re<)irement $o),d )n(air,y +ias a&ainst ne$er ideas t#at may not yet #ave any
sop#isti%ated investors s)%# as severa, sma,, +)sinesses
sop#isti%ated investors typi%a,,y do not +e%ome invo,ved in most +)sinesses at t#e
very ear,y sta&es* )n,ess t#e +)siness #as t#e potentia, to +e very pro(ita+,e andNor is
te%#no,o&y-+ased' "#is restri%tion $o),d t#ere(ore res),t in many +)sinesses not
re%eivin& ()ndin&'
It $as a,so ar&)ed t#at t#e re<)irement $o),d %reate an )nd)e ,eve, o( %omp,a%en%y in
non-sop#isti%ated investors* and #en%e +e%ome t#e opposite o( a prote%tive meas)re' "#e
(a%t t#at someone meetin& t#e %)rrent sop#isti%ated investor de(inition #as invested does
not mean t#ey #ave %ond)%ted any si&ni(i%ant or e((e%tive d)e di,i&en%e on t#e iss)er'
A,so* it $as ar&)ed* sop#isti%ated investors may +e prepared to take a &am+,e $it# a sma,,
investment t#ey %o),d more easi,y $rite o((* $#i%# may send (a,se B%om(ort/ si&na,s to t#e
retai, investor market'
&..CAMAC position
CAMAC notes t#at a t#res#o,d sop#isti%ated investor invo,vement re<)irement %o),d
+ene(it %ro$d investors to t#e e0tent t#at it is an ass)ran%e to t#em t#at t#e e<)ity o((er to
t#e %ro$d is s)pported* to some e0tent at ,east* +y ()nds a,ready %ommitted to t#e proCe%t'
7#et#er t#at %an a,so a%t as an ass)ran%e a+o)t t#e ()ndamenta,s o( t#e iss)er is a separate
<)estion* as a sop#isti%ated investor may or may not #ave %ond)%ted a s)ita+,e assessment
+e(ore %ommittin& its ()nds'
-o$ever* a sop#isti%ated investor re<)irement may #ave vario)s detrimenta, e((e%ts* as
indi%ated in s)+missions' 8or instan%e* it $o),d deny start-)p and ot#er sma,, enterprises
$it#o)t t#is invo,vement t#e opport)nity to seek ()nds t#ro)&# CS98' It $o),d mean t#at
in many instan%es t#e B%apita, &ap/* $#i%# CS98 seeks to address in some respe%ts* $o),d
remain in e((e%t* even (or $ort#$#i,e enterprises'
3iven t#ese %onsiderations* CAMAC is o( t#e vie$ t#at it $o),d +e too restri%tive to
impose a sop#isti%ated investor (inan%ia, invo,vement pre%ondition on an iss)er in makin&
an on,ine o((er' An iss)er $it# s)%# (inan%ia, s)pport %o),d* o( %o)rse* point t#at o)t in its
o((er dis%,os)re do%)ment to %ro$d investors'
&.! "nvestor caps on crowd investors
)ss#e$ sho#ld there 3e caps on the f#nds that a crowd investor can invest thro#gh
CS!6
"#is Se%tion dea,s $it# investor %aps' Iss)er %aps are dis%)ssed in Se%tion 4''
&.!.1Types of investor caps
"#e p)rpose o( investor %aps is to ,imit an individ)a, investor/s e0pos)re to #i&#-risk
investments ,ike,y to +e asso%iated $it# CS98'
Investor %aps may take t#e (orm o(.
investor cap per issuer' "#is is a %ap on #o$ m)%# an individ)a, %ro$d investor %an
invest in a parti%),ar CS98 iss)er* in a parti%),ar period or per o((er +y t#e iss)er' "#is
%ap is desi&ned to ,imit an investor/s (inan%ia, %ontri+)tion to a parti%),ar iss)er* and
t#ere(ore t#e e0pos)re o( t#at %ontri+)tion
investor cap on all issuers' "#is is a %ap on #o$ m)%# an individ)a, %ro$d investor
%an invest in CS98 iss)ers 1%om+ined2 in a parti%),ar period' "#is %ap is desi&ned to
,imit an investor/s overa,, (inan%ia, %ontri+)tion to a,, CS98 iss)ers in t#at period* and
t#ere(ore t#e e0pos)re o( t#at %ontri+)tion'
&.!.2.ther /urisdictions
"#ere are vario)s %aps 1a,one or in %om+ination2 t#at %o),d +e app,ied to t#e ()nds t#at an
investor %o),d p)t into CS98* i( t#e intention is to ,imit t#e possi+,e ,osses to retai,
investors t#ro)&# CS98.
Investor cap per issuer2 different approac"es
first approac"2 ,imitin& t#e n)m+er o( CS98 iss)ers in $#i%# an investor may invest
in one year
second approac"2 ,imitin& t#e monetary amo)nt t#at an investor may invest in ea%#
CS98 iss)er in one year
t"ird approac"2 ,imitin& t#e monetary amo)nt t#at an investor may invest in ea%#
CS98 iss)er in tota, 1not per year2
fourt" approac"$ ,imitin& t#e monetary amo)nt t#at an investor may invest in ea%#
CS98 iss)er per o((er +y t#at iss)er
Investor cap on all issuers2 different approac"es
fift" approac"2 ,imitin& t#e tota, monetary amo)nt t#at an investor may invest in a,,
CS98 iss)ers in one year* irrespe%tive o( t#at person/s in%ome or net $ort#
si$t" approac"2 ,imitin& t#e tota, monetary amo)nt t#at an investor may invest in a,,
CS98 iss)ers in one year a%%ordin& to t#at person/s in%ome or net $ort#
sevent" approac"2 ,imitin& t#e tota, monetary amo)nt t#at an investor may invest in
a,, CS98 iss)ers* re&ard,ess o( time'
No caps
"#e eight approach is to p,a%e no mandatory %ap on t#e ()nds t#at an individ)a, investor
%o),d p)t into CS98'
Summar*
In s)mmary* o( t#e C)risdi%tions ana,ysed in t#is report.
Canada #as proposed a %om+ined investor cap per issuer 1t#e fourth approach2 $it#
an investor cap on a"" issuers 1t#e fifth approach2
t#e FS #as adopted an investor cap on a"" issuers 1t#e si,th approach2
t#e FG #as adopted an investor cap on a"" issuers (or some retai, investors 1t#e
seventh approach2
Ne$ Hea,and #as a vo,)ntary investor cap per issuer 1at t#e dis%retion o( t#e iss)er2*
+)t )n,ike t#e ot#er C)risdi%tions #as no investor cap on a"" issuers 1t#e eight
approach2'
Canada
"#e Canadian proposa, #as adopted a %om+ination o( t#e fourth approach and t#e fifth
approach'
Fnder t#e proposa,s* an investor/s investment in se%)rities o( a parti%),ar iss)er t#ro)&#
CS98 %annot e0%eed O2*00 per o((er +y t#at iss)er 1fourth approach2' In addition* a
p)r%#aser/s tota, investment in a,, CS98 o((ers d)rin& a %a,endar year %annot e0%eed
O10*000 1fifth approach2'
In p)ttin& (or$ard t#is %om+ined approa%#* t#e 5SC ar&)ed t#at #avin& ,o$ investment
,imits minimiDes an investor/s e0pos)re' A,so* spe%i(ied ma0im)m do,,ar amo)nts are
easier to administer t#an t#e si,th approach* as adopted )nder t#e FS >5BS A%t* t#at
re<)ires %a,%),ations +ased on an investor/s ann)a, in%ome or net $ort#' In addition* it
avoids t#e %on%ern* )nder t#e si,th approach* t#at investors may +e )n$i,,in& to s#are
t#eir ta0 ret)rns or ot#er persona, (inan%ia, in(ormation $it# iss)ers or porta,s to esta+,is#
t#ey are investin& $it#in t#e pres%ri+ed ,imits'
7it# ea%# investment* t#e intermediary is responsi+,e (or veri(yin& t#at t#e investor is not
e0%eedin& t#e %aps* more spe%i(i%a,,y t#at in any 12 mont# period.
t#e investor is not investin& more t#an O2*00 in a parti%),ar o((er
t#e investor $i,, not #ave invested more t#an O10*000 t#ro)&# t#e porta, o( t#at
intermediary'
-o$ever* an investor $i,, +e re<)ired to %erti(y t#at #e or s#e is $it#in t#e investment
,imits' "#e 5SC %onsidered t#at.
se,(-%erti(i%ation +o,stered +y a porta, monitorin& %omp,ian%e +y t#e investor $it# t#e
investment ,imits +ased on investments made +y t#e investor t#ro)&# t#e porta, is a
reasona+,e and pra%ti%a, approa%#'
"o rein(or%e t#is approa%#* t#e p)r%#aser o( t#e CS98 se%)rities m)st p)r%#ase t#em as t#e
prin%ipa,'
USA
"#e >5BS A%t #as adopted t#e si,th approach $it# t$o %aps.
lower cap% (or an investor $it# an ann)a, in%ome or net $ort# +e,o$ O100*000* t#e
investor/s ann)a, a&&re&ate investment in CS98 se%)rities is %apped at t#e &reater o(
O2*000 or P o( t#e investor/s ann)a, in%ome or net $ort#
"i"er cap2 (or an investor $it# an ann)a, in%ome or net $ort# o( at ,east O100*000*
t#e investor/s ann)a, a&&re&ate investment in CS98 se%)rities is %apped at 10P o( t#e
investor/s ann)a, in%ome or net $ort#* not to e0%eed O100*000'
7#i,e no additiona, %ap is made (or a%%redited Lsop#isti%atedM investors )nder "it,e III o(
t#e >5BS A%t* e<)ity o((ers %an a,so +e made to t#em* promoted on,ine or t#ro)&# ot#er
means* )nder "it,e II o( t#e >5BS A%t'
"#ese %ap amo)nts are to +e periodi%a,,y adC)sted +ased on t#e %ons)mer pri%e inde0'
"#e S9C noted t#at t#e investment %aps $o),d ,imit t#e potentia, )pside (or investors in
t#e CS98 market.
"#is mi&#t parti%),ar,y a((e%t t#e de%isions o( t#ose $it# ,ar&e port(o,ios $#o mi&#t
+e a+,e to a+sor+ ,osses and )nderstand t#e risks asso%iated $it# risky investments'
8or t#ese investors* t#e O100*000 a&&re&ate %ap mi&#t ,imit t#eir in%entive to
parti%ipate in t#e se%)rities-+ased %ro$d()ndin& market* %ompared to ot#er types o(
investments* potentia,,y deprivin& t#e se%)rities-+ased %ro$d()ndin& market o( more
e0perien%ed and kno$,ed&ea+,e investors and possi+,y impedin& %apita, (ormation'
?imitin& t#e parti%ipation o( s)%# investors $o),d +e ,ike,y to ne&ative,y a((e%t t#e
in(ormationa, e((i%ien%y o( t#e se%)rities-+ased %ro$d()ndin& market +e%a)se
sop#isti%ated investors are +etter a+,e to a%%)rate,y pri%e s)%# o((erin&s'
"#e S9C a,so noted t#at t#e investment %aps %o),d ,imit t#e a+i,ity o( investors to
diversi(y $it#in t#e CS98 market +y.
,imitLin&M an investor/s a+i,ity to %#oose a s)((i%ient,y ,ar&e n)m+er o( investments to
o((set t#is risk and to re%over t#e d)e di,i&en%e %osts o( s)((i%ient,y investi&atin&
individ)a, investments' 5ne potentia, so,)tion to t#is diversi(i%ation pro+,em $o),d
+e to invest sma,,er amo)nts in more vent)res' "#e dra$+a%k is t#at t#e %osts
asso%iated $it# identi(yin& and revie$in& investment opport)nities are* to a ,ar&e
e0tent* (i0ed'
In re&ard to %omp,ian%e $it# t#e investment %aps* t#e proposed S9C :),e $o),d provide
t#at +e(ore permittin& an investor to make an investment %ommitment on its p,at(orm* an
intermediary m)st #ave a reasona+,e +asis to +e,ieve t#at t#e investor %omes $it#in t#e
investment %aps' -o$ever* t#e S9C a,so re%o&nises t#e di((i%),ties t#at t#is may impose
on intermediaries' A%%ordin&,y* t#e S9C proposes t#at* not$it#standin& t#at investors
mi&#t make ina%%)rate representations* $#et#er intentiona,,y or not.
an intermediary may re,y on an investor/s representations %on%ernin& %omp,ian%e $it#
t#e investment ,imits )n,ess t#e intermediary #as reason to <)estion t#e re,ia+i,ity o(
t#e representations'
In re&ard to re,ian%e on an investor/s representations* t#e S9C a,so %ommented t#at.
it $o),d not +e reasona+,e (or an intermediary to i&nore ot#er investments made +y an
investor in se%)rities so,d in re,ian%e on Lt#e CS98 provisionsM t#ro)&# an a%%o)nt
$it# t#at intermediary or ot#er in(ormation or (a%ts a+o)t an investor $it#in its
possession'
UK
"#ose retai, investors $#o re,y on t#e %erti(i%ation t#at t#ey $i,, not invest more t#an 10P
o( t#eir net investi+,e port(o,io 1i'e' e0%,)din& t#eir primary residen%e* pensions and ,i(e
%over2 in non-readi,y rea,isa+,e se%)rities are ,imited to t#at %ap* $#i%# app,ies
independent,y o( any period 1t#e seventh approach2'
New Zealand
Fn,ike t#e proposa,s in t#e FSA or Canada* t#ere are no mandatory ,imits on #o$ m)%#
%an investor %an invest in CS98' An iss)er may %#oose to impose s)%# a %ap (or a
parti%),ar o((er'
&.!.Su,missions
Most respondents s)pported t#e prin%ip,e o( a %ap or %aps* (or retai, investors* t#o)&#
respondents #e,d <)ite di((erin& vie$s as to $#at it* or t#ey* s#o),d +e' 5ne %omment $as
t#at $#i,e* (rom one perspe%tive* t#e market rea,ities o( risk and re$ard (or a,, e<)ity
investin& s#o),d not +e ame,iorated +y re&),ation* (rom an operationa, perspe%tive it may
+e pr)dent to ,imit individ)a, investors to a %ap on t#e tota, amo)nt o( investment t#ey
may make in a &iven period andNor #o,d at any point in time' No individ)a, retai, investor
s#o),d +e a+,e to invest a very ,ar&e amo)nt o( money in a sin&,e vent)re'
5ne %omment $as t#at t#e report s#o),d make %,ear t#at any %aps on,y app,ied to retai,
investors and t#at t#e e0istin& tests (or e0emption (rom t#e need (or a (orma, o((er
do%)ment )nder s 708 o( t#e Corporations A%t s#o),d app,y e<)a,,y to a CS98 o((er' In
%onse<)en%e* t#ere s#o),d +e no ,imit on t#e amo)nt t#at any individ)a, %o),d invest i(
t#ey (a,, $it#in one o( t#ose e0emptions'
5n t#e iss)e o( en(or%ement o( %aps* one vie$ $as t#at as %omp,ian%e $it# any %aps may
+e #ard to monitor and po,i%e in pra%ti%e* any %ap s#o),d +e se,(-re&),atory* s)%# as
investors #avin& to Bse,(-%erti(y/ t#at t#ey $ere %omp,yin& $it# any app,i%a+,e %aps'
:e<)irin&* (or instan%e* %erti(i%ates (rom a%%o)ntants et% as to in%omes or net $ort# )nder
t#e si,th approach $o),d +e too %)m+ersome and %ost,y (or +ot# t#e investor and iss)er'
In re&ard to t#e vario)s possi+,e %aps.
Investor cap per issuer
5irst approach% "imiting the number of C($5 issuers in which an investor may invest in one year
No respondent s)pported t#is approa%#'
(econd approach% "imiting the monetary amount that an investor may invest in each C($5 issuer
in one year
"#ere $as some in-prin%ip,e s)pport (or t#is approa%#' It $as ar&)ed t#at t#is approa%# is
simp,er t#an t#e fifth and si,th approaches* $#i%# may re<)ire a %entra,ised intermediary
system to monitor t#e n)m+er o( iss)ers an investor #ad invested in and t#e amo)nt
invested'
Third approach% "imiting the monetary amount that an investor may invest in each C($5 issuer in
tota" 7not per year8
"#ere $as %onsidera+,e di((eren%e +et$een respondents s)pportin& t#is approa%# as to
$#at s#o),d +e a reasona+,e ,imit* ran&in& (rom O2*00 - O*000 to O10*000* O20*000 or
even O0*000'
Anot#er approa%# $as t#at i( a)dited (inan%ia, statements o( t#e iss)er are not avai,a+,e*
t#en t#e iss)er s#o),d +e ,imited to raisin& a ma0im)m o( O1000 (rom ea%# investor' "#is
$o),d en%o)ra&e dis%,os)re* $#i,e a,,o$in& ne$ entities to parti%ipate'
It $as ar&)ed t#at it is not appropriate (or iss)ers or intermediaries to #ave to po,i%e
$#et#er investors #ave e0%eeded t#e %aps' :at#er* t#e risk dis%,os)re do%)ment to
investors s#o),d %,ear,y spe%i(y t#at t#ese are #i&#-risk investments and on,y s)ita+,e (or a
portion o( investa+,e %apita,'
5ourth approach% "imiting the monetary amount that an investor may invest in each C($5 issuer
per offer by that issuer
"#ere $as %onsidera+,e di((eren%e +et$een respondents s)pportin& t#is approa%# as to
$#at s#o),d +e a reasona+,e ,imit* ran&in& (rom O2*000-O*000 per o((er to O10*000 or
O20*000 per o((er'
It $as ar&)ed t#at any %ap )nder t#is approa%# not +e ,inked to t#e in%ome or net $ea,t# o(
t#e investor* as it $o),d +e impra%ti%a, to monitor'
Investor cap on all issuers
5ifth approach% "imiting the tota" monetary amount that an investor may invest in a"" C($5 issuers
in one year irrespective of that person6s income or net worth
"#ere $as some di((eren%e +et$een respondents s)pportin& t#is approa%# as to $#at
s#o),d +e a reasona+,e ,imit ea%# year (or retai, investors* ran&in& &enera,,y (rom O1*000-
O*000 per year* )p to O10*000 per year* $it# t#e ,imit o( O10*000 s)&&ested (or
se,(-mana&ed s)per ()nds 1SMS8s2'
(i,th approach% "imiting the tota" monetary amount that an investor may invest in a"" C($5 issuers
in one year according to that person6s income or net worth
"#ere $as some in-prin%ip,e s)pport (or t#e %ap +ein& in proportion to t#e investor/s
ann)a, in%ome or net $ea,t# in any (inan%ia, year'
A n)m+er o( respondents raised %on%erns t#at a %ap +ased on a person/s in%ome or net
$ort# is too di((i%),t (or t#e iss)er or intermediary to veri(y' 5n t#at vie$* t#e si,th
approach is )n$orka+,e* )n,ess +ased on Bse,(-%erti(i%ation/ +y t#e investor* (or instan%e
+y investors providin& a veri(ied statement t#at t#eir investment does not +rea%# t#e
in%omeNnet $ort# tests'
(eventh approach% "imiting the tota" monetary amount that an investor may invest in a"" C($5
issuers regard"ess of time
"#ere $ere no s)+missions on t#is approa%# 1as t#e seventh approach re(,e%ts t#e Mar%#
FG position2'
No caps
$ight approach% no mandatory investor cap
Some respondents %onsidered t#at t#ere s#o),d +e no investor %aps on any individ)a, t#at
(a,,s $it#in one o( s 708 e0emptions o( t#e Corporations A%t* in parti%),ar sop#isti%ated
investors'
Anot#er approa%# $as t#at o((ers t#at %ome $it#in any o( t#e s 708 e0emptions s#o),d +e
separate a,to&et#er (rom t#e CS98 pro%ess* +ot# as to t#e amo)nts t#at an iss)er %an raise
and as to amo)nts t#at a person %an invest'
&.!.!CAMAC position
1eneral comments
Consideration o( investor %aps raises a series o( <)estions t#at #ave a parti%),ar
si&ni(i%an%e (or t#e overa,, operation o( CS98'
8or instan%e* t#e imposition o( any (orm o( investor %ap* and t#e amo)nt o( t#at %ap* $i,,
#ave a dire%t +earin& on t#e n)m+er o( %ro$d investors an iss)er may need to attra%t to
rea%# a tar&et t#res#o,d o( e<)ity investment' I( investor %aps are very ,o$* iss)ers may
str)&&,e in some instan%es to rea%# t#eir ()ndraisin& tar&ets even $#ere t#ere is a
si&ni(i%ant ,eve, o( s)pport (rom %ro$d investors'
-i&# investor %aps* or no %aps* may assist iss)ers in rea%#in& t#eir investment tar&ets*
even $#ere ,imited n)m+ers o( %ro$d investors are invo,ved' -o$ever* t#is may a,so
in%rease t#e potentia, ,eve, o( e0pos)re o( individ)a, investors to t#e risks asso%iated $it#
t#is (orm o( investment'
5( t#e C)risdi%tions revie$ed* on,y Ne$ Hea,and #as no mandatory investor %ap o( any
des%ription' In %onse<)en%e* a %ro$d investor in a parti%),ar period may %#oose to p,a%e a
,ar&e s)m o( money $it# one iss)er 1)n,ess t#at iss)er #as a se,(-imposed investor cap per
issuer2 or may invest a ,ar&e amo)nt in a series o( iss)ers* $it# no ,imit on t#e tota,
amo)nt t#at #e or s#e %an invest' In e((e%t* a %ro$d investor %o),d* at any time* p)t )p to
a,, o( t#eir avai,a+,e assets into #i&#-risk start-)p vent)res t#ro)&# t#e CS98 pro%ess* +)t
$it#o)t t#e (),, prote%tions norma,,y asso%iated $it# p)+,i% o((ers o( e<)ity'
5ne reason Ne$ Hea,and may #ave de%ided a&ainst any (orm o( mandatory investor %ap is
t#e di((i%),ty t#at %an arise in po,i%in& or en(or%in& a %ap* parti%),ar,y an investor cap on
a"" issuers' CAMAC notes t#at t#is pro+,em #as +een re%o&nised in ot#er C)risdi%tions*
$#i%# ,ar&e,y (avo)r Bse,(-%erti(i%ation/ +y t#e investor t#at #e or s#e is %omp,yin& $it# an
investor %ap' CAMAC a,so (avo)rs t#is approa%#* $it# a ,imited o+,i&ation on t#e
intermediary to %#e%k %omp,ian%e $it# an investor %ap $#ere it is easy (or it to do so'
CAMAC does not s)pport any san%tion +ein& imposed on an investor $#o +rea%#es an
investor %ap' :at#er* investor %aps %onstit)te (orma, re%o&nition o( t#e (inan%ia, risks (or
investors t#at are in#erent $it# CS98' S)%# %aps %an a%t as a +rake on e0%essive
investment +y most %ro$d investors* even i( t#e %ap is inadvertent,y or intentiona,,y
+rea%#ed +y parti%),ar investors in some %ases' -avin& investor %aps stron&,y rein(or%es
mandatory risk statements to* and risk a%kno$,ed&ements +y* %ro$d investors'
Anot#er %onse<)en%e o( no investor %ap is t#at some iss)ers %o),d +e ()nded t#ro)&# t#e
CS98 pro%ess primari,y or so,e,y +y a (e$ %ro$d investors and $it#o)t any si&ni(i%ant
s)pport (rom t#e %ro$d &enera,,y* t#ere+y ne&atin& any e((e%t o( t#e s)pposed B$isdom o(
t#e %ro$d/'
7it#in t#is %onte0t o( CAMAC s)pport (or t#e introd)%tion o( investor %aps* a n)m+er o(
sit)ations need to +e %onsidered'
Sop"isticated investors
Sop#isti%ated and ot#er ,ike investors 1as de(ined )nder t#e Corporations A%t2 s#o),d +e
permitted to invest in any iss)er )nder t#e s 708 e0emption (or t#ese types o( investor*
independent,y o( any CS98 o((er +y t#at iss)er' "#ere s#o),d +e no (orm o( investor %ap
(or s)%# investors'
Any e<)ity %apita, raised (rom t#ese investors in t#is manner s#o),d not %o)nt (or t#e
p)rpose o( any issuer cap 1see Se%tion 4''42'
In re&ard to e<)ity iss)es to sop#isti%ated investors d)rin& a CS98 period* see
Se%tion 4'6'2'
Investors under t"e small&scale personal offers e$emption
Iss)ers %onsiderin&* or )ndertakin&* a CS98 o((er s#o),d +e entit,ed a,so to raise e<)ity
(rom investors )nder t#e sma,,-s%a,e persona, o((ers e0emption (rom s 708' "#ere s#o),d
+e no (orm o( investor %ap (or s)%# investors 1in addition to t#e %aps in s 7082* t#o)&# any
e<)ity %apita, raised in t#is manner s#o),d +e in%,)ded in t#e issuer cap 1see
Se%tion 4''42'
Crowd investors in a CSE( offer
CAMAC is o( t#e vie$ t#at $#i,e an investor cap per issuer %an +e an important investor
prote%tion me%#anism* an investor cap on a"" issuers is even more si&ni(i%ant in t#at
re&ard'
:e,ian%e on,y on an investor cap per issuer %o),d res),t in a %ro$d investor investin& a
,ar&e part o( t#at person/s avai,a+,e $ea,t# in a series o( #i&#-risk CS98 iss)ers $it#in a
s#ort period' "#e investor cap on a"" issuers seeks to %o)nter t#is possi+i,ity'
)nvestor cap on a"" issuers
CAMAC %onsiders t#at t#ere s#o),d +e a %ap on #o$ m)%# an individ)a, %ro$d investor
%an invest in a,, CS98 iss)ers 1%om+ined2 in a parti%),ar period' "#is restri%tion on
(reedom o( investment +y an investor takes into a%%o)nt t#e #i&#-risk nat)re o( many
start-)p and ot#er sma,, enterprises t#at are ,ike,y to )ti,ise a CS98 pro%ess to raise %apita,*
in %ir%)mstan%es $#ere t#e (),, ran&e o( investor prote%tions norma,,y asso%iated $it#
o((ers to t#e p)+,i% does not app,y' An investor %ap on a,, iss)ers 1dependin& )pon t#e %ap
(orm),a2 $i,, red)%e an individ)a, investor/s overa,, e0pos)re to t#ese #i&#-risk
investments d)rin& any parti%),ar period'
CAMAC re%o&nises t#at t#e prin%ipa, di((i%),ty $it# an investor %ap on a,, iss)ers is t#at
o( (),,y po,i%in& or en(or%in& any s)%# %ap* $it#o)t some %entra, re&istry to re%ord ea%#
%ro$d investor/s tota, investment in CS98 o((ers $it#in a parti%),ar period* &iven t#at an
investor %o),d take )p CS98 o((ers +y di((erent iss)ers on vario)s intermediary $e+sites'
"#is pro+,em #as +een re%o&nised in vario)s C)risdi%tions* $#i%# tend to (avo)r
Bse,(-%erti(i%ation/ +y t#e %ro$d investor t#at #e or s#e is %omp,yin& $it# t#e investor cap
on a"" issuers* $it#o)t any %entra, re&istry +ein& esta+,is#ed' CAMAC s)pports t#is
approa%#* $it# an intermediary on,y needin& to %#e%k t#at an investor #as not e0%eeded
t#is %ap in re,ation to investments t#ro)&# its porta,'
5n t#is +asis* %ro$d investors $o),d #ave to %erti(y to an intermediary t#at an intended
CS98 s#are a%<)isition %ame $it#in t#e investor cap on a"" issuers +e(ore t#ey %o),d
a%%ept t#e o((er +y t#e iss)er' At a minim)m* t#is $o),d remind t#ese investors o( t#is %ap
and t#e reasons (or it' -o$ever* an intermediary $o),d not +e re<)ired to %#e%k on t#e
a%%)ra%y o( t#at %erti(i%ate'
"#ere is a,so t#e pro+,em o( t#e ,e&a, stat)s o( investments +y a %ro$d investor $#i%#
#ave e0%eeded t#e investor cap on a"" issuers' S#o),d a %ro$d investor +e a+,e to )ndo a
s#are a%<)isition previo)s,y entered into on t#is &ro)ndA Ar&)a+,y* an individ)a, investor
s#o),d not +e a+,e to +ene(it (rom #is or #er o$n +rea%# o( t#is investor %ap* intentiona, or
inadvertent' 4ossi+,y t#e on,y instan%e $#ere a %ro$d investor s#o),d #ave t#e ri&#t to
)n$ind a s#are a%<)isition is $#ere t#e iss)er $as a kno$in& party to t#e +rea%# 1t#o)&#
in some %ases t#at %o),d #arm t#e interests o( remainin& s#are#o,ders2'
Canada proposes to impose a %ap o( O10*000 per year on t#e ()nds t#at ea%# investor %an
invest* in tota,* in CS98 o((ers 1t#e fifth approach2' In t#e FS* t#is %ap $i,, vary dependin&
)pon t#e ann)a, in%ome or net $ort# o( t#e investor 1t#e si,th approach2' CAMAC
%onsiders t#at t#e Canadian approa%# is pre(era+,e* as it avoids t#e %omp,i%ations invo,ved
in t#e FS approa%# in determinin& a %ap a%%ordin& to t#ose varia+,es'
CAMAC a,so %onsiders t#at a %as# %ap* o( t#e type proposed in Canada* is pre(era+,e to
t#e FG approa%# t#at ,inks a %ap* (or some retai, s#are#o,ders* to a proportion o( t#eir net
investi+,e port(o,io 1t#e seventh approach2'
In re&ard to t#e %as# ,imit* CAMAC %onsiders t#at an amo)nt in t#e order o( O10*000 in
any 12 mont# period $o),d +e appropriate* at ,east at t#e o)tset' -o$ever* any (i&)re
%#osen is ar+itrary to some e0tent* and t#is %ap %o),d +e adC)sted at some ()t)re time in
,i&#t o( e0perien%e $it# CS98'
)nvestor cap per issuer
CAMAC %onsiders t#at it may +e appropriate a,so to #ave a %ap on #o$ m)%# an
individ)a, %ro$d investor %an invest in a parti%),ar CS98 iss)er 1in a parti%),ar period2'
"#is %onstit)tes a %onstraint on (reedom o( investment +y an investor* +)t e<)a,,y restri%ts
an investor/s e0pos)re to ea%# parti%),ar CS98 iss)er'
"#e Canadian approa%# #as a %ap per iss)er o( O2*00 per o((er +y t#at iss)er 1t#e fourth
approach2' CAMAC notes t#at an iss)er in Canada may %ond)%t a series o( o((ers $it#in a
t$e,ve mont# period* $#i%# $o),d in%rease t#is %ap' 8or instan%e* i( an iss)er %ond)%ted
(o)r o((ers in a 12 mont# period* and a %ro$d investor %ontri+)ted t#e ma0im)m o( O2*00
per o((er* t#at investor %o),d p,a%e its (),, permitted O10*000 %ap on a,, iss)ers in t#at
period $it# one iss)er'
CAMAC %onsiders t#at i(* in addition to t#e investor cap on a"" issuers* an investor cap
per issuer is to +e adopted* a simp,er approa%# (or t#e ,atter %ap $o),d +e to ,imit t#e
amo)nt t#at a %ro$d investor may invest in a parti%),ar CS98 iss)er in one year* rat#er
t#an per o((er 1t#e second approach2' "#at amo)nt %o),d +e in t#e order o( O2*00* or
some$#at #i&#er* &iven t#at* )n,ike Canada* t#at $o),d +e an a+so,)te %ei,in& per iss)er
(or ea%# 12 mont# period' -o$ever* any (i&)re %#osen is ar+itrary to some e0tent and t#is
%ap %o),d +e adC)sted at some ()t)re time in ,i&#t o( e0perien%e $it# CS98'
"#e e((e%t o( an investor cap per issuer o( O2*00 in any 12 mont# period $o),d +e t#at a
%ro$d investor seekin& to invest ()nds in CS98 )p to t#e ma0im)m permitted )nder t#e
investor cap on a"" issuers o( O10*000 in any 12 mont# period $o),d #ave to diversi(y
t#ese investments to some e0tent'
CAMAC pre(ers t#e second approach to simp,y ,imitin& t#e n)m+er o( CS98 iss)ers in
$#i%# a %ro$d investor may invest in one year 1t#e first approach2 or ,imitin& t#e
monetary amo)nt t#at s)%# an investor may invest in a parti%),ar CS98 iss)er in tota, 1t#e
third approach2' "#e first approach $o),d invo,ve an ar+itrary %ei,in&* $#i%# may #ave
,itt,e in(,)en%e on restri%tin& an investor/s e0pos)re to a parti%),ar iss)er' "#e third
approach $o),d +e e<)a,,y ar+itrary and pro#i+it an investor (rom makin& any ()rt#er
e<)ity investments in an iss)er t#ro)&# CS98* on%e t#e investment ,imit #ad +een rea%#ed*
even $#ere t#e iss)er $as s)%%ess(), and a ()rt#er investment $o),d +e in t#e interests o(
t#e investor' An investment ,imit per year 1t#e second approach8 may a%#ieve a proper
+a,an%e* in most instan%es* +et$een investor opport)nity and investor prote%tion'
Intermediaries s#o),d +e )nder a ,imited d)ty to %#e%k t#at individ)a, %ro$d investors do
not +rea%# t#e investor cap per issuer 1Se%tion '162' As $it# t#e investor cap on a""
issuers* an investor $#o +rea%#ed t#e investor cap per issuer s#o),d not #ave a ri&#t o(
res%ission* e0%ept possi+,y $#ere t#e iss)er $as kno$in&,y a party to t#e +rea%#'
Ne$ Hea,and #as a vo,)ntary investor cap per issuer! A reason $#y an iss)er in Ne$
Hea,and may %onsider imposin& an investor %ap re,ates to t#e ,eve, o( dis%,os)re
re<)irements in t#e o((er' A%%ordin& to t#e Ne$ Hea,and 8inan%ia, Markets A)t#ority
Cro$d 8)ndin& 3)ide 1Apri, 20142.
I( yo) don/t impose investor %aps 1or t#ey are #i&#2 or t#e iss)er is tryin& to raise
si&ni(i%ant amo)nts o( %apita,* $e/d )s)a,,y e0pe%t yo)r arran&ements to in%,)de e0tra
dis%,os)re s)%# as providin& a +)siness p,an* detai,s o( #o$ ()nds $i,, +e )sed* key
risks and key (inan%ia, in(ormation* s)%# as (inan%ia, statements'
CAMAC e,se$#ere proposes a temp,ate dis%,os)re approa%# (or a,, CS98 o((ers*
re&ard,ess o( t#e amo)nt o( ()nds so)&#t to +e raised +y an iss)er 1Se%tion 4'72' "#e
<)oted t#inkin& +e#ind t#e Ne$ Hea,and am+),atory approa%# to o((er dis%,os)res $o),d
not #ave any app,i%ation in t#at %onte0t'
&.% Ris( ac(now#edgement
)ss#e$ sho#ld a crowd investor 3e re5#ired to acknowledge the risks involved in
CS!6
CAMAC e,se$#ere proposes t#at an intermediary m)st provide a &eneri% risk dis%,os)re
statement to a %ro$d investor +e(ore ea%# CS98 investment 1Se%tion '12' "#e <)estion
#ere %on%erns t#e %ontent o( t#e risk a%kno$,ed&ement +y t#e investor in response to t#at
risk dis%,os)re statement'
&.%.1.ther /urisdictions
New Zealand
Investors $i,, +e re<)ired to a((irm to t#e intermediary t#at t#ey )nderstand t#e risks
invo,ved in CS98' 8or t#is p)rpose* an intermediary m)st o+tain (rom ea%# %ro$d
investor* a %on(irmation to t#e (o,,o$in& e((e%t.
I %on(irm t#at I #ave seen t#e $arnin& statement a+o)t %ro$d ()ndin&U and
I )nderstand t#at e<)ity %ro$d ()ndin& is risky and I may ,ose my entire investmentU and
I %on(irm t#at I %o),d +ear t#at ,oss $it#o)t s)((erin& )nd)e #ards#ipU and
I )nderstand t#at t#e )s)a, ,e&a, prote%tions do not app,y to t#is investmentU and
I )nderstand t#at I may not +e &iven t#e same in(ormation as is )s)a,,y re<)ired +y Ne$
Hea,and ,a$ (or investments'
"#e %on(irmation m)st +e o+tained in $ritin& in a separate do%)ment or* i( it is o+tained
+y e,e%troni% means* t#ro)&# a pro%ess +y $#i%# it is o+tained separate,y (rom t#e
a&reement to )se t#e intermediary servi%e'
"#e %on(irmation m)st +e o+tained +y t#e intermediary +e(ore t#e investor is a)t#orised to
)se t#e intermediary servi%e'
USA
"#e investor m)st positive,y a((irm an )nderstandin& t#at t#e entire investment is at risk
and t#at t#e investor $o),d +e a+,e to +ear s)%# a ,oss' "#e investor m)st a,so ans$er
vario)s <)estions demonstratin& an )nderstandin& o( vario)s risks'
Canada
Investor $i,, +e re<)ired positive,y to a((irm t#at t#ey )nderstand t#ey are makin& a
#i&#-risk investment'
8or t#is p)rpose* prior to an investor enterin& into an a&reement to p)r%#ase se%)rities
t#ro)&# t#e CS98 pro%ess* t#e investor m)st si&n a risk a%kno$,ed&ement (orm in $#i%#
t#e investor %on(irms t#at #e or s#e (a,,s $it#in t#e investment ,imits and a,so
a%kno$,ed&es t#e risks asso%iated $it# t#e investment* in%,)din& t#e (o,,o$in&.
it is a very risky investment
t#e investor %o),d ,ose a,, o( t#e money invested
t#e investor may never +e a+,e to se,, t#e se%)rities
t#e investor $i,, +e provided $it# ,ess dis%,os)re t#an p)+,i% %ompanies provide
t#e investor $i,, not #ave t#e +ene(it o( prote%tions asso%iated $it# an investment made
)nder a prospe%t)s
+orro$in& money in%reases t#e risk o( an investment
t#e intermediary porta, $i,, not +e responsi+,e i( t#e investor ,oses a,, or some o( t#e
money invested'
"#e risk a%kno$,ed&ement (orm may +e si&ned +y an on,ine si&nat)re'
"#e iss)er m)st retain t#e si&ned risk a%kno$,ed&ement (orm (or ei&#t years a(ter t#e
distri+)tion'
"#e 5SC %ommentary stated t#at.
:e<)irin& t#at an investor si&n a risk a%kno$,ed&ement (orm may #e,p to a,ert t#e
investor to t#e risks o( t#e investment* in%,)din& t#at t#e investor may ,ose #is or #er
entire investment'
&.%.2Su,missions
"#e over$#e,min& vie$ in s)+missions $as t#at a risk a%kno$,ed&ement +y t#e investor
s#o),d +e a ne%essary part o( any investment app,i%ation pro%ess'
Eario)s s)&&estions %on%ernin& t#e %ontent o( a risk a%kno$,ed&ement statement in%,)ded.
investors s#o),d si&n t#at t#ey are (),,y a$are t#ere is a #i&# statisti%a, %#an%e t#ey
$i,, ,ose a,, t#eir money and t#at t#ey a%%ept t#is
investors s#o),d a%kno$,ed&e t#e risk o( t#e investment and t#at t#ey may ,ose a,,
t#eir %apita, or s)+se<)ent,y (ind t#at t#e %apita, str)%t)re o( t#e %ompany %o),d see
t#eir e%onomi% interest si&ni(i%ant,y de%rease* not$it#standin& a s)%%ess(), +)siness'
Some respondents a,so s)&&ested t#at any CS98 o((er do%)ment en%o)ra&e investors to
&et independent pro(essiona, advi%e +e(ore investin& and t#at* to a%%ept t#e o((er* investors
m)st eit#er indi%ate t#at t#ey #ave eit#er done so or indi%ate t#at t#ey #ave %#osen to
$aive t#at option and )nderstand t#is risk'
Anot#er proposa, $as (or an a%%reditation pro%ess $#ere+y* prior to investin&* an investor
$o),d +e re<)ired to attend and pass a risk a$areness $orks#op'
&.%.CAMAC position
A %ro$d investor s#o),d +e o+,i&ed to a%kno$,ed&e 1$#i%# may +e +y means o( an
e,e%troni% si&nat)re2 #avin& read and )nderstood t#e risk dis%,os)re statement' "#is s#o),d
o%%)r +e(ore ea%# CS98 o((er %an +e a%%epted 1see Se%tion '1'!2'
"#e vario)s C)risdi%tions* and s)&&estions in s)+missions* provide )se(), dra(t te0ts o( t#e
%ontent o( a temp,ate risk a%kno$,ed&ement +y t#e investor'
3iven t#e ran&e o( risks invo,ved* CAMAC %onsiders t#at a %ro$d investor s#o),d +e
re<)ired separate,y to a%kno$,ed&e ea%# o( t#e risks set o)t in t#e risk a%kno$,ed&ement
temp,ate* rat#er t#an simp,y provide one &enera, a%kno$,ed&ement'
CAMAC e,se$#ere #as %onsidered $#et#er t#ere s#o),d +e some risk appre%iation test
t#at %ro$d investors need to satis(y +e(ore +ein& permitted to invest t#ro)&# t#e CS98
pro%ess 1Se%tion '12'
&.& Coo#ing@o? rights
)ss#e$ sho#ld a crowd investor have cooling7off rights after accepting a CS! offer6
&.&.1.ther /urisdictions
Canada
An iss)er t#at o((ers se%)rities )nder t#e CS98 pro%ess m)st provide an investor $it# a
%ontra%t)a, ri&#t to %an%e, an a&reement to p)r%#ase t#e se%)rity +y de,iverin& a noti%e to
t#e iss)er $it#in at ,east 48 #o)rs prior to t#e date o( %omp,etion o( t#e distri+)tion
dis%,osed in t#e iss)er/s o((er do%)ment'
"#e 5SC %onsidered t#at a ri&#t o( $it#dra$a, $o),d provide an investor $it# a B%oo,in&
o((/ period to %onsider t#e dis%,os)re provided and re(,e%t on #is or #er investment
de%ision'
An investor a,so #as $it#dra$a, ri&#ts in t#e event o( materia, %#an&es in t#e o((er'
USA
"#e S9C #as proposed t#at investors #ave an )n%onditiona, ri&#t* (or any reason* to %an%e,
t#eir a%%eptan%es )p to 48 #o)rs prior to t#e end o( t#e o((er period.
Fnder t#is approa%#* an investor %o),d re%onsider #is or #er investment de%ision $it#
t#e +ene(it o( t#e vie$s o( t#e %ro$d and ot#er in(ormation* )nti, t#e (ina, 48 #o)rs o(
t#e o((erin&'
In t#e vie$ o( t#e S9C.
t#e proposed r),es strike an appropriate +a,an%e +et$een &ivin& investors t#e
%ontin)in& +ene(it o( t#e %o,,e%tive vie$s o( t#e %ro$d and t#en* i( desired* to %an%e,
t#eir investment %ommitments* $#i,e providin& iss)ers $it# %ertainty a+o)t t#eir
a+i,ity to %,ose an o((erin& at t#e end o( t#e o((erin& period'
"#e S9C %onsiders t#at iss)ers s#o),d +e entit,ed to vary t#e se%)rities o((er pri%e
1Bdynami% pri%in&/2 d)rin& s)%# time as investors #ave %an%e,,ation ri&#ts.
t#e investor/s a+i,ity to %an%e, #is or #er investment %ommitment %o),d miti&ate
potentia, %on%erns t#at dynami% pri%in& %o),d +e )sed to provide pre(erentia,
treatment to %ertain investors 1e!g!* $#en an iss)er o((ers +etter pri%es to re,atives or
insiders2' 7e a,so +e,ieve t#at t#e proposed %an%e,,ation ri&#ts $o),d address t#e
%on%erns a+o)t time press)re on t#e investment de%ision +e%a)se investors $o),d
#ave t#e opport)nity to %an%e, t#eir investment %ommitments i( t#ey de%ide to do so'
I( t#ere is a materia, %#an&e to t#e terms o( an o((er* in%,)din& t#e o((er pri%e* or to t#e
in(ormation provided +y t#e iss)er re&ardin& t#e o((er* t#e proposed r),es $o),d re<)ire
t#e intermediary to &ive ea%# investor $#o #as made an investment %ommitment noti%e o(
t#e materia, %#an&e* $it# t#e noti%e a,so statin& t#at t#e investor/s investment %ommitment
$i,, +e a)tomati%a,,y %an%e,,ed )n,ess t#e investor re%on(irms #is or #er %ommitment
$it#in (ive +)siness days o( re%eipt o( t#e noti%e.
7e +e,ieve t#at $#en materia, %#an&es arise d)rin& t#e %o)rse o( an o((erin&* an
investor $#o #ad made a prior investment %ommitment s#o),d #ave a reasona+,e
period d)rin& $#i%# to revie$ t#e ne$ in(ormation and to de%ide $#et#er to invest'
"#is noti(i%ation $o),d +e re<)ired to +e provided +y e-mai, or ot#er e,e%troni%
media'
Ital*
Investors %an $it#dra$ t#eir %ommitment at any moment )nti, t#e %ro$d()ndin&
%ampai&n is %,osed'
&.&.2Su,missions
"#ere $ere di((erin& vie$s in s)+missions as to $#et#er investors s#o),d #ave %oo,in& o((
ri&#ts* or in $#at %ir%)mstan%es any s)%# $it#dra$a, ri&#ts s#o),d +e e0er%isa+,e'
Support some ri"t of wit"drawal
Some respondents %onsidered t#at t#is %ons)mer prote%tion type o( meas)re is appropriate'
It $as ar&)ed t#at a %oo,in&-o(( period (or CS98 $o),d mirror t#e %)rrent operation o(
%ro$d()ndin& sites o)tside e<)ity-raisin&* $#ere investors %an %an%e, a p,ed&e at any time
prior to t#e %ampai&n rea%#in& its t#res#o,d tar&et'
Some respondents s)pported an )n%onditiona, $it#dra$a, ri&#t (or investors* $it#in a
stip),ated time(rame o( t#e investor a%%eptin& t#e o((er to a%<)ire e<)ity' -o$ever*
s)&&ested $it#dra$a, time-(rames ran&ed $ide,y* (rom ! +)siness days to !0 +)siness
days* or vario)s times $it#in t#at period'
5t#er s)&&ested approa%#es $ere (or t#e $it#dra$a, ri&#t to app,y at any time prior to 48
#o)rs +e(ore eit#er t#e minim)m s)+s%ription is rea%#ed or t#e time dead,ine (or t#e o((er
e0pires'
Support no ri"t of wit"drawal
5ne vie$ $as t#at &ivin& investor $it#dra$a, ri&#ts may )ndermine t#e CS98 po,i%y
o+Ce%tives' 8or instan%e* introd)%in& a %oo,in&-o(( period may mean t#at it is not %,ear
$#et#er any investment t#res#o,d #as +een rea%#ed )nti, t#e %oo,in&-o(( period (or a,,
investors #as e0pired'
:at#er* it $as ar&)ed* a dis%,os)re approa%# $#ere+y* (or instan%e* CS98 intermediaries
s#o),d +e re<)ired to make %,ear to investors* +e(ore enterin& into a %ontra%t* t#at t#ey do
not #ave a%%ess to a %oo,in&-o(( period* +etter strikes t#e +a,an%e +et$een investor
prote%tion and market e((i%ien%y' CS98 investors $i,, typi%a,,y +e more inde%isive* ,ess
e0perien%ed* and t#ere(ore a %oo,in&-o(( ri&#t is ,ike,y to invite and en%o)ra&e
$it#dra$a,s'
&.&.CAMAC position
Cro$d investors s#o),d #ave an )n%onditiona, ri&#t to $it#dra$ (rom an on,ine s#are
a%<)isition (or a ,imited period 1say* (ive %,ear $orkin& days2 a(ter a%%eptin& t#e e<)ity
o((er' "#ere s#o),d +e no %apa%ity (or %ro$d investors to $aive t#at %oo,in&-o(( ri&#t' "#is
is %onsistent $it# &enera, investor prote%tion approa%#es in ot#er %onte0ts'
CAMAC %onsiders t#at a ,on&er %oo,in&-o(( period* parti%),ar,y i( e0tendin& to some
period (inis#in& %,ose to t#e end o( t#e o((er period 1$#i%# %o),d +e (or some mont#s2
%o),d %reate on&oin& )n%ertainty a+o)t t#e ,ike,y s)%%ess o( any CS98 o((er'
;etai,s a+o)t t#is &enera, %oo,in&-o(( ri&#t (or %ro$d investors* $#en it %ommen%es* t#e
,en&t# o( time it operates* and #o$ to e0er%ise it* s#o),d +e %,ear,y e0p,ained on ea%#
intermediary $e+site* and s#o),d +e in%,)ded* in temp,ate (orm* as part o( t#e
a%kno$,ed&ement +y t#e intermediary to %ro$d investors at t#e time t#ey enter into t#e
e<)ity a%<)isition a&reement'
&.7 .ther withdrawa# rights
)ss#e$ sho#ld a crowd investor have some f#rther withdrawal right1 d#ring or after
the offer period1 s#ch as a :tag along8 right if certain ke' persons withdraw their
investment in the iss#er6
&.7.1.ther /urisdictions
Ital*
Start-)ps )sin& CS98 m)st insert a %,a)se in t#eir %onstit)tion $#i%# &)arantees investors
t#e ri&#t to $it#dra$ (rom t#e investment and to se,, t#eir s#ares +a%k to t#e (irm* in %ase
t#e maCor s#are#o,der se,,s its stake to a t#ird party 1Bta& a,on&/ ri&#t2'
"#ere is no e<)iva,ent ri&#t in t#e FS ,e&is,ation or t#e Canadian proposa,s'
&.7.2Su,missions
5ne vie$ in s)+missions $as t#at a mandatory Bta& a,on&/ %,a)se $o),d prote%t retai,
investors +y &ivin& t#em t#e same ri&#ts as ,ar&er s#are#o,ders' It $o),d ens)re a maCority
s#are#o,der %annot se,, o)t ,eavin& minorities $it# no e0it strate&y'
"#e predominant vie$ in s)+missions $as t#at a Bta& a,on&/ ri&#t $o),d )nne%essari,y
%reate )n%ertainty (or iss)ers and %o),d +e detrimenta, to remainin& s#are#o,ders'
&.7.CAMAC position
"#ere s#o),d not +e any Bta& a,on&/ ri&#t (or %ro$d investors* &iven t#at it may
()ndamenta,,y a((e%t t#e %apa%ity o( t#e iss)er to %ontin)e* takin& into a%%o)nt t#at t#e
iss)er $o),d #ave to ()nd any +)y-+a%ks +y t#e %ompany' 90er%ise o( s)%# a ri&#t may see
t#e %o,,apse o( t#e %ompany* as s#are#o,ders seek to e0it simp,y to avoid +ein& ,e(t as
mem+ers o( a %ompany drained o( its assets as it pays o(( ot#er s#are#o,ders'
-o$ever* CAMAC e,se$#ere proposes t#at %ro$d investors #ave $it#dra$a, ri&#ts $#ere
t#ere is a materia, adverse %#an&e in t#e position o( t#e iss)er a(ter t#ey #ave a%%epted t#e
o((er 1Se%tion 4'112'
A,so* %ro$d s#are#o,ders may #ave res%ission and ot#er remedies )nder &enera, ,a$
prin%ip,es in instan%es o( (ra)d* or materia, misrepresentations or omissions* +y t#e iss)er
1Se%tion 6'102'
&.: Resa#e of shares
)ss#e$ sho#ld there 3e restrictions for some period on the on7sale of shares ac5#ired
thro#gh CS!6
&.:.1.ther /urisdictions
USA
Se%)rities p)r%#ased )nder t#e CS98 provisions are s)+Ce%t to resa,e restri%tions (or one
year'
"#e S9C #as des%ri+ed t#is restri%tion* $#i%# it re%o&nises may impede se%)rities pri%e
dis%overy* as nevert#e,ess important (or investor prote%tion.
By restri%tin& t#e trans(er o( se%)rities (or a one-year period* t#e proposed r),es $o),d
&ive investors in a +)siness a de(ined period to o+serve t#e per(orman%e o( t#e
+)siness and to potentia,,y o+tain more in(ormation a+o)t t#e potentia, s)%%ess or
(ai,)re o( t#e +)siness +e(ore tradin& o%%)rs'
Canada
"#e investor ed)%ation materia,s m)st make it %,ear to investors t#at t#ere are si&ni(i%ant
resa,e restri%tions and t#e se%)rities %annot +e reso,d t#ro)&# t#e intermediary porta,'
Securities of a non&reportin issuer
Se%)rities o( a non-reportin& iss)er a%<)ired t#ro)&# %ro$d()ndin& %annot +e reso,d )nti,
t#e iss)er +e%omes a reportin& entity* )n,ess t#e sa,e is made )nder a prospe%t)s
e0emption ot#er t#an t#e %ro$d()ndin& e0emption 1(or instan%e* to a sop#isti%ated
investor2
"#e 5SC e0pressed %on%ern a+o)t permittin& a sa,e +e(ore an iss)er +e%omes a reportin&
entity and is t#ere(ore s)+Ce%t to t#e %ontin)o)s and time,y dis%,os)re re<)irements'
Securities of a reportin issuer
Se%)rities o( a reportin& iss)er a%<)ired t#ro)&# %ro$d()ndin& are s)+Ce%t to a (o)r mont#
#o,d period'
&.:.2Su,missions
"#ere $ere a ran&e o( approa%#es +y respondents'
Some respondents s)pported a pro#i+ition on resa,e o( e<)ity a%<)ired )nder CS98 (or*
say* 12 mont#s (rom t#e time o( p)r%#ase or t#e end o( t#e o((er period d)rin& $#i%# t#e
p)r%#ase took p,a%e* s)+Ce%t to some e0emptions 1(or instan%e* p)rs)ant to a $i,,* )nder a
(orma, takeover o((er or mer&er arran&ement* or )nder a (ami,y ,a$ dire%tionU ot#er
s)&&ested e0emptions in%,)ded se,,in& to (riends and (ami,y* se,,in& +a%k to t#e iss)er in
t#e event o( a +)y+a%k* and se,,in& to a sop#isti%ated investor2' "#e pro#i+ition* it $as
ar&)ed* $o),d prevent t#e possi+,e manip),ation o( t#e e<)ity market pri%e t#ro)&# s#ort-
term p)r%#ase and sa,e 1Bp)mp and d)mp/2 a%tivities'
Anot#er vie$ $as t#at e<)ity resa,es s#o),d +e restri%ted on,y d)rin& t#e CS98 o((er
period' Se%ondary markets s#o),d +e avai,a+,e on%e t#e initia, %apita, raisin& #as %,osed'
Ar&)ments p)t (or$ard +y respondents opposed to any resa,e restri%tion in%,)ded t#at.
t#e interest and (inan%ia, $e,,-+ein& o( retai, investors is t#e primary %onsideration*
#en%e t#e possi+i,ity o( makin& a %apita, &ain in t#e s#ort to medi)m term s#o),d not
+e impeded
any s)%%ess o( investors in a%#ievin& a %apita, &ain t#ro)&# sa,e o( t#eir s#ares a)&)rs
$e,, (or t#e rep)tation o( CS98
)nimpeded ri&#ts o( resa,e a,,o$ investors to re%o)p t#eir investment s#o),d t#ey
re<)ire %as# or s#o),d t#ey (ee, t#at t#e investment is no ,on&er (or t#em'
Independent,y o( $#et#er t#ere s#o),d +e resa,e restri%tions on e<)ity a%<)ired t#ro)&#
CS98* a n)m+er o( respondents proposed a +an on (o)nders and dire%tors o( t#e enterprise
se,,in& any o( t#eir e<)ity in t#e enterprise* or more t#an 10P o( t#eir e<)ity #o,din&*
$it#in a period 1say* 12 mont#s2 o( a CS98 o((er %on%ernin& t#at enterprise' Any s)%#
sa,e* it $as ar&)ed* %o),d res),t in %ro$d investors +ein& ,e(t B#i&# and dry/ $it# an
enterprise $#i%# #as no mana&ement or $#ere t#e e0pertise o( t#e (o)nders is no ,on&er
avai,a+,e' "#e restri%tion $o),d a,so %o)nter t#e possi+i,ity o( promoters en&a&in& in a
Bp)mp and d)mp/ e0er%ise'
&.:.CAMAC position
"#ere s#o),d not +e resa,e restri%tions on %ro$d investors' "#ey s#o),d +e permitted* at
any time* to se,, s#ares a%<)ired t#ro)&# t#e CS98 pro%ess to anyone $#o is $i,,in& to
+)y t#em* &iven t#at it is )n,ike,y in many instan%es t#at t#ere $i,, +e any se%ondary
market in t#e s#ares' 7#at* i( any* on-sa,e market t#ere is in t#ese s#ares s#o),d not +e
dis%o)ra&ed'
-o$ever* to %o)nter t#e possi+i,ity o( %ro$d investors +ein& t#e vi%tims o( a s#are Bp)mp
and d)mp/ e0er%ise 1a %on%ern raised in a n)m+er o( s)+missions2* t#ere s#o),d +e a +an
on dire%tors or ot#er persons asso%iated $it# t#e iss)er se,,in& a si&ni(i%ant proportion o(
t#eir e<)ity #o,din& in t#e iss)er 1say* 10P or more2 $it#in* say* 12 mont#s o( any CS98
o((er +y t#at iss)er'
&.; .ngoing reporting
)ss#e$ what ongoing reporting sho#ld 3e made 3' the intermediar' and;or iss#ers to
crowd investors in regard to their investment6
&.;.1Su,missions
"#e predominant vie$ in s)+missions $as t#at t#e primary responsi+i,ity (or on&oin&
reportin& to CS98 investors s#o),d rest on iss)ers* $it# intermediaries not #avin& any
on&oin& d)ty to provide independent reports on iss)ers' Instead* any reportin& on t#e
intermediary/s $e+site s#o),d +e a matter (or t#e intermediary and its %ontra%t $it# an
iss)er' 8or instan%e* an intermediary may %#oose to provide an on"ine issuer update area
on its $e+site* to post in(ormation periodi%a,,y provided +y t#e iss)er +)t $it#o)t any
o+,i&ation on t#e intermediary to vet t#at in(ormation'
&.;.2CAMAC position
In prin%ip,e* as %ro$d investors $o),d no$ +e s#are#o,ders o( t#e iss)er* any on&oin&
reportin& o+,i&ations s#o),d +e on t#e iss)er* rat#er t#an t#e intermediary' "#e on&oin&
reportin& re<)irements (or iss)ers are dis%)ssed in C#apter ! and C#apter 4 o( t#is report'
Intermediaries s#o),d not #ave on&oin& reportin& o+,i&ations in re,ation to iss)ers $#o
raised ()nds t#ro)&# t#e intermediary $e+site' -o$ever* intermediaries may see a
%ompetitive +ene(it in #avin& an Biss)er )pdate/ area on t#eir $e+sites* %ontainin&
in(ormation s)pp,ied +y* and re,atin& to* iss)ers $#o #ave previo)s,y made o((ers t#ro)&#
t#at $e+site' It may +e in t#e interests o( iss)ers $#o are %ontemp,atin& a ()rt#er CS98
o((er to keep $e+site )sers in(ormed in t#is $ay'
"#is matter is separate (rom t#e proposa,* dis%)ssed e,se$#ere in t#is report
1Se%tion '212* t#at intermediaries s#o),d provide a means on t#eir $e+sites (or
investor-to-investor and investor-to-iss)er %omm)ni%ations'
&.1<Remedies
)ss#e$ what remedies sho#ld crowd investors have in relation to losses res#lting from
inade5#ate disclos#re 3' iss#ers or poor management 3' iss#ers6
&.1<.1 "nadequate disc#osure
Submissions
:espondents %onsidered t#at investors s#o),d #ave &enera, ,a$ remedies a&ainst t#e
dire%tors o( t#e iss)er (or any materia, misrepresentationNomission o( materia, in(ormation
1a,ternative,y* mis,eadin& or de%eptive %ond)%t2 %on%ernin& t#e iss)er* as $e,, as a&ainst
any ot#er person kno$in&,y invo,ved in t#at misrepresentation or omission' Beyond t#at*
t#ere s#o),d +e no spe%i(i% individ)a, re%o)rse to t#e intermediary (or in(ormation
provided +y t#e iss)er'
CAMAC position
"#e primary re%o)rse o( %ro$d investors s#o),d +e remedies a&ainst t#e iss)er* its re,evant
o((i%ers* and any ot#er persons invo,ved in any inade<)ate dis%,os)re'
Intermediaries s#o),d +e ,ia+,e on,y to t#e e0tent t#at t#ey #ad a%t)a, kno$,ed&e o( t#e
mis%ond)%t and (ai,ed to a%t 1Se%tion '102'
&.1<.2 1oor management
Submissions
:espondents %onsidered t#at t#e same d)ties and ,ia+i,ities s#o),d app,y to dire%tors and
ot#er o((i%ers o( iss)ers 1in%,)din& t#e d)ties o( %are and di,i&en%e and to a%t in &ood (ait#
in ss 180-181 o( t#e Corporations A%t2 as $it# ot#er %ompanies'
CAMAC position
CAMAC a&rees $it# respondents t#at t#e same d)ties and ,ia+i,ities s#o),d app,y to
dire%tors and ot#er o((i%ers o( iss)ers as $it# ot#er %ompanies'
Intermediaries s#o),d +e ,ia+,e on,y to t#e e0tent t#at t#ey #ad a%t)a, kno$,ed&e o( some
(ra)d +y t#e iss)er and (ai,ed to a%t 1Se%tion '112'
&.1<. 'imitations of these remedies
CAMAC position
CAMAC notes t#at t#e +ene(it to %ro$d investors o( any remedies t#ey may #ave a&ainst
t#e iss)er and re,evant invo,ved persons $i,, depend )pon t#e assets o( t#ose persons' It is
very )n,ike,y t#at dire%tors or ot#er o((i%ers o( start-)ps or ot#er sma,, enterprises $i,,
#ave ade<)ate ;J5 ins)ran%e to %over any s)%# %,aims +y %ro$d investors'
3iven t#is* t#e &eneri% risk statement to %ro$d investors* dis%)ssed e,se$#ere in t#is
report 1Se%tion '12* s#o),d point o)t t#ese possi+,e s#ort%omin&s o( investor remedies'
Appendi$ 1 .n#ine fundraising
This Appendi, discusses C($5 within the broader conte,t of crowd sourced funding and
identifies the imp"ications of this form of corporate fundraising for the key participants!
A1.1Crowd sourced funding genera##y
A1.1.1 CS)* as one form of crowd sourced funding
CS98 is C)st one (orm o( $#at is %ommon,y kno$n as B%ro$d so)r%ed ()ndin&/
1a,ternative,y des%ri+ed as B%ro$d()ndin&/ or B%ro$dso)r%in&/2'
8rom one perspe%tive* %ro$d so)r%ed ()ndin& in its vario)s (orms - so,i%itin& sma,,
(inan%ia, %ontri+)tions (rom a ,ar&e n)m+er o( peop,e - is not ne$'
78
C#arita+,e +odies* (or
instan%e* #ave +een doin& t#is (or many years* in vario)s $ays' -o$ever* d)rin& t#e ,ast
de%ade t#e internet and so%ia, media #ave %reated or en#an%ed t#e means +y $#i%#
individ)a,s and entities %an dra$ t#eir re<)ests* ideas or proposa,s to t#e attention o( ,ar&e
n)m+ers o( persons $#o may #ave some ()nds t#ey are prepared to donate or invest'
A1.1.2 Types of crowd sourced funding
Cro$d so)r%ed ()ndin& is a means o( raisin& money (or a %reative proCe%t 1(or instan%e*
m)si%* (i,m* +ook p)+,i%ation2* a +enevo,ent* #)manitarian or p)+,i%-interest %a)se 1(or
instan%e* a %omm)nity +ased so%ia, or %o-operative initiative2 or an entreprene)ria, or
ot#er +)siness vent)re* t#ro)&# sma,, (inan%ia, %ontri+)tions (rom persons $#o may
n)m+er in t#e #)ndreds or t#o)sands' "#ose %ontri+)tions are so)&#t t#ro)&# an on,ine
%ro$d()ndin& p,at(orm* $#i,e t#e o((er may a,so +e promoted t#ro)&# so%ia, media'
Individ)a,s may +e invited to %ontri+)te to a proCe%t* %a)se* or vent)re 1proCe%t2.
(or its intrinsi% so%ia,* artisti%* p#i,ant#ropi% or ot#er $ort#* not in e0%#an&e (or
anyt#in& o( tan&i+,e va,)e. donation f#nding
79
in e0%#an&e (or some e0istin& or ()t)re tan&i+,e re$ard 1s)%# as an e0istin& or ()t)re
%ons)mer prod)%t or a mem+ers#ip re$ards s%#eme2. reward1 pledge and reward1
pre7pa'ment or pre7sales f#nding
80
78
An ear,y e0amp,e o( $#at mi&#t no$ +e des%ri+ed as %ro$d so)r%ed ()ndin& $as a %ampai&n in 1884* ,ed
+y ne$spaper proprietor >osep# 4),itDer* to #e,p ()nd t#e insta,,ation o( t#e pedesta, (or t#e Stat)e o( ?i+erty in
Ne$ =ork #ar+o)r' "#ro)&# t#at %ampai&n* more t#an O100*000 $as raised in si0 mont#s (rom 12*000 peop,e*
$it# most donations +ein& O1 or ,ess'
79
Cro$d()ndin& in A)stra,ia (or %#arita+,e investment p)rposes* not C)st o)tri&#t donations* %an +e
%ond)%ted p)rs)ant to t#e re<)irements in ASIC C,ass 5rder 02N184 Charitab"e investment schemes1
fundraising! See a,so ASIC Cons),tation 4aper 207'
80
See* (or instan%e* www.po6i,#e.com
In t#e FS* @ickstarter +e&an as a $ay (or %reative individ)a,sIm)si%ians* (i,mmakers* $ritersIto ()nd t#eir
$ork* o(ten $it# t#e on,y ret)rn +ein& an advan%e %opy or ,imited edition o( a ;E; or ot#er art $ork* %on%ert
ti%kets* or simp,y a si&ned t#ank-yo) note' An e0amp,e in an ed)%ationa, %onte0t is a %ro$d()nded
mi%ro-sate,,ite a+oard t#e Internationa, Spa%e Station* $#i%# %ontri+)tors %an )se to %ond)%t t#eir o$n spa%e
e0periments'
<n"ine fundraising
in e0%#an&e (or a ()t)re (inan%ia, re$ard 1s)%# as a s#are o( pro(its res),tin& (rom t#e
sa,e o( a &oodNservi%e* t#e prod)%tionNde,ivery o( $#i%# t#e ()ndin& ena+,ed2.
investment f#nding
81
in ret)rn (or pro(it on ()nds ,ent t#ro)&# one-to-one ,endin& arran&ements. peer7to7
peer =&2&> lending'
82
"#ese %an ran&e (rom person-to-person ,oans* to arran&ements
t#at ,ook in many respe%ts ,ike standard +)siness ,endin& e0%ept t#at a (inan%ia,
instit)tion is not invo,ved
in e0%#an&e (or e<)ity or ot#er se%)rities in a %ompany or ot#er entity 1i( permitted2.
e5#it' f#nding' "#is is $#at is re(erred to as CS98'
As s)mmarised in one ana,ysis.
7#i,e donations* re$ards and pre-sa,es mode,s do not entai, any (inan%ia, ret)rn to
%ontri+)tors* pro(it-s#arin&* ,endin& and investment in se%)rities mode,s invo,ve t#e
prospe%t o( (inan%ia, ret)rn' "#e (irst %ate&ory %an +e re(erred to &enera,,y as %ro$d
sponsorin&* $#i,e t#e ,atter %an +e des%ri+ed as %ro$d ,endin& or %ro$d investin&
1in%,)din& pro(it s#arin&2' "#e %ampai&ners %o,,e%tin& ()nds %an in%,)de SM9s*
start)ps* mi%ro-entreprene)rs* so%ia, entreprene)rs* t#e se,(-emp,oyed* t#e %),t)ra,
and %reative se%tors* p)+,i% a)t#orities* innovative or environmenta, proCe%ts* p)+,i%
interest +odies* resear%#ers* %ons)mers or t#e )nemp,oyed'
8!
"#e vario)s (orms o( %ro$d so)r%ed ()ndin& are %ontin)in& to evo,ve' As noted in one
%ommentary.
In a re,ative,y s#ort time* %ro$d()ndin& #as +e%ome a ne$ met#od o( raisin& %apita,
(or a +road ran&e o( p)rposes )sin& t#e internet' "o date* it #as main,y +een )sed +y
peop,e seekin& to raise money (or a spe%i(i% proCe%t and does not &enera,,y invo,ve t#e
iss)an%e o( se%)rities' -o$ever* in some C)risdi%tions* %ro$d()ndin& is emer&in& as a
$ay (or +)sinesses* parti%),ar,y start-)ps and sma,, and medi)m-siDed enterprises* to
raise %apita, +y iss)in& se%)rities'
84
Cro$d so)r%ed ()ndin& #as a,so +een presented as a means to assist &ro$t# in deve,opin&
%o)ntries'
8
In A)stra,ia* %ro$d so)r%ed ()ndin& #as +een typi%a,,y donation ()ndin& and pre-payment
()ndin&'
A1.1. 5ow crowd sourced funding wor(s
"#e vario)s (orms o( %ontemporary %ro$d so)r%ed ()ndin&* in%,)din& CS98* #ave t#e
same +asi% e,ements'
81
An e0amp,e in t#e FS is www.app,ac(r.com "#ro)&# t#is $e+site ()nders B+)y/ p#one
app,i%ations $#o,esa,e and $#en t#e apps are so,d retai, via t#e App,e Store* (or e0amp,e* pro(its are distri+)ted
+a%k to t#e ()nders'
82
4eer-to-peer ,endin& is deve,opin& in a n)m+er o( C)risdi%tions' 8or instan%e* a report +y t#e 5pen ;ata
Instit)te in >),y 201! (o)nd t#at +et$een 5%to+er 2010 and May 201! some 49*000 investors in t#e FG ()nded
peer-to-peer ,oans $ort# more t#an Y!78m' Some intermediaries arran&e ,oans +et$een individ)a,s* ot#er
intermediaries poo, ()nds $#i%# are t#en ,ent to sma,, and medi)m-siDed +)sinesses' In A)stra,ia* t#is (orm o(
(inan%in& is noted in t#e A)stra,ian Centre (or 8inan%ia, St)dies 5unding Austra"ia6s 5uture proCe%t' 8or
re&),atory deve,opments in t#e FG see t#e 8inan%ia, Cond)%t A)t#ority 4o,i%y Statement 4S14N4 The 5CA6s
regu"atory approach to crowdfunding over the internet and the promotion of non1readi"y rea"isab"e securities
by other media 1Mar%# 20142* in parti%),ar C#apter !' 8or deve,opments in C#ina see Z =an&. 424/s )n+rid,ed
&ro$t# )nternationa" 5inancia" -aw 2eview* 8e+r)ary 2014* at 2!'
8!
9)ropean Commission* &n"eashing the potentia" of Crowdfunding in the $uropean &nion
127 Mar%# 20142 at 4'
84
5ntario Se%)rities Commission Noti%e 4-712 .rogress report on review of prospectus e,emptions to
faci"itate capita" raising 1A)&)st 201!2 at '
8
See* (or instan%e* "#e 7or,d Bank Crowdfunding6s .otentia" for the #eve"oping Aor"d 1201!2'
<n"ine fundraising
A person 1t#e promoter2 may #ave a proCe%t +)t ins)((i%ient ()nds to +rin& it to (r)ition'
"#e promoter may de%ide to raise some or a,, ()nds t#ro)&# an intermediary %ro$d()ndin&
p,at(orm $#i%# 1(or a (ee2 %reates a pa&e on its $e+site (or t#e promoter' "#e promoter
may a,so %reate a video or ot#er promotiona, materia, on t#e $e+site pa&e* e0p,ainin& t#e
proCe%t and askin& (or ()nds in e0%#an&e (or an immediate or ()t)re prod)%t or ot#er
re$ard' 4eop,e interested in %ontri+)tin& may +e a+,e to en&a&e $it# t#e promoter and
$it# ea%# ot#er* on a %#at room or %#at +oard provided +y t#e $e+site p,at(orm' "#e
proCe%t and its ()ndraisin& are a,so typi%a,,y promoted via so%ia, media* emai, to (riends
and asso%iates and ot#er $e+sites $it# a $e+-,ink to t#e ()ndraisin& pa&e'
Cro$d()ndin& p,at(orms may re<)ire a spe%i(ied tar&et amo)nt to +e rea%#ed +e(ore
%ontri+)tions are passed to t#e promoter 1Ba,, or not#in&/ ()ndin&2* or #ave t#ose ()nds
passed on $it#o)t any tar&et t#res#o,d 1Bkeep it a,,/ ()ndin&2'
"#e operators o( a %ro$d()ndin& p,at(orm may en&a&e in vettin& o( proCe%ts to +e in%,)ded
on t#eir $e+site* to maintain t#e rep)tation o( t#e $e+site' -o$ever* t#is d)e di,i&en%e
may +e $e,, s#ort o( takin& any ,e&a, responsi+i,ity (or t#e a%%)ra%y o( t#e in(ormation
provided +y promoters o( proCe%ts or (or t#e proper )se +y promoters o( t#e %ontri+)ted
()nds'
A1.1.! Ris(s of crowd sourced funding
Cro$d so)r%ed ()ndin&* in any (orm* %arries risks (or persons providin& ()nds t#ro)&# t#is
medi)m' 7#i,e risks may +e present in any %apita, raisin& pro%ess* t#e %entra, ro,e o( t#e
internet means t#at t#e n)m+er o( persons potentia,,y a((e%ted %an +e si&ni(i%ant,y &reater
t#an (or more traditiona, means o( ()ndraisin&' A,so* t#e s%a,e o( risk invo,ved %an +e
a%%ent)ated +y t#e &enera,,y red)%ed ,eve, o( s%r)tiny o( t#ese o((ers'
(raud
"#is %an take vario)s (orms'
"#ere is t#e possi+i,ity o( misappropriation* eit#er +y t#e proCe%t promoter or t#e $e+site
operator* o( a,, or some o( t#e ()nds invested or donated' "#is risk is more ,ike,y to arise
$#ere ()nd providers are not to re%eive any immediate (inan%ia, or ot#er +ene(it'
A,so* as %ro$d()ndin& is ,ar&e,y an on,ine-+ased a%tivity* t#ere is t#e risk o( (a,se $e+sites
+ein& esta+,is#ed simp,y to enti%e individ)a,s to provide %redit %ard detai,s'
8)rt#ermore* t#ere is t#e possi+i,ity o( &en)ine $e+sites +ein& )sed +y (ra)dsters %,aimin&
to +e promoters o( proCe%ts* per#aps proCe%ts simi,ar to ones t#at $ere s)%%ess(), in t#e
past in raisin& a ,ar&e amo)nt o( ()nds'
(ailure
"#is is t#e risk t#at proCe%ts* even i( proper,y ()nded and administered* $i,, not +e
s)%%ess(),,y %omp,eted and investors $i,, not re%eive t#e (inan%ia, or ot#er re$ards
promised* or t#e ret)rn o( t#e ()nds invested'
86

"#is risk* $#i,e %,ear,y not %on(ined to %ro$d so)r%ed ()ndin&* is potentia,,y made more
si&ni(i%ant +e%a)se it is o(ten t#e %ase in %ro$d so)r%ed ()ndin& t#at t#e proCe%ts t#at are
in (a%t ()nded are t#ose t#at provide t#e parti%ipants $it# some psy%#o,o&i%a, re$ard* s)%#
as t#e (ee,in& t#at t#e %ontri+)tion is #e,pin& ()nd a $ort#$#i,e %a)se or is assistin&
someone in +rin&in& t#eir %reative idea to (r)ition' As t#ese proCe%ts are not ()nded
86
See* (or instan%e* ASIC 1*1 196M2 A()C guidance on crowd funding 1A)&)st 20122'
<n"ine fundraising
a%%ordin& to t#eir +)siness and (inan%ia, merits* t#is in%reases t#e risk o( (ai,)re as t#ey
may not #ave +een via+,e in t#e (irst p,a%e' A,so* as dis%,os)re may +e ,imited* parti%ipants
may not +e a+,e to proper,y assess t#e (inan%ia, and pra%ti%a, merits o( parti%),ar proCe%ts'
A1.1.% 1otentia# impact of crowd sourced funding
"#e (a%tors most ,ike,y to in(,)en%e t#e ()t)re )se and dire%tion o( %ro$d so)r%ed ()ndin&*
in its vario)s (orms* in%,)de.
promoter opport#nit'. t#e e0tent to $#i%# promoters o( proCe%ts (ind it an attra%tive
and $orka+,e means to raise (inan%e. 4romoters may a,so )se on,ine-+ased ()ndin& to
&a)&e %omm)nity interest in a proCe%t and improve %omm)nity a$areness o( t#at
proCe%t
intermediar' opport#nit'. t#e e0tent to $#i%# persons (a%i,itatin& t#e a%tivity on
t#eir $e+sites (ind it a via+,e and pro(ita+,e +)siness' "#is is ,ike,y to depend on t#e
demand (or ()ndin& +y proCe%t promoters and t#e amo)nt o( (eesN%ommission
intermediaries %o,,e%t t#ro)&# t#e %ro$d()ndin& pro%ess
investor opport#nit' and protection. t#e e0tent to $#i%# investors are $i,,in& to
()nd proCe%ts* (or a,tr)isti%* pro(it-re,ated or ot#er reasons* takin& into a%%o)nt t#e
e0tent to $#i%# t#ey a%%ept t#e (inan%ia, risks o( t#e proCe%ts on o((er* and per%eive
#o$ t#e risk o( (ra)d is dea,t $it#
reg#lator' involvement$ t#e ,eve, and type o( re&),atory invo,vement' It is possi+,e
t#at re&),atory responses in di((erent C)risdi%tions may deve,op t#ro)&# a n)m+er o(
sta&es* and in di((erent (orms (or t#e vario)s types o( %ro$d so)r%ed ()ndin&* as
e0perien%e $it# t#is (orm o( ()ndraisin& in%reases'
A1.2Crowd sourced equity funding
"#e CAMAC revie$ is %on(ined to CS98* +ein& one aspe%t o( %ro$d so)r%ed ()ndin&'
A1.2.1 Cey e#ements
Concept of CSE(
CS98 1a,ternative,y des%ri+ed as Be<)ity +ased %ro$d()ndin&/* Be<)ity %ro$d()ndin&/ or
Binvestment-+ased %ro$d()ndin&/2 %o),d +e %onsidered a ne$ (orm o( %orporate
()ndraisin& to t#e e0tent t#at it )ti,ises t#e internet to raise ()nds (rom a ,ar&e n)m+er o(
sma,, investors'
In essen%e* t#e %on%ept o( CS98 invo,ves t#e sa,e o( typi%a,,y sma,, %apita, interests
1Be<)ity/2 in %ompanies 1Biss)ers/2 t#ro)&# on,ine $e+sites 1Bintermediaries/2* to
potentia,,y n)mero)s individ)a,s or entities 1Binvestors/2' CS98 is aimed prin%ipa,,y at
ear,y sta&e %apita,-raisin& 1sometimes re(erred to as Bseed %apita,/2 +y start-)p %ompanies'
-o$ever* t#ere are no %ommer%ia, restri%tions on esta+,is#ed +)sinesses )sin& CS98 to
raise additiona, ()nds'
"#e interest in CS98 seems in part to +e driven +y $#at is seen as its potentia, to improve
a%%ess to risk %apita, (or innovative kno$,ed&e-+ased Bstart-)p/ %ompanies' Additiona,,y*
CS98 may o((er ne$ (inan%in& opport)nities (or %ompanies operatin& in t#e not-(or-pro(it*
%omm)nity interest and p#i,ant#ropi% se%tors'
<n"ine fundraising
Internationa,,y* CS98 is re%eivin& in%reasin& attention as an a,ternative (orm o( %orporate
()ndraisin& (or start-)p or ot#er sma,, to medi)m %ompanies' "o date* some C)risdi%tions*
in%,)din& t#e Fnited States* Ita,y* t#e FG and Ne$ Hea,and* #ave ena%ted ,e&is,ation or
introd)%ed administrative po,i%y dea,in& $it# CS98 1t#o)&# t#e FS ,e&is,ation is not yet
in (or%e2* $#i,e some ot#er C)risdi%tions* in%,)din& Canada* are &ivin& %onsideration to t#is
(orm o( ()ndraisin&' CS98 re&),atory initiatives are a,so )nder $ay in ot#er %o)ntries*
in%,)din&* (or instan%e* 8ran%e* Israe,* >apan and Gorea*
87
as an a,ternative to t#e
traditiona, r),es re&ardin& t#e p)+,i% o((er o( se%)rities in start-)p or ot#er sma,,
enterprises'
Concept of e0uit*
Stri%t,y speakin&* t#e term Be<)ity/ re(ers to s#are#o,din& in a %ompany' -o$ever* CS98
+road,y %overs any means o( raisin& %apita, t#ro)&# o((erin& de+t or e<)ity interests in t#e
+)siness' "#e %on%ept o( se%)rities in t#e A)stra,ian ,e&is,ation* in its +roadest app,i%ation*
%overs (inan%ia, investment in t#e (orm o( s#ares or de+ent)res
88
in a %ompany or interests
in a mana&ed investment s%#eme'
89
8or ease o( re(eren%e* t#is paper $i,, )se t#e term
Be<)ity/* +)t $it# t#is $ider app,i%ation to se%)rities &enera,,y'
New t*pe of fundraisin mar'et
"#e %on%ept o( CS98* ,ike ot#er (orms o( %ro$d so)r%ed ()ndin&* is a prod)%t o( t#e
internet and so%ia, media* $#i%# &ive potentia, investors a%%ess to investment
opport)nities o( $#i%# t#ey $o),d not previo)s,y #ave +een a$are* and &ives iss)ers
a%%ess to investors t#at t#ey $o),d not previo)s,y #ave +een a+,e to rea%#' I( re&),atory
%on%erns %an +e addressed* it is ar&)ed* CS98 is anot#er %#anne, +y $#i%# to #arness t#e
interest o( individ)a,s in ne$ proCe%ts and prod)%ts* %om+ined $it# t#e s%a,e and
moment)m o( t#e %ro$d'
A key e,ement in t#e CS98 %on%ept is t#at t#e ()ndin& pro%ess takes p,a%e t#ro)&# a
re&),ated on,ine p,at(orm or ot#er intermediary' "#is ena+,es t#e intermediary to %ontro,
$#at %apita, raisin& opport)nities are made avai,a+,e to iss)ers and $#at investment
opport)nities are made avai,a+,e to investors' In %onse<)en%e* t#e CS98 %on%ept %o),d +e
des%ri+ed as a ne$ (orm o( p)+,i% ()ndraisin&* o( ,imited amo)nts (or parti%),ar types o(
%ompanies* $it# ea%# intermediary a%tin& as a (orm o( Be0%#an&e/ and #avin& t#e
e<)iva,ent o( B,istin&/ re<)irements (or iss)ers* p)rs)ant to any CS98 re&),atory
re<)irements'
(inancin considerations
"#ere is %onsidera+,e interest &,o+a,,y in t#e potentia, (or CS98* seen as a ne$ (orm o(
(inan%e* to promote e%onomi% a%tivity' "#ere is a vie$ t#at CS98 may #e,p (i,, t#e demand
(or (inan%in& t#at +anks and ot#er (inan%ia, instit)tions in vario)s C)risdi%tions are no
,on&er meetin&* d)e to ti&#ter %redit re<)irements sin%e t#e &,o+a, (inan%ia, %risis' By
meetin& t#is demand* it is ar&)ed* t#e additiona, ()nds t#at CS98 provides $i,, assist in
en%o)ra&in& or in%reasin& e%onomi% &ro$t#'
"#e %o)nter vie$ is t#at t#e ti&#ter %redit re<)irements t#at #ave +een introd)%ed are
appropriate and s#o),d not +e %ir%)mvented +y riskier proCe%ts t#ro)&# CS98* takin& into
87
See* (or instan%e* -ye--$a, Seon&* Crowdfunding in @orea at t#e Fniversity o( Ca,i(ornia Berke,ey
3,o+a, A%ademi% Cro$d()ndin& Symposi)m 15%to+er 201!2U I5SC5* Crowd1 funding% An )nfant )ndustry
9rowing 5ast 18e+r)ary 20142 Anne0 1'
88
A %omp,i%ation (or iss)in& de+ent)res rat#er t#an s#ares is t#at de+ent)res re<)ire a tr)st deed and tr)stee'
See &enera,,y C#apter 2? o( t#e Corporations A%t* $#i%# re&),ates de+ent)res'
89
;e(inition o( Bse%)rities/ in s 92 o( t#e Corporations A%t'
<n"ine fundraising
a%%o)nt t#at investors in CS98 may not #ave t#e ski,,s and e0perien%e* or a%%ess to
in(ormation* proper,y to assess t#ese risks'
A1.2.2 "mpact of CS)* on the traditiona# ,usiness
mode#
A start-)p enterprise )ti,isin& CS98 1$#en and $#ere permitted2 as a ()ndin& me%#anism
may deve,op in a manner <)ite di((erent (rom a +)siness )ti,isin& traditiona, ()ndin&
arran&ements'
"raditiona,,y* a +)siness may +e&in +y %reatin& and promotin& a prod)%t or servi%e* ()nded
t#ro)&# private investment 1(rom* (or instan%e* Ban&e,/ investors
90
or ot#er private e<)ity2
andNor ,oan arran&ements $it# a (inan%ia, instit)tion* o(ten +a%ked +y persona, &)arantees'
Any o((er o( p)+,i% e<)ity invo,vement )s)a,,y takes p,a%e on,y a(ter t#ere #as +een some
indi%ation t#at t#e prod)%t or servi%e is* or $i,, +e* %ommer%ia,,y via+,e'
By %ontrast* a +)siness seekin& to )se CS98 may +e&in +y advertisin& its prod)%t or
servi%e t#ro)&# t#e internet or so%ia, media* eit#er as an idea on,y* or as a %on%ept t#at #as
+een esta+,is#ed or proven to a %ertain sta&e +)t nevert#e,ess re<)ires deve,opment and
s%a,e-)p' "#e %ontro,,ers o( t#e +)siness $i,, $ait to see i( t#at idea or %on%ept is
s)((i%ient,y $e,,-re%eived t#at s)((i%ient investors are prepared to ()nd t#e tar&et amo)nt
to %reate and market t#e prod)%t or servi%e'
91
A possi+,e risk (or a +)siness )sin& t#is
approa%# is t#at t#e idea or %on%ept +e%omes p)+,i% +e(ore t#e prod)%t is deve,oped*
t#ere+y %reatin& t#e opport)nity (or ot#ers to pre-empt t#e deve,opment and marketin& o(
t#e prod)%t 1s)+Ce%t to inte,,e%t)a, property ri&#ts2'
5n one vie$* CS98 re(,e%ts a ne$ +)siness mode, t#at is deve,opin& $it# t#e di&ita,
e%onomy' "#is mode, #e,ps address str)%t)ra, ear,y (ai,)re t#at %an arise )nder app,i%ation
o( t#e traditiona, +)siness mode, (or +)sinesses t#at ,a%k eit#er tan&i+,e initia, %apita, or
si&ni(i%ant ear,y reven)e-(,o$' 8or t#is reason* it is ar&)ed* t#ere is interest in CS98 as a
potentia, additiona, me%#anism to +rin& to&et#er ear,y sta&e iss)ers and investors* to
+roaden t#e ran&e o( investment options* and to deepen t#e ()ndin& markets (or t#ese
types o( +)sinesses' In t)rn* it is ar&)ed* t#is depart)re (rom t#e traditiona, +)siness mode,
may sp)r entreprene)rs#ip and t#e types o( #i&# &ro$t# +)sinesses t#at %an make a
positive %ontri+)tion to emp,oyment and prod)%tivity &ro$t#'
Anot#er vie$ is t#at t#is reversa, o( t#e traditiona, +)siness %y%,e* $#ere p)+,i% ()ndin&
may +e so)&#t on t#e +asis o( ()t)re possi+i,ities on,y* rat#er t#an on %,ear eviden%e o( a
via+,e +)siness mode, in operation* in%reases t#e risk o( (ai,)re and ,oss to e<)ity investors
t#ro)&# CS98' "#e risk o( (ai,)re is ()rt#er in%reased +y t#e (a%t t#at t#e ()ndin& is
potentia,,y +y parti%ipants $#o do not #ave t#e ski,,s and e0perien%e t#at private e<)ity
providers* +anks or ot#er (inan%ia, instit)tions norma,,y +rin& to +ear $#en %onsiderin&
$#et#er to provide ()ndin& to +)sinesses )nder t#e traditiona, +)siness mode,'
"#ese iss)es %on%ernin& t#e app,i%ation o( t#e traditiona, +)siness mode, may #ave ,ess
app,i%ation (or Bso%ia, enterprises/ or ot#er not-(or- pro(it entities $it# p)+,i% interest
rat#er t#an %ommer%ia, &oa,s'
90
An an&e, investor is typi%a,,y an a((,)ent individ)a, $#o provides %apita, (or start-)p or emer&in&
+)sinesses* )s)a,,y in e0%#an&e (or e<)ity in t#at +)siness' In A)stra,ia* see* (or instan%e* t#e A)stra,ian
Asso%iation o( An&e, Investors'
91
See " 7on&* BCro$d ()ndin&. :e&),atin& t#e ne$ p#enomenon/ 1201!2 !1 Companies and (ecurities -aw
Bourna" 89 at 91'
<n"ine fundraising
A1.2. The CS)* participants
Consideration o( t#e position o( t#e t#ree %,asses o( parti%ipants in CS98* name,y.
iss)ers
intermediaries
investors
raises &enera, <)estions a+o)t t#e means o( a%#ievin& a proper +a,an%e* in any ()t)re
,e&is,ative or ot#er initiative* +et$een (a%i,itation and re&),ation o( t#is (orm o(
()ndraisin&'
In %onsiderin& t#e ro,e o( ea%# o( t#ese parti%ipants* it is a,so ne%essary to +e mind(), t#at
t#e re&),ator #ave s)((i%ient po$ers to ens)re t#e proper ()n%tionin& o( t#is (orm o(
()ndraisin&'
Issuers
"#ere are vario)s reasons $#y iss)ers may seek to )ti,ise CS98'
8or instan%e* CS98* i( (a%i,itated* may provide a via+,e a,ternative so)r%e o( %apita, (or
start-)p or sma,, %ompanies t#at eit#er #ave ,imited a%%ess to %apita, 1$it#o)t t#e e0pense
o( preparin& a prospe%t)s or ot#er dis%,os)re do%)ment2 or #ave e0#a)sted ot#er avai,a+,e
so)r%es o( %apita,' CS98 may +e (ar ,ess e0pensive t#an raisin& %apita, t#ro)&# private
e<)ity or de+t arran&ements* in%,)din& Ban&e, investors/* or p)rs)ant to a p)+,i% o((er*
a%%ompanied +y a prospe%t)s'
CS98 may a,so +e a means +y $#i%# in%orporated not-(or-pro(it entities or Bso%ia,
enterprises/ %an raise ne%essary %apita, (or t#eir %o-operative* %omm)nity +ene(it and ot#er
p)+,i% interest proCe%ts* $it# investors (o%)sin& more on a,tr)isti% reasons or &enera,
+ene(its (or providin& ()ndin&* rat#er t#an any e0pe%tation o( (inan%ia, ret)rn to t#em'
CS98* #o$ever* may not +e appropriate (or a,, iss)ers' ;ependin& )pon t#e type o(
%orporate str)%t)re )ti,ised* it is possi+,e t#at CS98 may res),t in an iss)er #avin& a ,ar&e
n)m+er o( s#are#o,ders* most $it# re,ative,y sma,, amo)nts o( %apita,' "#is e<)ity pro(i,e
may impede or %omp,i%ate any ()rt#er (inan%in& options (or t#e iss)er' It may a,so res),t in
in%reased re&),atory %omp,ian%e %osts (or t#e iss)er 1in%,)din& in(ormation dis%,os)re
re<)irements to s#are#o,ders2 and t#e potentia, (or disp)tes +et$een s#are#o,ders* as $e,,
as +et$een s#are#o,ders and t#e iss)er' 5n t#e ot#er #and* #avin& a ,ar&e poo, o( sma,,
e<)ity investors may (a%i,itate a ,ater s)+stantive e<)ity investor a%<)irin& e((e%tive
s#are#o,der %ontro, at re,ative,y ,o$ %ost* $#i%# may or may not +e in t#e interests o( t#e
ot#er s#are#o,ders'
92
A mana&eria, %#a,,en&e t#at iss)ers may (a%e is #o$ to most e((e%tive,y )ti,ise t#e ()nds
raised t#ro)&# CS98 to imp,ement t#eir +)siness p,ans' 7#i,e t#is %#a,,en&e is not
pe%),iar to CS98* ,a%k o( t#is mana&eria, ski,, may +e a%%ent)ated in some instan%es +y
t#e varian%e (rom t#e traditiona, +)siness mode,' In %onse<)en%e* even $#ere ()nds raised
t#ro)&# CS98 seem ade<)ate to (inan%e an ot#er$ise $ort#$#i,e and potentia,,y
pro(ita+,e vent)re* poor mana&eria, de%isions may )ndermine its via+i,ity and res),t in ,oss
to investors'
9!
92
In A)stra,ia* t#e s#are#o,der prote%tions in C#apter 6 o( t#e Corporations A%t* dea,in& $it# %#an&e o(
s#are#o,der %ontro, transa%tions* are aimed at p)+,i% %ompanies* not proprietary %ompanies. s 606'
9!
See* (or instan%e* in t#e %onte0t o( %ro$d so)r%ed ()ndin& &enera,,y* M Mi,ian* BGi%kstarter/s ()nded
proCe%ts see some st)m+,es/* /"oomberg 22 A)&)st 2012'
<n"ine fundraising
Intermediaries
In essen%e* CS98 intermediaries provide on,ine p,at(orms as a means +y $#i%# iss)ers and
potentia, investors may %onne%t' ;ependin& )pon t#eir o$n +)siness mode,s and #o$ t#ey
are re&),ated* t#ese p,at(orms mi&#t +e %on(ined to mere,y mat%#in& servi%es +y providin&
a p,a%e $#ere investors may Bmeet/ promisin& %ompanies* $#ereas ot#ers mi&#t seek to +e
more a%tive in promotin& t#at intera%tion'
:e&),atory re&imes in some C)risdi%tions mi&#t treat a p,at(orm/s a%tivities as amo)ntin&
to t#e operation o( or&aniDed tradin& (a%i,ities or a (inan%ia, market t#at may on,y +e
)ndertaken +y a)t#orised or re&isteredN,i%ensed entities* $#ereas ot#er re&imes may not'
"#ere may a,so +e some di((erentiation +et$een p,at(orm providers as to #o$ ()nds to +e
dire%ted to iss)ers are to +e #e,d' 8or instan%e* some on,ine p,at(orms mi&#t arran&e (or
dire%t invo,vement +y investors in iss)in& %ompanies* $it# ea%# investor re%eivin& and
#o,din& s#ares in t#at person/s o$n name' -o$ever* o((erin& e<)ity dire%t,y to ,ar&e
n)m+ers o( investors %an res),t in ,o&isti%a, %#a,,en&es* as $e,, as ()ndamenta,,y
in%reasin& t#e n)m+er o( sma,, s#are#o,ders o( a %ompany' An a,ternative %o),d +e t#e
B%,)+/ investment mode,* $#ere+y investments are poo,ed* $it# a %o,,e%tive ve#i%,e* +ein&
t#e p,at(orm itse,( or some ot#er party* #o,din& t#e iss)er/s e<)ity in its name* on +e#a,( o(
t#e investors' In t#e A)stra,ian %onte0t* t#at %,)+ arran&ement $o),d %onstit)te a mana&ed
investment s%#eme'
Anot#er potentia, iss)e %on%erns t#e pro%ess o( %o,,e%tin& and #o,din& ()nds (rom
investors' :e&),atory possi+i,ities ran&e (rom t#e intermediary #o,din& ()nds provided +y
investors on Btr)st/ )nti, a tar&et %ontri+)tion ,eve, is rea%#ed* to intermediaries +ein&
o+,i&ed to pass a,, t#e money-#and,in& ()n%tions to* say* independent a&ents ,i%ensed
)nder appropriate ,e&is,ation' An a,ternative is t#at investors on,y %ontri+)te on%e t#e
tar&et investment ,eve, is p,ed&ed* $it# ()nds t#en passin& dire%t,y (rom t#e investors to
t#e iss)er* or to a desi&nated t#ird party* $it# no invo,vement +y t#e intermediary'
"o meet t#e o+,i&ations t#at may +e asso%iated $it# CS98* as its manner o( re&),ation
deve,ops* it is ,ike,y t#at ea%# $e+site operator (a%i,itatin& CS98 $o),d need to +e an
entity o( s)+stan%e' It is ,ike,y t#at ea%# $e+site operator $o),d need to #ave ade<)ate
%apita,* #)man and te%#no,o&i%a, reso)r%es to operate t#e $e+site in a %omp,yin& manner*
in%,)din& in re&ard to ens)rin& proper re%ord keepin& %on%ernin& ea%# CS98 o((er on its
$e+site'
A,so* dependin& )pon t#e app,i%a+,e re&),atory re&ime t#at is adopted (or intermediaries*
some o( t#e risks t#at p,at(orm providers may (a%e in (a%i,itatin& CS98 %o),d in%,)de.
reputationa" risk. in t#e event o( iss)ers )sin& t#e $e+site to de(ra)d investors* or too
many start-)ps promoted on t#e $e+site #avin& de(e%tive +)siness mode,s ,eadin& to
investment ,osses
regu"atory risk. d)e to non-%omp,ian%e +y t#e $e+site operator $it# any app,i%a+,e
,a$
"ega" risk% d)e to ,iti&ation +y investors ar&)in& t#at t#e $e+site operator did not %arry
o)t reasona+,e d)e di,i&en%e on start-)ps t#at (ai,ed or did not prevent its $e+site (rom
+ein& )sed to %arry o)t (ra)d'
<n"ine fundraising
Imposin& an o+,i&ation on p,at(orm providers to make some +asi% +a%k&ro)nd %#e%ks on
iss)ers +e(ore in%,)din& t#em on t#eir $e+sites %o),d #e,p &)ard a&ainst (ra)d'
94
Intermediaries %o),d a,so +e )nder an o+,i&ation to $arn investors o( t#e in#erent risks
invo,ved in CS98' Intermediaries %o),d a,so +e re<)ired to test investor )nderstandin& o(
investment risks +e(ore a,,o$in& transa%tions to pro%eed'
"#ere is a,so t#e iss)e o( %on(,i%ts o( interest to %onsider' In some instan%es* t#e
intermediary/s +)siness mode, may simp,y ,ink t#e ret)rn to t#e intermediary to t#e
n)m+er o( iss)ers t#at are posted on its $e+site p,at(orm andNor t#e amo)nt o( investor
()nds t#at are raised' An intermediary may t#ere(ore +e %on(,i%ted $#en assessin& $#i%#
iss)ers or proCe%ts s#o),d +e a,,o$ed to raise ()nds t#ro)&# its $e+site'
An a,ternative +)siness mode,* $it# #as ,ess potentia, (or %on(,i%t* may +e one $#ere t#e
intermediary does detai,ed d)e di,i&en%e on app,i%ant iss)ers* #osts on,y a re,ative,y sma,,
n)m+er o( t#ese iss)ers on its $e+site p,at(orm* and ,inks its in%ome to t#e ,on&er-term
%ommer%ia, s)%%ess o( t#ose iss)ers'
9
Investors
7#i,e CS98 investment opport)nities may +e open to a,, investors* t#e most ,ike,y
investor tar&et &ro)p $o),d +e retai, investors* $#o may #ave on,y ,imited dis%retionary
()nds avai,a+,e (or investment'
/enefits
CS98* i( re&),ated appropriate,y* %o),d ena+,e investors to make re,ative,y modest
investments a%ross a ran&e o( opport)nities $it# re,ative,y ,o$ transa%tion %osts' "#is
%o),d +e seen as t#e pre(erred investment approa%# in t#e %orporate start-)p market* &iven
its #i&#-riskN#i&# re$ard nat)re* $#ere+y maintainin& a port(o,io o( investments %an
address t#e risk o( an individ)a, investment (ai,in&'
In t#is $ay* CS98 may en#an%e t#e opport)nities (or investors to o+tain e<)ity positions
in parti%),ar start-)p or ot#er %ompanies t#at event)a,,y prove to +e s)%%ess(), and
pro(ita+,e* $it# investors in t#ese %ompanies re%eivin& (inan%ia, ret)rns in t#e (orm o(
dividends andNor %apita, &ro$t# in t#e va,)e o( t#eir s#ares' 7it#o)t CS98* t#ese
%ompanies may never #ave provided investment opport)nities to investors &enera,,y* at
,east at t#e initia, p#ase +e(ore any ,ater move (or t#eir e<)ity to +e ,isted'
2isk of fraud
"#ere are si&ni(i%ant investor prote%tion %on%erns asso%iated $it# t#e %on%ept o( CS98'
"#ey in%,)de t#e risk o( (ra)d),ent mis)se +y iss)ers o( t#e ()nds re%eived (rom investors*
even $#ere intermediaries operatin& on,ine CS98 p,at(orms )ndertake d)e di,i&en%e o(
iss)ers* parti%),ar,y i( iss)ers are not made (),,y a%%o)nta+,e (or t#e )se o( t#ose ()nds'
"#ere are simi,ar (ra)d %on%erns in re,ation to t#e p,at(orm providers t#emse,ves*
in%,)din& t#e met#od o( a%%o)ntin& (or investor ()nds i( intermediaries are permitted to
%o,,e%t and #o,d %ontri+)tions +e(ore t#ey are passed on to t#e iss)er'
"#e pro+,em o( dete%tin& (ra)d may +e a%%ent)ated +y t#e re,ative,y ,o$ ,oss t#at mi&#t
+e s)((ered +y many investors* individ)a,,y* $#o may pre(er to B$rite o((/ t#e ,oss* rat#er
t#an seek to #ave t#e %ond)%t o( t#e iss)er or intermediary investi&ated' In t#is sense* t#ere
94
7#i,e o)tside t#e s%ope o( t#is revie$* intermediaries may +e re<)ired to identi(y parti%),ar matters to
AFS":AC'
9
See* (or instan%e* www.thecrowdcafe.comDdue@di#igence@di#emma'
<n"ine fundraising
may +e ,ess se,(-po,i%in& o( %ro$d so)r%ed e<)ity ()nded %ompanies t#an o( ot#er
%ompanies* yet t#e potentia, (or (ra)d may +e t#e same'
A ()rt#er o+sta%,e to t#e dete%tion o( (ra)d $o),d +e any ,a%k o( transparen%y and
reportin& o+,i&ations on iss)ers in respe%t o( t#e )se o( ()nds raised' It $o),d make it
#arder (or investors in t#ese %ir%)mstan%es to determine $#et#er t#e (ai,)re o( t#e
enterprise $as d)e to a poor +)siness mode, or t#e mis)se o( ()nds +y t#e iss)er'
"#e risk o( (ra)d a,so raises <)estions %on%ernin& t#e re%overy ri&#ts t#at investors s#o),d
#ave* and a&ainst $#om* in t#e event t#at investors ,ose money t#ro)&# misappropriation'
<ther risks
Apart (rom (ra)d* t#ere are %on%erns t#at investors may not (),,y )nderstand t#e risks
asso%iated $it# t#eir CS98 investment'
"#ere is norma, +)siness risk* name,y t#at a proCe%t may (ai, +e%a)se o( an )ns)ita+,e
+)siness mode, or t#ro)&# an )nanti%ipated %#an&e o( e0terna, %ir%)mstan%es t#at
)ndermines t#e via+i,ity o( t#e proCe%t' "#is risk may +e a%%ent)ated $it# start-)p or sma,,
+)sinesses* $#et#er operatin& in A)stra,ia or in ot#er C)risdi%tions* $#i%# are t#e entities
most ,ike,y to )ti,ise CS98* i( avai,a+,e' 8or instan%e* vario)s st)dies re(erred to +y t#e FS
Se%)rities and 90%#an&e Commission 1S9C2 #ave indi%ated a #i&# (ai,)re rate in t#e FSA
$it# s)%# +)sinesses* in%,)din& a st)dy t#at indi%ated t#at o( some 2*000 FS %ompanies
$#i%# re%eived at ,east O1 mi,,ion in ()ndin& (rom vent)re %apita, in t#e period (rom 2004
to 2010* a,most t#ree-<)arters o( t#em (ai,ed' "#e S9C o+served t#at.
"#ese (ai,)re rates are #i&#* despite t#e invo,vement o( sop#isti%ated investors ,ike
Lvent)re %apita,istsM t#at are ,ike,y +etter e<)ipped t#an t#e avera&e retai, investor to
dea, $it# )n%ertainty and risk asso%iated $it# investments in start)ps and t#at
&enera,,y spe%ia,iDe in se,e%tin& (irms $it# &ood prospe%ts* #ave dire%t a%%ess to
mana&ement* #ave +oard representation and #ave at ,east some de&ree o( %ontro, over
operatin& de%isions'
96
8)rt#ermore* a%%ordin& to t#e S9C.
Be%a)se $e e0pe%t t#at iss)ers t#at $o),d en&a&e in o((erin&s made in re,ian%e on
LCS98M $o),d potentia,,y +e in an ear,ier sta&e o( +)siness deve,opment t#an t#e
+)sinesses in%,)ded in t#e a+ove st)dies* $e +e,ieve t#at iss)ers t#at en&a&e in
LCS98M may #ave #i&#er (ai,)re rates t#an t#ose in t#e st)dies %ited a+ove'
97
Anot#er %ommentary re(ers to market inte,,i&en%e indi%atin& t#at t#ere is a 0P %#an%e o(
a start-)p (o,din& in t#e (irst years o( its e0isten%e'
98
5t#er risks a,so app,y* parti%),ar,y in t#e %onte0t o( CS98' "#ey in%,)de t#at.
CS98 investments are ,ike,y to +e o((ered +y iss)ers $#o #ave (o)nd it di((i%),t to
raise %apita, t#ro)&# more traditiona, means* s)%# as ,oans (rom (inan%ia, instit)tions
or (rom Ban&e,/ investors' "#is di((i%),ty may o(ten +e d)e to t#e #i&#-risk nat)re o(
t#e +)siness mode, andNor poor %redit$ort#iness o( t#e iss)er' "#is means t#at CS98
investments may +e in#erent,y riskier t#an investments in start-)ps &enera,,y* $#i%#*
as indi%ated a+ove* are a,ready a #i&#-risk (orm o( investment' Investors t#ere(ore
%o),d ,ose a,, or most o( t#eir investment* even i( t#e iss)er is a%tin& in %omp,ete &ood
(ait# and in %omp,ian%e $it# a,, dis%,os)re and ot#er ,e&a, re<)irements* &iven t#e
96
S9C 4roposed Cro$d()ndin& :),es )nder "it,e III o( t#e >5BS A%t 15%to+er 201!2 L17 C8: 4arts 200*
227* 2!2* 2!9* 240 and 249U :e,ease Nos' !!-9470U !4-70741U 8i,e No' S7-09-1!* :IN !2!-A?!7M at !!'
97
i+id'
98
I5SC5* Crowd1funding% An )nfant )ndustry 9rowing 5ast 18e+r)ary 20142 at 10'
<n"ine fundraising
#i&# (ai,)re rate o( start-)p +)sinesses &enera,,y and t#e possi+,e varian%e (rom t#e
traditiona, +)siness mode, )nder CS98
dependin& )pon t#e app,i%a+,e ,a$s* CS98 o((ers may not #ave to )nder&o t#e same
,eve, o( d)e di,i&en%e* and dis%,os)re* as t#at invo,ved in* say* a (),, prospe%t)s-+a%ked
o((er' "#ese ,o$er standards may a,so ,imit t#e ri&#ts o( re%o)rse +y investors a&ainst
t#e iss)er or t#e internet intermediary
e<)ity in sma,, start-)ps ()nded t#ro)&# CS98 are <)ite ,ike,y to +e very i,,i<)id* $it#
,itt,e or no se%ondary market in $#i%# to se,, t#em* at ,east in t#e s#ortNmedi)m term'
Investors may t#ere(ore (ind t#at t#ey are )na+,e to $it#dra$ (rom t#e enterprise and
re%over even a part o( t#eir %apita, investment' S#are-+ased investments may a,so
&enerate no dividends (or a ,on& period o( time* i( at a,,' As o+served in an I5SC5
paper.
3enera,,y* t#e on,y rea,isti% %#an%e an investor #as o( ,i<)idatin& t#eir #o,din& in a
start-)p investment is i( t#e %ompany s)rvives )nti, a p)+,i% (,oat' B)t t#e pro+a+i,ity
to do t#is is not #i&# &iven t#e #i&# attrition rate amon& start-)p %ompanies'
99
in addition to t#e ,a%k o( ,i<)idity* e<)ity a%<)ired t#ro)&# CS98 may +e very di((i%),t
to va,)e' "#e ear,y sta&e o( t#e +)sinesses* t#e si&ni(i%ant portion o( t#e va,)e +ein& in
intan&i+,e* t#e ,a%k o( e<)iva,ent transparen%y o( p)+,i% %ompanies and t#e ,a%k o( any
se%ondary market* present maCor di((i%),ties to proper,y va,)in& t#at e<)ity' In CS98
arran&ements t#ere $o),d +e no )nder$riter to va,)e t#e o((er 1%ompared $it#
prospe%t)s-+ased o((ers2 and t#e iss)er may not +e ski,,ed in va,)ation' In t#is type o(
opa<)e and i,,i<)id environment it may a,so +e e0treme,y di((i%),t to determine
$#et#er t#e )se o( ()nds raised #as +een in t#e +est interests o( investors
i( ()rt#er e<)ity is iss)ed +y t#e iss)er a(ter a CS98 e0er%ise is %omp,eted* any ret)rns
to e0istin& investors may +e materia,,y di,)ted as $e,, as red)%in& any market va,)e o(
t#e s#ares'
"#e (inan%ia, risks in CS98 may +e a%%ent)ated (or investors $it# re,ative,y ,itt,e %apita,
$ea,t# and ,o$er in%omes* $#o may t#ere(ore +e parti%),ar,y a((e%ted +y #avin& t#eir
investments in i,,i<)id assets' It is ,ike,y* (or instan%e* t#at yo)n&er investors may &et
dra$n to CS98 simp,y +e%a)se o( its ,ink to so%ia, media and t#e internet' "#ese investors
typi%a,,y #ave ,ess dis%retionary ()nds t#at t#ey %o),d a((ord to ,ose and ,ess e0perien%e in
assessin& t#e via+i,ity o( investments' "#is is espe%ia,,y so i( t#ey see CS98 as a s)+stit)te
(or more traditiona, ,i<)id investments* s)%# as e0%#an&e-traded se%)rities'
"#ere is a,so t#e pro+,em t#at )nin(ormed and %ommer%ia,,y )nsop#isti%ated investors
may a%t $it# a B#erd menta,ity/ and* seein& t#at ot#er peop,e #ave invested* possi+,y rea%#
t#e (a,se %on%,)sion t#at some re,ia+,e independent assessment o( t#e via+i,ity o( t#e iss)er
o((erin& CS98 #as +een )ndertaken and t#at t#e investment is &ood va,)e (or money'
A $e,,-r)n intermediary t#at e0er%ises d)e di,i&en%e +e(ore #ostin& iss)ers on its on,ine
p,at(orm %o),d* t#ro)&# t#is si(tin& pro%ess* provide some %om(ort to investors $#o may
ot#er$ise ,a%k t#e %on(iden%e and dept# o( kno$,ed&e to invest' -o$ever* no amo)nt o(
d)e di,i&en%e %an provide any (orm o( &)arantee o( t#e %ommer%ia, s)%%ess o( an iss)er'
99
id at !7'
<n"ine fundraising
A1.2.! 1u,#ic funding ,ut private contro#
It is ,ike,y t#at t#e promoter o( a start-)p or ot#er enterprise seekin& %apita, (or a proCe%t
t#ro)&# CS98 $i,, nevert#e,ess seek to remain in %ontro, o( t#e enterprise 1on t#e
ar&)ment t#at t#e promoter is t#e party $it# t#e Bvision/ and t#e ski,,s to make it
s)%%ess(),2 and may $ant to re%eive a Bpremi)m/ (rom any pro(its &enerated 1on t#e
ar&)ment t#at t#is re(,e%ts t#e B(inan%ia, va,)e/ o( t#e proCe%t idea* over and a+ove t#e
%apita, %ontri+)ted (rom t#e p)+,i%2'
"#is o)t%ome %an +e a%#ieved t#ro)&# vario)s means' 8or instan%e* in t#e A)stra,ian
%onte0t* a promoter may esta+,is# a proprietary or p)+,i% )n,isted %ompany as t#e iss)er*
$it# vario)s %,asses o( e<)ity' "#e promoter may #o,d one %,ass o( e<)ity in t#e iss)er*
$it# CS98 investors +ein& o((ered interests in a di((erent %,ass o( e<)ity in t#e iss)er'
100
"#e %,ass o( e<)ity #e,d +y t#e promoter may #ave votin&* dividend andNor ot#er ri&#ts
$#i%# are not avai,a+,e to t#e %,ass o( e<)ity #e,d +y CS98 investors'
101
"#ere is no
e<)iva,ent in t#is sit)ation o( t#e one s#are one vote prin%ip,e t#at app,ies to ,isted p)+,i%
%ompanies'
102
"#e promoter may a,so set )p (avo)ra+,e rem)neration arran&ements (or
mana&in& t#e %ompany* and entren%#in& t#ose +ene(its t#ro)&# t#e %,ass votin& ri&#ts'
10!
"#is (orm o( (avo)ra+,e arran&ement (or t#e promoter may not +e possi+,e $#ere a
promoter seeks %apita, (rom Ban&e,/ or ot#er private investors' In t#at sit)ation* private
investors may re<)ire t#at t#ey 1not t#e promoter2 re%eive pre(erentia, s#are ri&#ts as a
%ondition o( providin& t#e ()nds* in%,)din& t#at t#ey %ontro, rem)neration arran&ements
(or t#e promoter 1and ot#er %orporate o((i%ers2 o( t#e iss)er and %an in(,)en%e or determine
t#e &enera, dire%tion o( t#e +)siness' "#ese private investors may a,so seek to ens)re t#at
t#eir ri&#ts %annot +e di,)ted* even $#ere t#e %ompany seeks ()rt#er (inan%in&'
"#ere is no e<)iva,ent in CS98 o( t#is ne&otiation pro%ess +et$een iss)ers and private
investors' 4)+,i% investors may simp,y +e o((ered an investment in a parti%),ar %,ass o(
e<)ity in t#e iss)er' "#ere is no o+vio)s me%#anism +y $#i%# potentia, CS98 investors
%o),d %o,,e%tive,y +ar&ain $it# t#e promoter in t#e same $ay as private investors to
a%#ieve ri&#ts arisin& (rom t#eir investment and to prote%t t#ose ri&#ts (rom any attempted
s)+se<)ent di,)tion'
"#is di((eren%e +et$een private and p)+,i% ()ndraisin& raises t#e <)estion o( a%#ievin& t#e
proper +a,an%e in t#e CS98 %onte0t +et$een re$ardin& t#e promoter o( t#e proCe%t and
re$ardin& t#e %apita, %ontri+)tors' "#ere is t#e possi+i,ity t#at a promoter* +y #o,din& a
%ertain %,ass o( e<)ity* as $e,, as remainin& in (),, %ontro, o( t#e iss)er* may a,so re%eive
m)%# o( t#e ()nds %ontri+)ted +y CS98 investors 1+y $ay o( t#e rem)neration
arran&ements (or mana&in& t#e %ompany2 and +e entit,ed to a disproportionate amo)nt o(
any pro(it on t#e proCe%t' It is possi+,e t#at p)+,i% investors* $it# a di((erent %,ass o(
e<)ity* may in some %ases re%eive ,itt,e tan&i+,e ret)rn* even $#en t#e proCe%t is
%ommer%ia,,y s)%%ess(),' S)%# an o)t%ome may a,so red)%e t#e va,)e o( t#e %,ass o(
e<)ity #e,d +y t#e p)+,i% investors'
100
"#is in%,)des t#e sit)ation $#ere investors #o,d a +ene(i%ia, interest in t#e %,ass o( e<)ity in %onse<)en%e
o( a mana&ed investment s%#eme +ein& interposed +et$een t#e iss)er and t#e investor. see Se%tion 2'!'2 and
Se%tion A2'1'4 o( t#is report'
101
"#e ri&#ts atta%#ed to t#e %,ass o( e<)ity #e,d +y t#e promoter $o),d +e s)pported +y t#e ,e&is,ative
%ontro,s )nder 4art 28'2 o( t#e Corporations A%t %on%ernin& variation o( %,ass ri&#ts'
102
ASZ ?istin& :),e 6'9'
10!
In re&ard to t#e pro%ess (or esta+,is#in& rem)neration arran&ements* see ()rt#er Se%tion 2'2'1 o( t#e
CAMAC report $,ecutive remuneration 1Apri, 20112'
<n"ine fundraising
A1.2.% )$perience with CS)*
"o date* t#ere #as +een ,itt,e e0perien%e internationa,,y $it# CS98' A n)m+er o( initiatives
are )nder$ay in some C)risdi%tions to (a%i,itate CS98 t#ro)&# adC)stment to t#eir
re&),atory str)%t)res' -o$ever* no re,ia+,e data on t#e overa,, e%onomi% %onse<)en%es o(
CS98 in parti%),ar C)risdi%tions* or t#e %ostN+ene(its o( parti%),ar CS98 re&),atory mode,s*
is as yet avai,a+,e' As o+served in an I5SC5 paper.
"#ere are very (e$ e<)ity %ro$d-()ndin& p,at(orms* $it# t#e maCority (o%)sin& on
an&e, investors or sop#isti%ated investors d)e to re&),atory re<)irements' "#ere is no
data on t#e overa,, market siDe or &ro$t# rates re,atin& so,e,y to e<)ity %ro$d-()ndin&
d)e to so (e$ p,at(orms operatin& in t#is area'
104
8)rt#ermore* t#e ,ike,y ,eve, o( investor parti%ipation in CS98* +ein& t#e key e,ement on
$#i%# t#e s)%%ess o( t#is (orm o( ()ndraisin& (or iss)ers depends* %annot yet +e &a)&ed'
"#e I5SC5 paper %on%,)des t#at CS98 does not pose an immediate systemi% risk* t#o)&#
it does raise si&ni(i%ant investor prote%tion iss)es* parti%),ar,y in re,ation to retai,
investors.
9<)ity %ro$d-()ndin& is a parti%),ar,y sma,, market' "#o)&# t#e risks posed +y t#is
ind)stry are #i&#* t#ey are %)rrent,y on,y posed to a (e$ investors* most o( $#om are
sop#isti%ated investors d)e to t#e stron& re&),ation s)rro)ndin& t#e iss)an%e o( t#is
type o( e<)ity' "#ese investors s#o),d a,ready )nderstand t#is type o( investment* and
+e a+,e to a+sor+ any ,osses' 4ro+,ems %o),d arise as t#is market opens )p to retai,
investors' Sma,, investors may ,a%k t#e e0perien%e to dea, $it# t#e pro+,ems
asso%iated $it# start-)p %ompanies or i,,i<)id investments* %reatin& a #i&# risk o(
insta+i,ity and raisin& investor prote%tion iss)es' "#ese risks %o),d in%rease as t#e
ind)stry e0pands t#ro)&# t#e )se o( e0emptions' ?ess dis%,os)re o( in(ormation +y
iss)ers %o),d in%rease t#e risk o( (ra)d' C)rrent,y t#e stri%t re&),ation s)rro)ndin& t#is
(orm o( %ro$d-()ndin& prevents t#e ind)stry (rom posin& a systemi% risk and
miti&ates some o( t#e investor prote%tion iss)es' "#e ind)stry a,so a%%o)nts (or a tiny
per%enta&e o( t#e overa,, iss)an%e o( e<)ity'
10
104
I5SC5* Crowd1funding% An )nfant )ndustry 9rowing 5ast 18e+r)ary 20142 at !6'
10
id at 4'
Appendi$ 2 Austra#ia
This Appendi, out"ines the current corporate fundraising regu"atory structure as it app"ies
to issuers intermediaries and investors!
A2.1"ssuers
A2.1.1 .verview
"#e promoter o( a parti%),ar proCe%t %o),d set )p a proprietary or p)+,i% %ompany
106
1t#e
iss)er2 (or t#at p)rpose* and $it# a vie$ to investment opport)nities in t#at proCe%t +ein&
p)+,i%ised t#ro)&# one or more on,ine intermediaries'
Investors %o),d +e o((ered e<)ity in t#e iss)er itse,(' -o$ever* as e0p,ained in t#is se%tion*
di((i%),ties %an arise i( a CS98 me%#anism is to +e )sed (or t#at p)rpose* in%,)din& t#at t#e
a+i,ity o( a proprietary %ompany to %ond)%t any (orm o( ()ndraisin& invo,vin& t#e p)+,i% is
very restri%ted'
An a,ternative approa%# $o),d +e to esta+,is# a mana&ed investment s%#eme as an
interposed ,e&a, str)%t)re +et$een t#e iss)er and t#e investor* $it# investors a%<)irin&
interests in t#e s%#eme rat#er t#an e<)ity in t#e iss)er* and t#eir ()nds +ein& %#anne,,ed to
t#e iss)er )nder t#e terms o( t#e s%#eme'
A2.1.2 The proprietary company structure
"#e +ene(it to t#e promoter o( %#oosin& to operate as a proprietary %ompany is t#at* in
&enera,* t#is %orporate str)%t)re is easier to administer* and invo,ves si&ni(i%ant,y ,ess
%omp,ian%e time and %osts* t#an a p)+,i% %ompany'
8or instan%e* a sma,, proprietary %ompany
107
#as to prepare and distri+)te reports to
s#are#o,ders on,y in ,imited %ir%)mstan%es* in%,)din& at t#e dire%tion o( a t#res#o,d o( its
mem+ers'
108
A ,ar&e proprietary %ompany
109
#as some$#at &reater reportin& re<)irements
to s#are#o,ders'
110
-o$ever* neit#er (orm o( proprietary %ompany is s)+Ce%t to t#e same
,eve, o( on&oin& dis%,os)re* (inan%ia, %ontro,* reportin& and ot#er %omp,ian%e re<)irements
t#at app,y to p)+,i% %ompanies 1see +e,o$2'
"#e ,e&is,ative Btrade-o((/ (or red)%ed %omp,ian%e re<)irements are restri%tions to ens)re
t#at t#e proprietary %ompany str)%t)re is essentia,,y )sed (or private or B%,ose,y #e,d/
s#are#o,der arran&ements* not invo,vin& p)+,i% parti%ipation' "#e t$o prin%ipa,
restri%tions to a%#ieve t#is are.
t"e s"are"older cap% a proprietary %ompany may #ave no more t#an 0 non-emp,oyee
s#are#o,ders
111
106
Any %ompany ot#er t#an a proprietary %ompany m)st +e a p)+,i% %ompany. see de(inition o( Bp)+,i%
%ompany/ in s 9' "#is paper does not dea, $it# $#et#er ()rt#er spe%i(i% %orporate (orms s#o),d +e introd)%ed in
some sit)ations* s)%# as t#e FG B%omm)nity interest %ompany/* desi&ned (or so%ia, enterprises seekin& to )se
t#eir pro(its and assets (or t#e p)+,i% &ood* or t#e %ompara+,e FS B+ene(it %orporation/'
107
s 4A122' "#is is a %om+ined reven)eNassetsNn)m+er o( emp,oyees test'
108
ss 292122* 1!2* 29!-294B'
109
s 4A1!2-162' "#is is a %om+ined reven)eNassetsNn)m+er o( emp,oyees test'
110
s 2921121%2'
111
s 11!112'
Austra"ia
t"e pro"ibition on public offers% a proprietary %ompany is &enera,,y pro#i+ited (rom
en&a&in& in any p)+,i% o((er o( its e<)ity or ot#er se%)rities'
112
"#ere are vario)s e0emptions (rom t#e pro#i+ition on p)+,i% o((ers* in%,)din& t#e
sma,,-s%a,e persona, o((ers e0emption 1$#ere+y an iss)er may make a persona, e<)ity
investment o((er to investors* provided t#at no more t#an O2 mi,,ion is raised in any
12 mont# period (rom no more t#an 20 A)stra,ian resident investors*
11!
and any n)m+er o(
o((s#ore investors
114
2* t#o)&# t#ere is a +an on advertisin& sma,,-s%a,e persona, o((ers'
11
Some re,a0ation o( t#ose %onstraints #as +een provided'
116
"#ere are a,so e0emptions (or
o((ers to sop#isti%ated* e0perien%ed or pro(essiona, investors*
117
overseas investors
118
and
(or ,ar&e o((ers
119
1app,i%a+,e to proprietary as $e,, as p)+,i% %ompanies2' -o$ever* none
o( t#ese e0emptions a%%ommodate t#e type o( ()ndraisin& invo,vin& potentia,,y many
investors $#i%# is %ontemp,ated +y CS98'
"#e %onse<)en%e is t#at t#e s#are#o,der %ap and t#e pro#i+ition on p)+,i% o((ers %)rtai, t#e
%apa%ity o( iss)ers in%orporated as proprietary %ompanies to o((er e<)ity in t#eir
%ompanies t#ro)&# on,ine-+ased CS98'
A2.1. The pu,#ic company structure
"#e +ene(it to t#e promoter o( %#oosin& to operate as a p)+,i% %ompany is t#at t#ere is no
e<)iva,ent o( t#e s#are#o,der %ap and pro#i+ition on makin& p)+,i% o((ers t#at app,y to
proprietary %ompanies'
-o$ever* )se o( t#e )n,isted
120
p)+,i% %ompany %orporate str)%t)re is s)+Ce%t to.
fundraisin disclosure re0uirements% an o+,i&ation to provide a prospe%t)s or o((er
in(ormation statement 15IS2 $#en seekin& ()ndin& t#ro)&# p)+,i% o((ers o( e<)ity in
t#e %ompany* $it# t#e vario)s e0emptions 1sma,,-s%a,e persona, o((ers* o((ers to
sop#isti%ated investors and ,ar&e o((ers2 not s)((i%in& (or t#e siDe and type o( tar&et
a)dien%e typi%a,,y %ontemp,ated )nder CS98
112
Fnder s 11!1!2* proprietary %ompanies are pro#i+ited (rom any a%tivity t#at $o),d re<)ire a prospe%t)s or
ot#er dis%,os)re to investors )nder C#apter 6; 18)ndraisin&2 o( t#e Corporations A%t' "#ere are e0%eptions (or
an o((er o( s#ares to e0istin& s#are#o,ders and emp,oyees o( t#e %ompany or o( a s)+sidiary'
11!
s 708112-172' A persona, o((er is one t#at may on,y +e a%%epted +y t#e person to $#om it is made* and is
made to a person $#o is ,ike,y to +e interested in t#e o((er* #avin& re&ard to a previo)s persona,* pro(essiona, or
ot#er re,ations#ip or a statement made t#at t#e person re%eivin& t#e o((er $o),d +e interested in an o((er o( t#at
kind'
114
Fnder s 708121+2* in %o)ntin& t#e iss)es and sa,es (or t#e p)rposes o( t#e sma,, s%a,e o((erin&s )nder
s 708* it is permitted to disre&ard o((ers t#at are not re%eived in A)stra,ia' "#is means t#at in addition to t#e 20
persona, o((ers* an iss)er %an iss)e se%)rities to investors ,o%ated o((s#ore* t#o)&# t#e iss)er and t#e
intermediary $o),d need to meet t#e o((s#ore C)risdi%tion/s re<)irements (or makin& o((ers in t#at C)risdi%tion'
11
s 7!4112'
116
ASIC C,ass 5rder 02N27! /usiness )ntroduction and Matching (ervices permits )p to Om to +e raised in
some %ir%)mstan%es* $it# t#e restri%tions on advertisin& a sma,,-s%a,e o((er a,so +ein& re,a0ed' -o$ever* t#e
%ei,in& o( 20 investors in any 12 mont# period remains'
117
"#e e0emption app,ies to o((ers to a sop#isti%ated investor 1+ein& an individ)a, $it# net assets o( at ,east
O2' mi,,ion or $it# a &ross in%ome (or ea%# o( t#e ,ast t$o (inan%ia, years o( at ,east O20*000. Corporations
:e&),ations re& 6;'2'0!2* to o((ers t#ro)&# a (inan%ia, servi%es intermediary to an e0perien%ed investor* to a
pro(essiona, investor* or to a senior mana&er o( t#e %ompany. s 708182-1122'
118
"#is is t#e e((e%t o( s 708121+2'
119
"#e e0emption app,ies $#ere t#e minim)m amo)nt paya+,e on t#e se%)rities +y t#e person to $#om t#e
o((er is made is at ,east O00*000. s 7081821a2* 1+2'
120
?isted p)+,i% %ompanies are not t#e types o( entities t#at are ,ike,y to )ti,ise CS98* &iven t#at t#ey are
a,ready s)((i%ient,y esta+,is#ed to satis(y t#e ,istin& re<)irements and t#eir ot#er options to raise ()nds
1in%,)din& t#ro)&# ne$ or pro rata ri&#ts iss)es* emp,oyee s#are p)r%#ase and dividend reinvestment p,ans and
se%)rities p,a%ements to instit)tiona, or sop#isti%ated investors2' ?isted p)+,i% %ompanies $i,, not +e ()rt#er
%onsidered in t#is paper'
Austra"ia
compliance re0uirements% t#e on&oin& %orporate &overnan%e and (inan%ia, reportin&
re<)irements (or p)+,i% %ompanies* e0tend $e,, +eyond t#ose app,i%a+,e to proprietary
%ompanies'
(undraisin disclosure re0uirements
An )n,isted p)+,i% %ompany %o),d o((er its e<)ity t#ro)&# CS98 +y p)+,i%ation o( an 5IS
i( t#e amo)nt o( %apita, to +e raised +y iss)in& t#e e<)ity* $#en added to a,, amo)nts
previo)s,y raised +y t#e +ody or ot#er re,ated +odies* does not e0%eed O10 mi,,ion'
121
"#e
pres%ri+ed %ontent o( an 5IS* $#i,e si&ni(i%ant,y ,ess t#an (or a prospe%t)s 1see +e,o$2*
in%,)des a re<)irement (or an a)dited* )p to date (inan%ia, report* $#i%# may +e a prin%ipa,
reason (or t#e ,imited )se o( 5ISs'
122
In ot#er %ir%)mstan%es* an )n,isted p)+,i% %ompany %o),d o((er its e<)ity t#ro)&# CS98 +y
p)+,i%ation o( a prospe%t)s'
A prospe%t)s is a dis%,os)re do%)ment* to +e prepared +y t#e e<)ity iss)er*
12!
and settin&
o)t detai,ed in(ormation a+o)t t#e iss)er and t#e e<)ity +ein& iss)ed' "#e rationa,e +e#ind
t#e re<)irement (or a prospe%t)s* or 5IS* is t#at s#ares* #ave no in#erent va,)e +)t are
dependent on t#eir %apita,* dividend and ot#er ri&#ts* $#i%# in t)rn are dependent on t#e
va,)e and via+i,ity o( t#e %ompany'
"#e dis%,os)re re<)irements (or a (),, or s#ort-(orm prospe%t)s
124
in%,)de in(ormation t#at
investors reasona+,y re<)ire to make an investment de%ision* on t#e +asis o( an in(ormed
assessment a+o)t.
t#e ri&#ts and ,ia+i,ities atta%#in& to t#e se%)rities o((ered* and
t#e assets* ,ia+i,ities* (inan%ia, position and per(orman%e* pro(its and ,osses and
prospe%ts o( t#e %ompany iss)in& t#e se%)rities'
12
"#is in(ormation is re<)ired to t#e e0tent t#at Ba person $#ose kno$,ed&e is re,evant/
eit#er kne$ t#e in(ormation or in t#e %ir%)mstan%es o)&#t reasona+,y to #ave o+tained t#e
in(ormation +y makin& en<)iries'
126
"#is &enera, dis%,os)re test is in +road* non-pres%riptive terms' In %onse<)en%e* ,ar&er
entities $it# %omp,e0* esta+,is#ed +)sinesses $i,, &enera,,y need to provide <)ite
e0tensive in(ormation' -o$ever* t#e test #as t#e +ene(it o( +ein& (,e0i+,e' A start-)p entity
$it# a simp,e +)siness mode, may #ave ,ess in(ormation to dis%,ose and %o),d prepare a
prospe%t)s re,ative,y easi,y and ine0pensive,y'
ASIC may a,so approve t#e )se o( a pro(i,e statement* provided it states t#at t#e re%ipient
o( t#e statement is entit,ed to a %opy o( t#e prospe%t)s'
127
In pra%ti%e* pro(i,e statements are
rare,y )sed'
"o +etter ens)re t#e re,ia+i,ity o( t#e in(ormation in a prospe%t)s or 5IS do%)ment* vario)s
parties may +e s)+Ce%t to %ivi, or %rimina, ,ia+i,ity i( t#at do%)ment %ontains a materia,,y
121
s 709142'
122
s 71'
12!
s 700122*1!2'
124
ss 710-71!'
12
s 710112'
126
"#e %on%ept o( Ba person $#ose kno$,ed&e is re,evant/ in%,)des. t#e person makin& t#e o((er* t#e dire%tors
o( t#e o((eror* any )nder$riter named in t#e dis%,os)re do%)ment* any persons named in t#e prospe%t)s $it#
t#eir %onsent as #avin& per(ormed a parti%),ar pro(essiona, or advisory ()n%tion and any person named in t#e
prospe%t)s as a (inan%ia, servi%es ,i%ensee invo,ved in t#e o((er. s 7101!2'
127
ss 709122* 1!2* 714'
Austra"ia
mis,eadin& statement or omission'
128
A n)m+er o( de(en%es app,y* in%,)din& d)e di,i&en%e
in preparin& a prospe%t)s'
129
An iss)er is a,so o+,i&ed to &ive prospe%tive investors
additiona, dis%,os)re i( t#e ori&ina, do%)ment $as mis,eadin& or a ne$ %ir%)mstan%e arises
t#at $o),d #ave re<)ired dis%,os)re at t#e time o( t#e ori&ina, dis%,os)re do%)ment'
1!0
Eario)s parties a,so #ave an on&oin& o+,i&ation d)rin& t#e o((er period to noti(y t#e
%ompany makin& t#e o((er i( t#ey +e%ome a$are t#at t#e dis%,os)re is de(e%tive'
1!1
"#e operator o( a CS98 $e+site a%tin& on,y as an intermediary $o),d +e s)+Ce%t to
,ia+i,ity (or a de(e%tive dis%,os)re do%)ment on,y i( it $as invo,ved in t#e %ontravention'
"#e dis%,os)re do%)ment* $#et#er a prospe%t)s or a prod)%t dis%,os)re statement* %an +e
provided e,e%troni%a,,y in %omp,ian%e $it# t#e Corporations A%t' 9,e%troni% dis%,os)re
t#ro)&# t#e internet or ot#er e,e%troni% distri+)tion %#anne,s o( dis%,os)re do%)ments
$o),d +e appropriate (or CS98'
1!2
Compliance re0uirements
A ran&e o( &enera, %omp,ian%e o+,i&ations app,y to p)+,i% %ompanies* &iven t#at t#ey may
invo,ve p)+,i% parti%ipation' "#ese o+,i&ations %over vario)s matters* in%,)din&.
mandatory openin& #o)rs (or t#e re&istered o((i%e o( t#e %ompany
1!!
1!4
ann)a, &enera, meetin&s
1!
(inan%ia, and ot#er reportin&
1!6
appointment o( an a)ditor
1!7

%ontin)o)s dis%,os)re (or a p)+,i% %ompany t#at is a dis%,osin& entity
1!8
%#an&e o( s#are#o,der %ontro, sit)ations'
1!9
128
ss 728* 729'
129
s 7!1' 5t#er de(en%es are (o)nd in ss 7!2* 7!!'
1!0
s 7241121%2* 1d2' I( a misstatement or omission is materia,* t#e %ompany m)st &enera,,y &ive investors
%orre%tive dis%,os)re and 1 mont# to re<)est a re()nd. s 724122'
1!1
s 7!0'
1!2
ASIC :e&),atory 3)ide 107* 5undraising% 5aci"itating e"ectronic offers of securities!
1!!
s 14'
1!4
s 207'
1!
s 20N'
1!6
Fnder 4art 2M'! o( t#e Corporations A%t* vario)s types o( p)+,i% %ompanies are s)+Ce%t to periodi%
reportin& o+,i&ations* in%,)din& to prepare and ,od&e a)dited (inan%ia, statements'
1!7
s !27A'
1!8
Fn,isted %ompanies t#at #ave raised ()nds (rom at ,east 100 persons )sin& a dis%,os)re do%)ment ,od&ed
$it# ASIC )nder C#apter 6; o( t#e Corporations A%t are dis%,osin& entities. ss 111AC112* 111A8' "#ese
dis%,osin& entities #ave %ontin)o)s dis%,os)re o+,i&ations* %on%ernin& in(ormation t#at reasona+,y $o),d #ave a
materia, e((e%t on t#e pri%e or va,)e o( t#e %ompany/s se%)rities' "#ese entities m)st ,od&e t#eir %ontin)o)s
dis%,os)re anno)n%ements $it# ASIC or on t#eir $e+sites. s 67* ASIC :e&),atory 3)ide 198 &n"isted
disc"osing entities% Continuous disc"osure ob"igations' "#ere are no e<)iva,ent dis%,os)re o+,i&ations (or
proprietary %ompanies'
1!9
By virt)e o( s 6061121a21ii2* an )n,isted %ompany $it# more t#an 0 mem+ers %omes $it#in t#e app,i%ation
o( C#apter 6 1"akeovers2 o( t#e Corporations A%t'
Austra"ia
A2.1.! The managed investment scheme structure
!ossible arranements
As an a,ternative to investors +ein& o((ered t#e opport)nity to a%<)ire e<)ity in t#eir iss)er
in o$n name* t#ey %o),d +e invited to +)y interests
140
in a mana&ed investment s%#eme*
$#i%# $o),d a%<)ire t#ose se%)rities' "#e s%#eme* in e((e%t* $o),d +e an interposed ,e&a,
arran&ement +et$een t#e iss)er and t#e investor'
Fnder one approa%#* t#e responsi+,e entity 1:92 o( t#e s%#eme $o),d )se t#e ()nds raised
(rom t#e investors to a%<)ire eit#er e<)ity in a parti%),ar iss)er* $it# t#e a%<)ired e<)ity
+ein& s%#eme property and t#ere(ore +ein& #e,d +y t#e :9 on tr)st (or t#e investors $#o
are s%#eme mem+ers'
141
Fnder a ,oan arran&ement* t#e iss)er $o),d pay interest 1and
%apita, repayments2 to t#e :9* (or distri+)tion to t#e investors' Fnder a s#are arran&ement*
t#e iss)er $o),d pay dividends to t#e :9* (or distri+)tion to t#e investors'
Fnder anot#er approa%#* a s%#eme %o),d +e str)%t)red so t#at investors %an e,e%t $#i%#
(rom a n)m+er o( proCe%ts t#ey $ant to s)pport' "#ey $o),d t#en a%<)ire a spe%i(i% %,ass
o( interests in t#e s%#eme (or ea%# proCe%t or enterprise %#osen' A&ain* a,, e<)ity a%<)ired
$o),d +e #e,d +y t#e :9* on tr)st (or t#e investors $#o are s%#eme mem+ers'
A +ene(it to an iss)er o( CS98 )nder a mana&ed investment s%#eme arran&ement is t#at an
iss)er in%orporated as a proprietary %ompany %o),d re%eive investor ()nds* +)t $it#o)t t#e
s#are#o,der %ap pro+,em t#at $o),d arise i( investors t#emse,ves %o),d a%<)ire e<)ity in
t#e %ompany in t#eir o$n name' A,so* as t#e s%#eme 1not t#e proprietary %ompany2 $o),d
+e makin& o((ers to investors o( interests in t#e s%#eme* t#e pro#i+ition on proprietary
%ompanies makin& p)+,i% o((ers o( t#eir o$n se%)rities $o),d not app,y'
?ike$ise* t#is arran&ement $o),d a,,o$ an iss)er t#at is a p)+,i% %ompany to #ave (e$er
s#are#o,ders* &iven t#at a,, e<)ity a%<)ired )nder t#e investor poo,in& arran&ement $o),d
+e #e,d +y t#e :9'
7#et#er a mana&ed investment s%#eme arran&ement $o),d +e attra%tive to investors is
anot#er matter* &iven its interposition +et$een t#emse,ves and t#e iss)er' It is )n,ike,y to
&ive investors t#e same p#i,ant#ropi% or proprietary sense t#ey may #ave (rom #o,din&
e<)ity in t#e iss)er in t#eir o$n ri&#t' It may a,so not s)it investors $#o $is# to p,ay a
more a%tive ro,e t#ro)&# t#e e0er%ise o( s#are#o,din& ri&#ts'
#icensin re0uirements
A mana&ed investment s%#eme t#at re<)ires re&istration 1s)%# as one $#i%# #as many
p)+,i% investors t#ro)&# t#e operation o( CS982 %annot operate $it#o)t an :9* $#i%#
m)st +e a p)+,i% %ompany t#at #o,ds an A)stra,ian 8inan%ia, Servi%es ?i%en%e permittin&
it to operate t#e s%#eme'
142
5+,i&ations are imposed on :9s t#ro)&# t#is ,i%ensin& system*
in%,)din& t#at an :9 #as avai,a+,e ade<)ate (inan%ia,* #)man and te%#ni%a, reso)r%es*
ade<)ate risk mana&ement systems and an interna, disp)te reso,)tion pro%ess* is a mem+er
o( an e0terna, disp)te reso,)tion s%#eme 1e'&' 8inan%ia, 5m+)dsman Servi%es2 and #as
pro(essiona, indemnity ins)ran%e to provide t#e (inan%ia, servi%es %overed +y t#eir
,i%en%e'
14!
140
See s 9 de(inition o( Binterest/ in a mana&ed investment s%#eme'
141
s 6018C122'
142
s 6018A' "#e &enera, o+,i&ations o( ,i%ensees are set o)t in s 912A'
14!
See ASIC :e&),atory 3)ide 166 -icensing% 5inancia" requirements* 4ro 8orma 209 Austra"ian financia"
services "icence conditions 148 2092' "#e aim is to ens)re t#at :9s #ave ade<)ate reso)r%es to meet operatin&
%osts and t#ere is an appropriate a,i&nment $it# t#e interests o( s%#eme mem+ers'
Austra"ia
%isclosure re0uirements
In prin%ip,e* CS98 investors s#o),d +e &iven a%%)rate and re,ia+,e in(ormation a+o)t t#e
iss)er in $#i%# t#ey $i,, #ave an e%onomi% interest' "#is prin%ip,e s#o),d app,y $#et#er
t#e investor is to #o,d ,e&a, tit,e to e<)ity in an iss)er t#at is a p)+,i% %ompany or
a,ternative,y is to #o,d a +ene(i%ia, interest t#ro)&# a mana&ed investment s%#eme
arran&ement t#at poo,s investor ()nds to a%<)ire t#at e<)ity'
As indi%ated a+ove* any prospe%t)s or 5IS t#at investors $o),d re%eive i( t#ey dire%t,y
a%<)ired e<)ity in a p)+,i% %ompany $o),d #ave to +e prepared +y t#e iss)er* $it# ,ia+i,ity
(or misstatements atta%#in& to t#e iss)er and ot#ers re(erred to in t#ose do%)ments'
-o$ever* )nder a mana&ed investment s%#eme arran&ement* it is t#e :9 o( t#e s%#eme 1or
ot#er operator i( t#e s%#eme is not a re&istered s%#eme* (or e0amp,e +e%a)se it %omes
$it#in an e0emption2* not t#e iss)er* t#at #as t#e ,e&a, o+,i&ation to prepare a 4rod)%t
;is%,os)re Statement 14;S2 (or investors'
144
"#at di((eren%e #as t#e potentia, to red)%e t#e
,eve, o( dis%,os)re* and t#ere(ore t#e prote%tions* (or investors'
A 4;S prepared +y an :9 m)st %ontain any in(ormation o( $#i%# t#e :9 is a$are t#at
mi&#t reasona+,y +e e0pe%ted to #ave a materia, in(,)en%e on t#e de%ision o( a reasona+,e
retai, %,ient $#et#er to a%<)ire t#e interest in t#e s%#eme* ass)min& t#at t#e s%#eme is not
a simp,e mana&ed investment s%#eme'
14
An :9 t#at re(ers in its 4;S to parti%),ar e<)ity
as an investment t#at it $i,, make $o),d #ave to kno$ some in(ormation a+o)t t#at e<)ity*
in ,i&#t o( t#e :9/s &enera, d)ty o( %are and di,i&en%e* $#i%# $o),d app,y $#en makin&
investments'
146
-o$ever* t#is may not e<)ate to #avin& as m)%# kno$,ed&e as t#e iss)er
$o),d #ave'
7#ere t#e arran&ement +et$een t#e investor and t#e :9 is t#at t#e investor is* or is
entit,ed* to &ive an instr)%tion t#at a parti%),ar (inan%ia, prod)%t* or a (inan%ia, prod)%t o( a
parti%),ar kind* is to +e a%<)ired* a 4;S re<)irement on t#e part o( t#e :9 a,so app,ies'
147
Compliance re0uirements
Fnder any mana&ed investment s%#eme arran&ement* t#e :9 $o),d +e s)+Ce%t to initia,
and on&oin& %omp,ian%e re<)irements in operatin& t#e s%#eme'
148
"#e :9 may %#ar&e
%osts (or mana&in& t#e s%#eme' "#e :9 $i,, a,so +e responsi+,e (or t#e on&oin&
monitorin& o( t#e s%#eme/s investments in t#e e<)ities o( an iss)er' "#e :9 %o),d take
a%tion as a s)+stantia, s#are#o,der in t#e iss)er i( t#e :9 %onsiders t#at t#e mana&ement o(
t#e iss)er is not proper,y %onsiderin& t#e interests o( t#e s#are#o,ders'
A2.2"ntermediaries
5perators o( CS98 $e+sites may need to +e ,i%ensed in order to provide p,at(orms (or t#is
(orm o( ()ndraisin&' "#ere are a,so vario)s ot#er ,e&a, imp,i%ations t#at may arise'
144
By virt)e o( s 700112* $#i%# re(ers to t#e de(inition o( se%)rity in s 761A* an interest in a mana&ed
investment s%#eme $o),d not +e a se%)rity (or t#e p)rpose o( attra%tin& C#apter 6;* and t#ere(ore o((ers o(
s)%# interests $o),d not attra%t t#e prospe%t)sN5IS o+,i&ations in t#is C#apter t#at app,y to o((ers o( se%)rities
in p)+,i% %ompanies' Instead* +y virt)e o( s 764A1121+2* an interest in a mana&ed investment s%#eme is a
B(inan%ia, prod)%t/ (or t#e p)rposes o( C#apter 7 o( t#e Corporations A%t* $it# t#e dis%,os)re re<)irements to +e
provided in t#e (orm o( a 4rod)%t ;is%,os)re Statement 14;S2 p)rs)ant to 4art 7'9 o( t#e Corporations A%t' "#e
o+,i&ation on t#e :9 to iss)e a 4;S is set o)t in s 1012B'
14
ss 101!;* 101!9'
146
s 6018C'
147
s 1012IA'
148
4rin%ipa,,y (o)nd in t#e C#apter C o( t#e Corporations A%t'
Austra"ia
A2.2.1 Austra#ian Mar(et 'icence
"#e operator o( a $e+site $#ere CS98 o((ers or invitations to a%<)ire (inan%ia, prod)%ts 1a
s#are or de+t se%)rity or an interest in a s%#eme
149
2 are re&),ar,y made may %ome $it#in
t#e %on%ept o( %ond)%tin& a (inan%ia, market*
10
and t#ere+y may re<)ire an A)stra,ian
market ,i%en%e 1AM?2* iss)ed +y t#e Minister on t#e advi%e o( ASIC'
11
3enera,,y* to o+tain an AM?* t#e $e+site operator $o),d need to demonstrate t#at it #as
s)((i%ient reso)r%es 1in%,)din& (inan%ia,* te%#no,o&i%a, and #)man reso)r%es2 and ade<)ate
ot#er arran&ements 1in%,)din& arran&ements (or #and,in& o( %on(,i%ts o( interest invo,vin&
t#e ,i%ensee2 to ens)re* to t#e e0tent t#at it is reasona+,y pra%ti%a+,e to do so* t#at t#e
market it operates is (air* order,y and transparent'
12
I( an AM? $as re<)ired* it $o),d need to +e appropriate,y tai,ored and (,e0i+,e to s)it t#e
nat)re o( t#e market +ein& operated' Fnder t#e %)rrent re&ime* domesti% market ,i%ensees
are s)+Ce%t to a ran&e o( materia, re&),atory %osts and re<)irements t#at in%,)de ASIC
Market Inte&rity :),es* ASIC s)pervision and a %ost re%overy re&ime* ann)a, assessments
and Ministeria, disa,,o$an%e on operatin& r),e %#an&es'
"#e #o,der o( an AM? is a,so s)+Ce%t to t#e to t#e %ons)mer prote%tion provisions in 4art 2
;ivision 2 o( t#e ASIC A%t*
1!
in%,)din& in re&ard to advertisin&'
14
A2.2.2 Austra#ian *inancia# Services 'icence
B)t even $#ere an AM? is not re<)ired* d)e to t#e intermediary arran&in& its +)siness in
s)%# a $ay t#at it is not a (a%i,ity t#ro)&# $#i%# o((ers or invitations are re&),ar,y made*
t#en it is more ,ike,y t#an not t#at an intermediary $o),d +e %arryin& on a (inan%ia,
servi%es +)siness
1
and t#ere+y need an A)stra,ian 8inan%ia, Servi%es ?i%en%e 1A8S?2*
iss)ed +y ASIC'
16
Converse,y* an intermediary t#at is t#e #o,der o( an AM? $o),d not
a,so need an A8S?'
17
3enera,,y* to o+tain an A8S?* t#e $e+site operator $o),d need to demonstrate t#at it #as
ade<)ate %apita,* #)man and te%#no,o&i%a, reso)r%es as $e,, as an ade<)ate risk
mana&ement system to provide t#e (inan%ia, servi%es in a %omp,iant manner'
18
-)man and
te%#no,o&i%a, reso)r%es in%,)de demonstratin& %ompeten%y* re,evant ski,,s and e0perien%e
re<)ired to provide t#e re,evant (inan%ia, servi%es'
19

"#e #o,der o( an A8S? is s)+Ce%t to vario)s ,i%ensin& o+,i&ations* in%,)din&* to do a,,
t#in&s ne%essary to ens)re t#at t#e (inan%ia, servi%es %overed +y t#e ,i%en%e are provided
e((i%ient,y* #onest,y and (air,y'
160
149
s 764A'
10
s 767A'
11
s 791A'
12
s 792A' See a,so ss 792B-7928* 792I' See a,so ASIC :e&),atory 3)ide 172 Austra"ian market "icences%
Austra"ian operators'
1!
5peratin& a (inan%ia, market is treated as a (inan%ia, servi%e. s 12BAB1121(2 o( t#e ASIC A%t'
14
ASIC :e&),atory 3)ide 2!4 Advertising financia" products and services 7inc"uding credit8% 9ood practice
guidance'
1
A (inan%ia, servi%es +)siness is de(ined in s 761A to mean t#e +)siness o( providin& (inan%ia, servi%es' "#e
vario)s $ays in $#i%# a person provides a (inan%ia, servi%e are de(ined in s 766A'
16
s 911A'
17
s 911A1221d2'
18
ss 912A1121d2* 1#2* 91!B'
19
ASIC :e&),atory 3)ide 10 -icensing% <rganisationa" competence' See a,so ASIC :e&),atory 3)ide 104
-icensing% Meeting the genera" ob"igations at :3 104'84-:3 104'96* A8S ?i%ensin& Git 4arts 1* 2 and !
1:3 1-:3 !2'
160
s 912A1121a2'
Austra"ia
An A8S? ,i%ensee operatin& a CS98 $e+site $o),d a,so #ave to provide retai, %,ients $it#
a 8inan%ia, Servi%es 3)ide e0p,ainin& its ro,e and #o$ it is rem)nerated +y t#e e<)ity
()ndraisers'
161
"#e &)ide sets o)t &enera,,y in(ormation a+o)t t#e ,i%ensee/s servi%es* #o$
t#e ,i%ensee is rem)nerated and key re,ations#ips $it# ot#er entities t#at may in(,)en%e t#e
,i%ensee in providin& its servi%es'
"#e ,i%ensee is a,so s)+Ce%t to t#e %ons)mer prote%tion provisions in 4art 2 ;ivision 2 o(
t#e ASIC A%t* in%,)din& in re&ard to advertisin&'
162
"#e ,i%ensee $i,, a,so need to #ave an
interna, disp)te reso,)tion pro%ess and +e a mem+er o( an e0terna, reso,)tion +ody* s)%# as
t#e 8inan%ia, 5m+)dsman Servi%e* to dea, $it# any %omp,aints a+o)t a%tivities )ndertaken
as a ,i%ensee'
16!
A2.2. Acting as a promoter
In some %ir%)mstan%es* t#e A)stra,ian operator o( a CS98 $e+site mi&#t %ome $it#in t#e
de(inition o( a Bpromoter/
164
o( a %ompany seekin& e<)ity ()ndin& t#ro)&# t#at $e+site'
"#is #as vario)s %onse<)en%es* in%,)din& a re<)irement t#at any prospe%t)s (or t#e
%ompany set o)t detai,s o( any +ene(its to t#at promoter'
16
A2.2.! Restrictions on advertising
"#ere are a,so restri%tions on advertisin& e<)ity o((ers t#at re<)ire a dis%,os)re do%)ment'
8or instan%e* a person m)st not advertise an o((er t#at needs a dis%,os)re do%)ment or
p)+,is# a statement t#at dire%t,y or indire%t,y re(ers to t#at o((er or is reasona+,y ,ike,y to
ind)%e peop,e to app,y (or t#e se%)rities'
166
5n%e a dis%,os)re do%)ment #as +een ,od&ed*
#o$ever* t#e restri%tion is re,a0ed i( t#e advertisement %ontains %ertain in(ormation a+o)t
t#e dis%,os)re do%)ment and app,i%ation pro%ess'
167
"#ese restri%tions on advertisin& $o),d app,y to a CS98 $e+site'
A2."nvestors
"#ere is t#e potentia, )nder CS98 (or investors to +e o((ered a ran&e o( Be<)ity/ interests
in iss)ers* $it# di((erin& sets o( ri&#ts'
A2..1 0i?erences ,etween share and de,t securities
As previo)s,y indi%ated* $#i,e* (or ease o( re(eren%e* t#e term Be<)ity/ is &enera,,y )sed in
t#is paper* CS98 %an %over a%<)irin& s#are or de+t se%)rities in a %ompany'
"#ere are some key di((eren%es +et$een t#ese t$o types o( se%)rities in a %ompany.
participation in t"e compan*. s#are#o,ders and %reditors #ave di((erent votin& ri&#ts*
$it# s#are#o,ders* +)t not %reditors* +ein& a+,e to vote on vario)s %orporate
&overnan%e matters* $#i,e %reditors* +)t not s#are#o,ders* #ave votin& ri&#ts in
vario)s (orms o( e0terna, administration
161
4art 7'7 ;iv 2!
162
ASIC :e&),atory 3)ide 2!4 Advertising financia" products and services 7inc"uding credit8% 9ood practice
guidance'
16!
ASIC :e&),atory 3)ide 16 -icensing% )nterna" and e,terna" dispute reso"ution'
164
s 711122-142' ASIC :e&),atory 3)ide 228 .rospectuses% $ffective disc"osure for retai" investors 1at
:3 228'1222 provides some &)idan%e on t#e %on%ept o( Bpromoter/ o( a %ompany'
16
s 7111!2* 142'
166
s 7!4122'
167
s 7!4162'
Austra"ia
return on t"e investment2 %reditors $i,, typi%a,,y #ave %ontra%t)a, ri&#ts to interest on
t#e de+t and repayment o( %apita,* $#ereas t#ere are restri%tions on t#e %ir%)mstan%es
$#ere s#are#o,ders may re%eive dividends on s#ares
168
repa*ment of t"e capital$ %reditors #ave priority over s#are#o,ders in t#e event o( t#e
,i<)idation o( a %ompany* t#o)&# i( a %ompany in ,i<)idation is so,vent* s#are#o,ders
$i,, re%eive any s)rp,)s resid)a, ()nds a(ter a,, %apita, #as +een repaid' 4rior to any
,i<)idation* s#are#o,ders may re%eive +a%k some or a,, o( t#eir %apita, in on,y ,imited
sit)ations'
169
A2..2 'ega# and ,ene4cia# interest in shares
Investors $#o a%<)ire an interest in t#e s#ares o( a %ompany may do so in eit#er o( t$o
(orms.
leal interest in s"ares$ $#ere investors are re&istered as t#e s#are#o,ders
beneficial interest in s"ares $#ere t#e ()nds o( investors are poo,ed in a mana&ed
investment s%#eme to a%<)ire s#ares in a %ompany* $it# t#e s#ares +e%omin& s%#eme
property and #e,d +y t#e responsi+,e entity o( t#e s%#eme on tr)st (or t#e investors'
170
Investors $it# a ,e&a, interest in s#ares may #ave %orporate &overnan%e and ot#er ri&#ts as
s#are#o,ders* in%,)din& parti%ipation and votin& ri&#ts on reso,)tions at %ompany
meetin&s' By %ontrast* investors $it# a +ene(i%ia, interest in s#ares $o),d #ave ri&#ts
p)rs)ant to t#e provisions &overnin& mana&ed investment s%#emes
171
and t#e %onstit)tions
o( t#ose s%#emes'
A2.. C#asses of shares
As previo)s,y indi%ated 1Se%tion A1'2'42* an iss)er may #ave a n)m+er o( %,asses o(
s#ares* $it# di((erent votin&* dividend and ot#er ri&#ts atta%#ed to ea%# %,ass' In some
%ases t#e o((er to CS98 investors may invo,ve a %,ass o( s#ares $it# in(erior ri&#ts to a
%,ass o( s#ares #e,d* say* +y t#e promoter o( t#e proCe%t'
5n one vie$* potentia, CS98 investors s#o),d +e provided $it# (),, dis%,os)re o( any
s#are %,ass arran&ements o( an iss)er* and t#eir ,e&a, and (inan%ia, imp,i%ations* in simp,e
%,ear ,an&)a&e* and in a (ormat ena+,in& %omparisons +et$een iss)ers'
Beyond t#at* t#e <)estion remains $#et#er dis%,os)re a,one* %om+ined $it# vario)s
s#are#o,der remedies*
172
$o),d s)((i%e* t#erea(ter ,eavin& it to t#e Bmarket/ to eva,)ate t#e
possi+,e %onse<)en%es o( t#e e<)ity arran&ements o( iss)ers and t#eir imp,i%ation (or
investin& in t#ose iss)ers'
168
s 24"'
169
Apart (rom se,,in& s#ares to any avai,a+,e p)r%#aser* a s#are#o,der may re%eive +a%k a,, or some o( t#e
%apita, %ontri+)ted in ,imited sit)ations* s)%# as t#ro)&# any %orporate red)%tion o( %apita, or +)y-+a%k
1C#apter 2> o( t#e Corporations A%t2 or s#are#o,der s%#eme o( arran&ement 14art '1 o( t#e Corporations A%t2'
170
s 6018C122'
171
4rin%ipa,,y C#apter C o( t#e Corporations A%t'
172
In t#e A)stra,ian %onte0t* see* (or instan%e t#e oppression remedy and t#e derivative a%tion remedy* set o)t
in 4art 28'1 and 4art 28'1A o( t#e Corporations A%t' See a,so : ")rner* B;ire%tors/ (id)%iary d)ties and
oppression in %,ose,y-#e,d %orporations/ 1201!2 !1 Company C (ecurities -aw Bourna" 278'
Appendi$ Enited States and Canada
This Appendi, out"ines and compares the approaches taken in the &(A and Canada to
C($5!
A.1.verview
A.1.1 Enited States
Cro$d so)r%ed ()ndin& is rapid,y deve,opin& in t#e FSA' -o$ever* )nti, re%ent,y t#is
met#od o( ()ndraisin& #as not in%,)ded any (orm o( CS98* &iven t#e ,e&is,ative
restri%tions and %ontro,s t#at app,ied to o((erin& %orporate e<)ity to t#e p)+,i%'
"#e >)mpstart o)r B)siness Start)ps 1>5BS2 A%t* ena%ted in Apri, 2012* is intended to
en%o)ra&e e%onomi% &ro$t# in t#e FS +y vario)s means* in%,)din& &reater a%%ess to
e<)ity ()ndin& (or emer&in& and ot#er %ompanies' "#e A%t #as a n)m+er o( %#apters or
parts 1B"it,es/2* t$o o( $#i%# are re,evant to CS98'
/itle II of t"e 3O,S Act2 Access to capital for 4ob creators
"it,e II o( t#e >5BS A%t dea,s $it# e<)ity o((ers to $ea,t#ier investors' 4)rs)ant to :),es
)nder t#at "it,e* p)+,is#ed +y t#e Se%)rities and 90%#an&e Commission 1S9C2 in
>),y 201! and in e((e%t (rom Septem+er 201!* FS entreprene)rs may p)+,i%,y advertise
and market t#eir %ompany/s investment opport)nity* o( $#atever siDe* to Ba%%redited
investors/ 1in e((e%t* individ)a,s $it# over O1 mi,,ion in ,i<)id net $ort# or ann)a, in%omes
over O200*000
17!
2* in%,)din& t#ro)&# t#e internet or so%ia, media* as $e,, as t#ro)&# print*
radio or te,evision' 4revio)s,y* t#ere $as a +an on B&enera, so,i%itation/ or B&enera,
advertisin&/* o( investment in se%)rities* ot#er t#an a prospe%t)s-+ased o((er* $it# o((ers to
parti%),ar investors +ein& done in private'
"#e >),y 201! S9C :),es p)rs)ant to "it,e II permit &enera, so,i%itation in o((ers made to
a%%redited investors* provided t#at iss)ers o( t#ese se%)rities Btake reasona+,e steps to
veri(y/ t#at a,, p)r%#asers o( t#e o((ered se%)rities are a%%redited' "#e r),es spe%i(y +ot# a
prin%ip,es-+ased approa%# to satis(y t#e veri(i%ation re<)irement* and a non-e0%,)sive ,ist
o( met#ods t#at iss)ers may )se to satis(y t#e veri(i%ation re<)irement as it app,ies to
nat)ra, persons'
"#e %omin& into (or%e o( "it,e II o( t#e >5BS A%t is t#ere(ore a ,imited (orm o( CS98* in
t#at more potentia, investors $#o satis(y t#e tests o( +ein& Ba%%redited/ may +e%ome a$are
o( investment opport)nities t#ro)&# on,ine and ot#er means* and iss)ers may t#ere(ore
#ave a%%ess to a &reater ran&e o( ()ndin& so)r%es'
/itle III of t"e 3O,S Act2 Crowdfundin
"it,e III o( t#e >5BS A%t dea,s $it# CS98 o((ers to investors &enera,,y' It is intended to
a,,o$ a start-)p or ot#er %ompany to )se an on,ine intermediary as t#e means to %ond)%t
o((ers to investors to o+tain modest amo)nts o( e<)ity %apita,' Fnder "it,e III* <)a,i(yin&
17!
A%%redited investors in%,)de nat)ra, persons $it# individ)a, net $ort#* or Coint net $ort# $it# t#eir
spo)se* t#at e0%eeds O1 mi,,ionU or nat)ra, persons $it# in%ome e0%eedin& O200*000 in ea%# o( t#e t$o most
re%ent years* or Coint in%ome $it# a spo)se e0%eedin& O!00*000 (or t#ose years* and a reasona+,e e0pe%tation o(
t#e same in%ome ,eve, in t#e %)rrent year'
&nited (tates and Canada
CS98 transa%tions $i,, +e e0empt (rom t#e re&istration and prospe%t)s de,ivery
re<)irements o( t#e FS Se%)rities A%t' "it,e III app,ies to a,, investors* in%,)din& investors
o( modest means 1as $e,, as a%%redited investors2* t#ere+y &ivin& sma,,er investors a
&reater ran&e o( investment options' As o+served +y t#e S9C.
"o t#e e0tent t#at %ro$d()ndin& r),es are s)%%ess(),,y )ti,iDed* t#e %ro$d()ndin&
provisions o( t#e >5BS A%t s#o),d provide start)ps and sma,, +)sinesses $it# t#e
means to raise re,ative,y modest amo)nts o( %apita,* (rom a +road %ross se%tion o(
potentia, investors* t#ro)&# se%)rities o((erin&s t#at are e0empt (rom re&istration
)nder t#e Se%)rities A%t' "#ey a,so s#o),d permit sma,, investors to parti%ipate in a
$ider ran&e o( se%)rities o((erin&s t#an may +e avai,a+,e %)rrent,y'
174
A,so.
t#e avai,a+i,ity o( se%)rities-+ased %ro$d()ndin& as a (inan%in& option %o),d in%rease
%ompetition amon& s)pp,iers o( %apita,* res),tin& in a potentia,,y ,o$er %ost o( %apita,
(or a,, iss)ers* in%,)din& t#ose t#at %#oose not to )se se%)rities-+ased %ro$d()ndin&'
17
CS98 )nder "it,e III o( t#e >5BS A%t is s)+Ce%t to.
t#e provisions in t#e A%t 1$#i%# amends re,evant provisions o( t#e FS Se%)rities A%t
o( 19!!2
t#e S9C :),es' "#e S9C p)+,is#ed proposed r),es in 5%to+er 201!* $it# re<)ests (or
%omment' In p)ttin& (or$ard t#ese proposed r),es* t#e S9C o+served t#at.
:),es t#at are )nd),y +)rdensome %o),d dis%o)ra&e parti%ipation in %ro$d()ndin&'
:),es t#at are too permissive* #o$ever* may in%rease t#e risks (or individ)a,
investors* t#ere+y )nderminin& t#e (a%i,itation o( %apita, raisin& (or start)ps and sma,,
+)sinesses'
176
In t#e same vein* t#e S9C #as %ommented t#at.
(or %ro$d()ndin& to #ave a positive impa%t on t#e sma,, +)siness ()ndin& pro+,em* it
m)st $ork (or +ot# iss)ers and investors' In parti%),ar* it is vita,,y important t#at
investors #ave %on(iden%e in t#e %ro$d()ndin& pro%essIor t#ey $i,, stay a$ay'
177
A,so.
LAnyM pro+,ems t#at arise (rom t#e a%tions o( %ro$d()ndin& iss)ers or LintermediaryM
porta,s %o),d &enera,,y a((e%t investor %on(iden%e in t#e %apita, markets and #ave an
adverse e((e%t on %apita, (ormation'
178
Sett,ement o( t#e S9C :),es is a prere<)isite to permittin& CS98 )nder "it,e III'
"#e e,ements o( "it,e III* and t#e proposed S9C :),es* as t#ey app,y to iss)ers*
intermediaries and investors* are set o)t in t#e (o,,o$in& se%tions o( t#is Appendi0'
A.1.2 Canada
"#e 5ntario Se%)rities Commission 15SC2 Sta(( Cons),tation 4aper 4-710
Considerations for new capita" raising prospectus e,emptions 1;e%em+er 20122 in%,)ded
174
S9C 4roposed Cro$d()ndin& :),es )nder "it,e III o( t#e >5BS A%t 15%to+er 201!2 L17 C8: 4arts 200*
227* 2!2* 2!9* 240 and 249U :e,ease Nos' !!-9470U !4-70741U 8i,e No' S7-09-1!U :IN !2!-A?!7M at !44'
17
id at !47'
176
id at 1!'
177
S9C Commissioner ?A A&)i,ar* Darnessing the )nternet to .romote Access to Capita" for (ma""
/usinesses Ahi"e .rotecting the )nterests of )nvestors 17as#in&ton* ;'C' 2! 5%to+er 201!2'
178
i+id'
1in Appendi0 A2 t#e e,ements o( a possi+,e CS98 e0emption (rom t#e prospe%t)s
provisions* to (a%i,itate %apita, raisin& (or +)siness enterprises'
"#e Cons),tation 4aper made %,ear t#at its proposa,s #ad +een p)t (or$ard (or dis%)ssion
on,y* and did not ne%essari,y mean t#at a CS98 e0emption $o),d +e introd)%ed in t#at* or
any ot#er* (orm'
In A)&)st 201!* t#e 5SC re,eased t#e (o,,o$-)p 5SC Noti%e .rogress report on review of
prospectus e,emptions to faci"itate capita" raising 1t#e A)&)st 201! 4aper2* $#i%#
in%,)ded ()rt#er %onsideration o( t#e CS98 proposa,s in its ;e%em+er 2012 Cons),tation
4aper'
"#e A)&)st 201! 4aper indi%ated t#at $ork on a possi+,e CS98 re&),atory (rame$ork (or
Canada is %ontin)in&' In t#at %onte0t* t#e 4aper stated.
7e are mind(), o( stake#o,der %on%erns t#at i( t#e %osts asso%iated $it# investor
prote%tion are e0%essive* %ro$d()ndin& may not +e a %ost-e((e%tive %apita, raisin&
met#od' At t#e same time* t#e Investor S)rvey s)&&ests t#at investors $o),d +e
%on%erned a+o)t t#e risks o( %ro$d()ndin& and mi&#t not +e prepared to invest
t#ro)&# %ro$d()ndin& i( t#ey do not t#ink t#ere are ade<)ate prote%tions in p,a%e'
179
In ;e%em+er 201!* t#e 5SC anno)n%ed its intention to p)+,is#* in t#e (irst <)arter o( 2014*
vario)s ne$ %apita, raisin& prospe%t)s e0emptions* in%,)din& a %ro$d()ndin& e0emption*
to&et#er $it# a re&istration (rame$ork (or on,ine ()ndin& porta,s'
180
In Mar%# 2014 t#e 5SC p)+,is#ed dra(t proposa,s (or CS98*
181
$#i%# $o),d +e an
e0emption (rom t#e prospe%t)s re<)irements' "#e proposa,s #ave a 90-day p)+,i%
%omment period 1as re<)ired +y ,a$2' "#e proposa,s $o),d* s)+Ce%t to %ertain %onditions*
a,,o$ reportin& iss)ers
182
and non-reportin& iss)ers to raise money (rom t#e %ro$d +y
o((erin& se%)rities t#ro)&# on,ine porta,s 1intermediaries2'
"#e proposa,s in%,)de dra(t provisions'
18!
In a re,ative,y s#ort period o( time* %ro$d()ndin& #as +e%ome an important ne$
met#od o( raisin& %apita, t#ro)&# t#e internet (or a +road ran&e o( p)rposes' "o date* it
#as +een )sed to raise money (or a spe%i(i% proCe%t and does not &enera,,y invo,ve t#e
iss)an%e o( se%)rities' -o$ever* in some (orei&n C)risdi%tions* %ro$d()ndin& is
emer&in& as a $ay (or +)sinesses* parti%),ar,y start-)ps and SM9s* to raise %apita,
t#ro)&# t#e iss)an%e o( se%)rities'
7e t#ink t#at %ro$d()ndin& t#ro)&# an appropriate,y re&),ated %ro$d()ndin& porta,
%an +e a via+,e met#od (or start-)ps and SM9s to raise %apita,'
184
179
at 29'
180
5SC Ne$s :e,ease <(C provides update on e,empt market review inc"uding its consideration of e,isting
security ho"der e,emption 4 ;e%em+er 201!'
181
5SC )ntroduction of proposed prospectus e,emptions and proposed reports of e,empt distribution in
<ntario 1Mar%# 20142 1Mar%# 2014 5SC 4aper2' "#is do%)ment* $#i%# is a s)pp,ement to t#e 5SC B),,etin
120142 !7 5SCB* dea,s $it# a ran&e o( prospe%t)s-e0emption matters* in%,)din& CS98' "#e detai,s o( t#e CS98
proposa,s are set o)t in Appendi, #% Crowdfunding'
182
A reportin& iss)er is a %ompany t#at #as iss)ed s#ares to t#e p)+,i% and is s)+Ce%t to %ontin)o)s dis%,os)re
re<)irements +y one or more o( t#e provin%ia, se%)rities %ommissions' "#e %ompara+,e entity in A)stra,ia is t#e
Bdis%,osin& entity/'
18!
"#e dra(t CS98 provisions are set o)t in Anne0 ;-! o( Appendi0 ;* and a Companion 4o,i%y is set o)t in
Anne0 ;-6 o( Appendi0 ;'
184
Mar%# 2014 5SC 4aper at 1'
"#e e,ements in t#e Mar%# 2014 proposa,s* as t#ey app,y to iss)ers* intermediaries and
investors* are set o)t in t#e (o,,o$in& se%tions o( t#is Appendi0' 9a%# e,ement %an +e
%ompared $it# re,evant provisions in "it,e III o( t#e FS >5BS A%t'
A.1. Comparison of ES and Canadian approaches
"o assist in %omparin& t#e approa%#es in t#e FSA and Canada* t#is Appendi0 ana,yses t#e
FS and Canadian positions on a series o( matters %on%ernin&.
iss)ers 1Se%tion A!'22
intermediaries 1Se%tion A!'!2* and
investors 1Se%tion A!'42'
A.2"ssuers
"#e FS and Canadian approa%#es %an +e %ompared on a series o( e,ements app,i%a+,e to
iss)ers.
1i2 types o( iss)er
1ii2 types o( permitted se%)rities
1iii2 restri%tion to primary o((ers
1iv2 ma0im)m ()nds t#at an iss)er may raise
1v2 dis%,os)re +y t#e iss)er to investors
1vi2 pro#i+ition on ,endin& to investors 1Canada on,y2
1vii2 %ontro,s on advertisin&
1viii2 %onditions to %omp,ete t#e distri+)tion 1Canada on,y2
1i02 (ees paid +y iss)ers 1Canada on,y2
102 ,ia+i,ity o( iss)ers'
A.2.1 Enited States
Set o)t +e,o$ are re,evant provisions in t#e >5BS A%t and t#e dra(t S9C :),es
15%to+er 201!2 as t#ey app,y to iss)ers'
5i6 /*pes of issuer
"#e ena+,in& %ro$d()ndin& provisions o( t#e >5BS A%t app,y on,y to FS in%orporated
iss)ers' "#e provisions in t#e >5BS A%t pre-empt re&),ation o( t#ese iss)ers +y t#e ,a$s o(
t#e vario)s States o( t#e FSA in re,ation to t#e ()ndraisin& pro%ess'
18
"#e >5BS A%t e0%,)des investment ()nd %ompanies )ti,isin& CS98 to distri+)te t#eir
se%)rities'
18
S -anks* B5n,ine %apita,-raisin& +y sma,, %ompanies in t#e FSA a(ter t#e >5BS A%t %ompared to t#e same
pro%ess in t#e 9)ropean Fnion/ Capita" Markets -aw Bourna" Eo, 8* No' ! 1201!2 261 at 266-267'
"#e S9C #as a,so proposed to e0%,)de a %ompany t#at #as no spe%i(i% +)siness p,an or #as
indi%ated t#at its +)siness p,an is simp,y to en&a&e in a mer&er or a%<)isition $it# an
)nidenti(ied entity or entities.
%ro$d()ndin& is a ne$ and evo,vin& met#od to raise money t#at serves as an
a,ternative so)r%e o( %apita, to s)pport a $ide ran&e o( ideas and vent)res' 7e +e,ieve
t#at t#e e0emption )nder L"it,e III o( t#e >5BS A%tM is intended to provide an iss)er
$it# an ear,y sta&e proCe%t* idea or +)siness an opport)nity to s#are it p)+,i%,y $it# a
$ider ran&e o( potentia, investors' "#ose potentia, investors may t#en s#are
in(ormation $it# ea%# ot#er a+o)t t#e ear,y sta&e proposa, and )se t#at in(ormation to
de%ide $#et#er or not to provide ()ndin& +ased on t#e S$isdom o( t#e %ro$d'T Fnder
s)%# %ir%)mstan%es* t#is me%#anism re<)ires t#e p)+,i% to #ave s)((i%ient in(ormation
a+o)t t#e iss)er/s proposa, to dis%)ss its merit and (,a$s' At t#e same time* an ear,y
sta&e proposa, may not a,,o$ t#e %ro$d()ndin& me%#anism to $ork appropriate,y i(
t#e iss)er does not des%ri+e a spe%i(i% proCe%t* idea* or +)siness* or is seekin& ()ndin&
(or )nspe%i(ied %orporate transa%tions' In s)%# %ases* individ)a,s revie$in& t#e
proposa, may not #ave s)((i%ient in(ormation to (orm),ate a %onsidered vie$ o( t#e
proposa,* or t#e proposa, may +e ,ess ,ike,y to attra%t eno)&# perspe%tives to in(orm a
%ro$d de%ision'
186
5ii6 /*pes of permitted securities
"#e >5BS A%t provisions app,y to e<)ity or de+t se%)rities o( t#e iss)er'
5iii6 .estriction to primar* offers
"#e >5BS A%t app,ies to distri+)tions +y an iss)er o( its o$n se%)rities' It is not avai,a+,e
as a means (or e0istin& se%)rity #o,ders to on-se,, t#eir se%)rities o( an iss)er'
5iv6 Ma$imum funds t"at an issuer ma* raise
A %ompany may raise no more t#an O1 mi,,ion in a 12 mont# period t#ro)&# CS98 1t#at
amo)nt to +e periodi%a,,y adC)sted +ased on t#e %ons)mer pri%e inde02'
187
"#e S9C noted t#at.
"#e ,imitation on t#e amo)nt t#at may +e raised %o),d +ene(it investors +y red)%in&
t#e potentia, (or di,)tion or (ra)d' -o$ever* $e re%o&niDe t#at t#e %ap on t#e
ma0im)m amo)nt t#at may +e so,d K a,so %o),d prevent %ertain iss)ers (rom raisin&
a,, t#e %apita, t#ey need to make t#eir +)sinesses via+,e'
188
<versubscription% offering additiona" securities
"#e S9C (avo)rs an iss)er +ein& a+,e to a%%ept investments in e0%ess o( any tar&et amo)nt
in an o((er do%)ment* s)+Ce%t to t#e O1 mi,,ion in 12 mont#s ,imitation and %ertain
%onditions.
7e +e,ieve t#at permittin& overs)+s%riptions $o),d provide (,e0i+i,ity to iss)ers so
t#at t#ey %an raise t#e amo)nt o( %apita, t#ey deem ne%essary to (inan%e t#eir
+)sinesses' 8or e0amp,e* permittin& overs)+s%riptions $o),d a,,o$ an iss)er to raise
more ()nds* $#i,e ,o$erin& %omp,ian%e %osts* i( t#e iss)er dis%overs d)rin& t#e
o((erin& pro%ess t#at t#ere is &reater investor interest in t#e o((erin& t#an initia,,y
anti%ipated or i( t#e %ost o( %apita, is ,o$er t#an initia,,y anti%ipated'
189
186
S9C 4roposed Cro$d()ndin& :),es )nder "it,e III o( t#e >5BS A%t 15%to+er 201!2 at !7'
187
s 41621A2 o( t#e Se%)rities A%t o( 19!!' 8or periodi% adC)stment o( t#e a,,o$a+,e ma0im)m* see s 4A1#2'
Fn,ess ot#er$ise stated* re(eren%es to FS ,e&is,ative provisions are to t#e Se%)rities A%t o( 19!!'
188
S9C 4roposed Cro$d()ndin& :),es )nder "it,e III o( t#e >5BS A%t 15%to+er 201!2 at !!'
189
id at !76'
5v6 %isclosure b* t"e issuer to investors
Iss)ers $i,, +e re<)ired to (i,e $it# t#e S9C* and provide to investors*
190
t#ro)&# t#e
intermediary* in(ormation s)%# as.
t#e name* ,e&a, stat)s* p#ysi%a, address and $e+site address o( t#e iss)er
a des%ription o( t#e +)siness and its anti%ipated +)siness p,an
a des%ription o( t#e iss)er/s (inan%ia, %ondition 1in%,)din& (inan%ia, statements. see
+e,o$2
t#e names o( o((i%ers and dire%tors and persons $it# a s#are#o,din& o( more t#an 20P'
"#e S9C is proposin& to re<)ire dis%,os)re o( t#e +)siness e0perien%e o( dire%tors and
o((i%ers o( t#e iss)er d)rin& t#e past t#ree years
191
t#e stated p)rpose and intended )se o( pro%eeds
t#e spe%i(ied tar&et o((er amo)nt and dead,ine to rea%# t#at tar&et
t#e pri%e o( t#e se%)rities' "#e S9C proposes to permit iss)ers to a,ter t#e o((er pri%e
d)rin& t#e %o)rse o( t#e o((er 1Bdynami% pri%in&/2* &iven t#e %an%e,,ation ri&#ts o(
investors
192
1see ()rt#er 5iv6 Cancellation ri"ts in Se%tion A!'4'12
a des%ription o( t#e o$ners#ip and %apita, str)%t)re o( t#e iss)er 1$#i%# #as a
parti%),ar si&ni(i%an%e (or t#e on&oin& position o( t#e CS98 investors in t#e %ompany.
see ()rt#er 5vi6 S"are"older ri"ts in Se%tion A!'4'12* and
s)%# ot#er in(ormation as t#e S9C pres%ri+es +y r),e'
19!
"#e S9C is proposin& to
re<)ire dis%,os)re +y t#e iss)er o( vario)s matters* in%,)din& t#e amo)nt o(
%ompensation paid +y t#e iss)er to t#e intermediary (or %ond)%tin& t#e o((er* any
materia, (a%tors t#at make an investment in t#e iss)er spe%),ative or risky and %ertain
re,ated-party transa%tions'
194
"#e iss)er m)st provide (inan%ia, statements* %erti(ied +y an o((i%er o( t#e iss)er i( t#e
spe%i(ied tar&et o((er amo)nt is O100*000 or ,ess* revie$ed +y an a%%o)ntant i( t#at amo)nt
is )p to O00*000 and a)dited i( t#at amo)nt is over O00*000'
19
Companies %o),d avoid
a)dit %osts +y ,imitin& t#e siDe o( t#eir o((ers' "#e S9C is proposin& t#at ea%# iss)er a,so
provide a narrative dis%)ssion o( its (inan%ia, position'
196
Iss)ers $i,, +e re<)ired to provide ann)a, reports to investors on t#e res),ts o( operations
and (inan%ia, statements* %ontainin& s)%# in(ormation as t#e S9C s#a,, determine +y r),e*
190
s 4A1a2162'
191
S9C 4roposed Cro$d()ndin& :),es )nder "it,e III o( t#e >5BS A%t 15%to+er 201!2 at 4'
192
id at 119'
19!
s 4A1+2112'
194
S9C 4roposed Cro$d()ndin& :),es )nder "it,e III o( t#e >5BS A%t 15%to+er 201!2 at 8-9'
19
In more detai,.
1i2 (or o((erin&s t#at* to&et#er $it# a,, ot#er CS98 o((erin&s o( t#e iss)er $it#in t#e pre%edin& 12 mont#s*
tota, O100*000 or ,ess* t#e iss)er m)st provide.
a2 t#e in%ome ta0 ret)rns (i,ed +y t#e iss)er (or t#e most re%ent,y %omp,eted year* i( anyU and
+2 (inan%ia, statements o( t#e iss)er* $#i%# m)st +e %erti(ied +y t#e prin%ipa, e0e%)tive o((i%er o( t#e
iss)er to +e tr)e and %omp,ete in a,, materia, respe%ts 1+)t $#i%# do not need to +e a)dited2U
1ii2 (or o((erin&s t#at* to&et#er $it# a,, ot#er CS98 o((erin&s +y t#e iss)er $it#in t#e pre%edin& 12 mont#s*
tota, more t#an O100*000 +)t not more t#an O00*000* t#e iss)er m)st provide (inan%ia, statements
revie$ed 1+)t not a)dited2 +y a p)+,i% a%%o)ntant $#o is independent o( t#e iss)erU or
1iii2 (or o((erin&s t#at* to&et#er $it# a,, ot#er CS98 o((erin&s +y t#e iss)er $it#in t#e pre%edin& 12 mont#s*
tota, more t#an O00*000* a)dited (inan%ia, statements are re<)ired'
196
$it# s)%# reports to +e (i,ed $it# t#e S9C'
197
"#e S9C proposes t#at iss)ers post t#e
ann)a, reports on t#eir $e+sites'
198
Iss)ers $i,, +e re<)ired to %omp,y $it# s)%# ot#er re<)irements as t#e S9C may* +y r),e*
pres%ri+e*
199
s)%# as dis%,os)re o( t#e inde+tedness o( t#e iss)er and any prior CS98
)ndertaken +y t#e iss)er.
Lt#e S9C isM proposin& to re<)ire dis%,os)re o( any inde+tedness o( t#e iss)er +e%a)se
$e +e,ieve t#at servi%in& de+t %o),d p,a%e additiona, press)res on a %ompany in t#e
ear,y sta&es o( deve,opment and t#is in(ormation $o),d +e important to investors' "#e
proposed r),es a,so $o),d re<)ire dis%,os)re o( any prior se%)rities-+ased
%ro$d()ndin& or ot#er e0empt o((erin&s %ond)%ted $it#in t#e past t#ree years' In
some %ases* an iss)er mi&#t #ave previo)s,y en&a&ed in %ro$d()ndin& in re,ian%e on
Lt#e "it,e III CS98 re&),atory provisionsM and may +e ret)rnin& (or additiona,
()ndin&' 7e +e,ieve t#at it $o),d +e important to investors to kno$ $#et#er t#e prior
se%)rities-+ased %ro$d()ndin& or ot#er o((erin&s o( se%)rities $ere s)%%ess(),* and i(
so* t#e amo)nt raised in t#ese prior o((erin&s'
200
"#e S9C %onsidered t#at t#e iss)er dis%,os)re re<)irements are ne%essary to ens)re t#at
investors are s)((i%ient,y in(ormed.
Sma,, private +)sinesses typi%a,,y do not dis%,ose in(ormation as (re<)ent,y or as
e0tensive,y as p)+,i% %ompanies* i( at a,,' Moreover* )n,ike p)+,i% %ompanies* sma,,
private +)sinesses are not re<)ired to #ire an independent t#ird party to va,idate t#e
in(ormation dis%,osed' 7#en in(ormation a+o)t a %ompany is di((i%),t to o+tain or t#e
<)a,ity o( t#e in(ormation is )n%ertain* investors are at risk o( makin& poor,y-
in(ormed investment de%isions re&ardin& t#at %ompany'
S)%# in(ormation asymmetries mi&#t +e espe%ia,,y a%)te in t#e se%)rities-+ased
%ro$d()ndin& market +e%a)se t#e market in%,)des start)ps and sma,, +)sinesses t#at
#ave si&ni(i%ant risk (a%tors and t#at mi&#t #ave %#ara%teristi%s t#at #ave ,ed t#em to
+e reCe%ted +y ot#er potentia, ()ndin& so)r%es* in%,)din& +anks* Lvent)re %apita,istsM*
and an&e, investors' In addition* t#e se%)rities-+ased %ro$d()ndin& market may attra%t
)nsop#isti%ated retai, investors $#o may not #ave t#e reso)r%es ne%essary to
e((e%tive,y monitor iss)ers'
201
7#i,e s)pportive o( dis%,os)re* t#e S9C a,so noted t#at it %o),d +ene(it %ompetitors o( an
iss)er.
dis%,os)re mi&#t #ave indire%t %osts to t#e e0tent t#at in(ormation dis%,osed +y iss)ers
re,yin& on Lt#e "it,e III CS98 provisionsM %o),d +e )sed +y t#eir %ompetitors'
:e<)irin& si&ni(i%ant ,eve,s o( dis%,os)re at an ear,y sta&e o( an iss)er/s ,i(e%y%,e
mi&#t a((e%t an iss)er/s %ompetitive position and mi&#t ,imit t#e )se o( t#e LCS98
provisionsM +y iss)ers $#o are espe%ia,,y %on%erned $it# %on(identia,ity'
202
5vii6 Controls on advertisin
Iss)ers are pro#i+ited (rom t$o (orms o( advertisin& or promotion o( t#eir o((ers.
advertisin& t#e terms o( t#e o((er* e0%ept (or providin& a noti%e t#at dire%ts investors to
t#e intermediary p,at(orm (or t#at in(ormation'
20!
"#e S9C %ommented t#at t#is
,imitation.
197
s 4A1+2142'
198
199
s 4A1+212'
200
201
id at !9-!60'
202
id at !6!'
20!
s 4A1+2122'
is intended to dire%t investors to t#e intermediary/s p,at(orm and to make investment
de%isions $it# a%%ess to t#e dis%,os)res ne%essary (or t#em to make in(ormed
investment de%isions'
204
%ompensatin& any promoter o( t#e se%)rities* )n,ess s)%# %ompensation is (),,y
dis%,osed in a%%ordan%e $it# S9C :),es'
20
"#e S9C %ommented t#at.
A,t#o)&# t#e re<)irement Lon iss)ersM to take steps to ens)re dis%,os)re o(
%ompensation paid to persons promotin& t#e o((erin& $o),d impose %omp,ian%e %osts
(or iss)ers* $e +e,ieve t#at investors $o),d +ene(it (rom kno$in& i( t#e investment
t#ey are %onsiderin& and dis%)ssin& $it# ot#er potentia, investors is +ein& to)ted +y a
promoter $#o is %ompensated +y t#e iss)er'
206
"#e S9C #as a,so taken t#e vie$ t#at intermediaries s#o),d take %ertain steps to ens)re
t#at investors are made a$are o( promotiona, arran&ements' 8or instan%e.
)nder t#e proposed r),es* t#e intermediary m)st re<)ire t#at any person postin& a
%omment in t#e %omm)ni%ation %#anne,s Lo( t#e intermediary/s on,ine p,at(ormM
%,ear,y dis%,ose $it# ea%# postin& $#et#er #e or s#e is a (o)nder or an emp,oyee o( an
iss)er en&a&in& in promotiona, a%tivities on +e#a,( o( t#e iss)er* or is ot#er$ise
%ompensated* $#et#er in t#e past or prospe%tive,y* to promote t#e iss)er/s o((erin&'
207
5$6 #iabilit* of issuers
Misstatements
Iss)ers 1and B%ontro, persons/ o( t#e %ompany in%,)din& dire%tors and prin%ipa, o((i%ers2
$i,, +e s)+Ce%t to ,ia+i,ity (or any misstatements t#ey make' I( t#e iss)er.
makes an )ntr)e statement o( a materia, (a%t or omits to state a materia, (a%t ne%essary
to make its statements* in ,i&#t o( t#e %ir%)mstan%es in $#i%# t#ey $ere made* not
mis,eadin&* and
%annot s)stain t#e +)rden o( proo( t#at it did not kno$* and* in t#e e0er%ise o(
reasona+,e %are* %o),d not #ave kno$n* o( s)%# )ntr)t# or omission
it m)st reim+)rse t#e p)r%#ase pri%e o( se%)rities p,)s interest'
208
)nvestment "imits
"#ere are ,imits on t#e amo)nt o( ()nds t#at ea%# investor %an %ontri+)te ann)a,,y t#ro)&#
CS98 1see Se%tion A!'4'12'
"#e S9C #as proposed a,,o$in& an iss)er to re,y on e((orts t#at an intermediary takes to
determine t#at an investor does not e0%eed t#e investor ,imits* provided t#at t#e iss)er
does not #ave kno$,ed&e t#at t#e investor #ad e0%eeded* or $o),d e0%eed* t#e investor
,imits as a res),t o( a%%eptin& t#e o((er o( t#e iss)er'
209
/anning and safe harbour
"#e S9C may +an persons (rom )ti,isin& CS98 to ()nd t#eir proCe%ts on %ertain &ro)nds*
in%,)din& non-%omp,ian%e $it# re&),atory re<)irements or (ra)d),ent* manip),ative or
de%eptive %ond)%t'
204
20
s 4A1+21!2'
206
207
id at !98'
208
s 4A1%2112* 122'
209
"#e S9C is proposin& to provide a sa(e #ar+o)r (or iss)ers (or %ertain insi&ni(i%ant
deviations (rom re&),atory re<)irements )nder t#e CS98 provisions* provided.
t#e (ai,)re to %omp,y $as insi&ni(i%ant $it# respe%t to t#e o((er as a $#o,e
t#e iss)er made a &ood (ait# and reasona+,e attempt to %omp,y $it# a,, app,i%a+,e
terms* %onditions and ot#er re&),atory re<)irements* and
t#e iss)er did not kno$ o( t#e (ai,)re to %omp,y* $#ere t#at (ai,)re $as t#e res),t o(
t#e (ai,)re o( t#e intermediary'
210
A.2.2 Canada
Set o)t +e,o$ are t#e CS98 proposa,s in t#e Mar%# 2014 5SC 4aper as t#ey app,y to
iss)ers'
In settin& o)t a proposed re&),atory (rame$ork (or iss)ers 1see +e,o$2 t#e Mar%# 2014
5SC 4aper a,so raised (or %omment t#e &enera, <)estion $#et#er ot#er re<)irements
s#o),d +e imposed on iss)ers to prote%t t#e interests o( investors'
211
5i6 /*pes of issuer
9,i&i+,e iss)ers m)st +e in%orporated or or&aniDed in Canada* $it# t#eir #ead o((i%es
sit)ated in Canada and t#e maCority o( t#eir dire%tors m)st +e Canadian residents'
:eportin& iss)ers
212
and non-reportin& iss)ers are e,i&i+,e to raise ()nds t#ro)&# CS98*
t#o)&# some iss)ers are e0%,)ded* prin%ipa,,y investment ()nds or iss)ers invo,ved in
B+,ind poo,s/'
21!
In app,yin& CS98 opport)nities to reportin& as $e,, as non-reportin& iss)ers* t#e 5SC
%ommented t#at.
As t#e overa,, &oa, o( o)r %ro$d()ndin& initiative is to (a%i,itate %apita, raisin& (or
start-)ps and sma,, and medi)m-siDed enterprises 1SM9s2* $e t#ink t#e e0emption
s#o),d +e avai,a+,e to +ot# reportin& iss)ers and non-reportin& iss)ers'
7e #ave +een advised t#at reportin& iss)ers may $is# to raise %apita, t#ro)&#
%ro$d()ndin&* parti%),ar,y vent)re iss)ers t#at may +e e0perien%in& di((i%),ties in
raisin& %apita, t#ro)&# more traditiona, means in t#e %)rrent e%onomi% environment'
7e s)pport a,,o$in& reportin& iss)ers to raise %apita, t#ro)&# %ro$d()ndin& as
reportin& iss)ers s#o),d not #ave (e$er %apita, raisin& options t#an non-reportin&
iss)ers* parti%),ar,y sin%e reportin& iss)ers #ave a %ontin)o)s dis%,os)re re%ord and
are s)+Ce%t to re&),atory oversi&#t'
214
Sit)ations t#at invo,ve a B+,ind poo,/ in%,)de $#ere.
an iss)er does not #ave a $ritten +)siness p,an settin& o)t its +)siness or proposed
+)siness* its &oa,s or mi,estones and a p,an (or rea%#in& t#ose &oa,s or mi,estones
210
id at 412-41!'
211
212
A reportin& iss)er is a %ompany t#at #as iss)ed s#ares to t#e p)+,i% and is s)+Ce%t to %ontin)o)s dis%,os)re
re<)irements +y one or more o( t#e provin%ia, se%)rities %ommissions' "#e %ompara+,e entity in A)stra,ia is t#e
Bdis%,osin& entity/'
21!
Appendi0 ; o( t#e Mar%# 2014 5SC 4aper at ;-! Q ;-6 and s 8 o( Anne0 ;-! o( Appendi0 ; at ;-49'
214
Appendi0 ; at ;-!'
t#e pro%eeds o( a distri+)tion $i,, +e )sed primari,y +y t#e iss)er to invest in* mer&e
$it# or a%<)ire anot#er )nspe%i(ied +)siness'
21
5ii6 /*pes of permitted securities
(ecurities
?imited types o( se%)rities o( t#e iss)er %an +e o((ered )nder CS98* prin%ipa,,y.
%ommon s#ares
non-%onverti+,e pre(eren%e s#ares
se%)rities %onverti+,e into %ommon s#ares or non-%onverti+,e pre(eren%e s#ares
non-%onverti+,e de+t se%)rities ,inked to a (i0ed or (,oatin& interest rate'
216
A,, o( t#e se%)rities o((ered in a %ro$d()ndin& distri+)tion m)st #ave t#e same pri%e*
terms and %onditions'
217
As t#e overa,, &oa, o( o)r %ro$d()ndin& initiative is to (a%i,itate %apita, raisin& +y
start-)ps and SM9s* $e do not t#ink it is ne%essary or appropriate to a,,o$ %omp,e0
se%)rities* s)%# as derivatives and se%)ritiDed prod)%ts* to +e o((ered )nder t#e LCS98
provisionsM'
218
<ther rewards
An iss)er %an %om+ine se%)rities and non-se%)rities re$ards 1in%,)din& Bperks/2 in a
%ro$d()ndin& o((er* provided t#e o((er do%)ment des%ri+es any non-se%)rities re$ards t#at
are +ein& o((ered and on $#at terms'
219
"#e 5SC %onsidered t#at t#is $o),d ena+,e t#e
iss)er to derive t#e +ene(its o( +ot# se%)rities-+ased and non-se%)rities-+ased
%ro$d()ndin&.
Non-se%)rities-+ased %ro$d()ndin& #as +een %ited as %ontri+)tin& to %ons)mer and
investor ,oya,ty* prod)%t deve,opment* and marketin&' As a res),t* %om+inin&
se%)rities and non-se%)rities re$ards and perks in a %ro$d()ndin& o((erin& may res),t
in a +etter investment opport)nity (or investors $it#o)t detra%tin& (rom investor
prote%tion'
220
5iii6 .estriction to primar* offers
Cro$d()ndin& arran&ements are ,imited to primary o((ers +y an iss)er o( its o$n
se%)rities' "#ey are not avai,a+,e as a means (or e0istin& se%)rity #o,ders to on-se,, t#eir
s#ares'
221
"#e 5SC %ommented t#at t#e CS98 provisions are intended to (a%i,itate %apita,-raisin& +y
iss)ers and not t#e resa,e o( se%)rities'
222
21
Appendi0 ; at ;- and s 8142 o( Anne0 ;-! o( Appendi0 ; at ;-49'
216
s 1112 Be,i&i+,e se%)rities/ o( Anne0 ;-! o( Appendi0 ; at ;-44'
217
Appendi0 ; at ;-6 - ;-7 and s 12 o( Anne0 ;-! o( Appendi0 ; at ;-0'
218
Appendi0 ; at ;-6'
219
Appendi0 ; at ;-14'
220
i+id'
221
Appendi0 ; at ;-7'
222
i+id'
5iv6 Ma$imum funds t"at an issuer ma* raise
Through C($5
"#ere is o( O1' mi,,ion ,imit on $#at any Biss)er &ro)p/ may raise in any 12 mont#
period' An iss)er &ro)p in%,)des t#e iss)er* any a((i,iate o( t#e iss)er* and any ot#er iss)er
t#at is en&a&ed in a %ommon enterprise $it# t#e iss)er or $it# an a((i,iate o( t#e iss)er'
22!
As e0p,ained +y t#e 5SC.
As t#e e0emption is (o%)sed on (inan%in& (or start-)ps and SM9s* $e t#ink a
distri+)tion ,imit o( O1' mi,,ion is appropriate'
224
"#e imposition o( t#e o((erin& ,imit on t#e a&&re&ate pro%eeds raised +y t#e iss)er
&ro)p* rat#er t#an on,y +y t#e iss)er* is intended to prevent t#e O1' mi,,ion o((erin&
,imit (rom +ein& %ir%)mvented'
22
Through other means
;)rin& a CS98 o((er period* an iss)er %an raise ot#er ()nds )nder any ot#er permissi+,e
e0emptions (rom t#e Canadian prospe%t)s re<)irements* s)%# as t#e a%%redited
1sop#isti%ated2 investor e0emption' "#ese ()nds %an +e additiona, to t#e O1' mi,,ion
CS98 ,imit'
226
-o$ever* i( an iss)er distri+)tes se%)rities )nder ot#er e0emptions 1s)%# as t#e
sop#isti%ated investor e0emption2 d)rin& t#e period +e&innin& at t#e %ommen%ement o(
t#e %ro$d()ndin& o((er period and endin& one mont# a(ter t#e distri+)tion date )nder t#at
o((er 1t#e pres%ri+ed period2* t#e se%)rities so,d )nder t#e ot#er e0emptions m)st #ave t#e
same pri%e* terms and %onditions as t#ose distri+)ted )nder t#e %ro$d()ndin& o((er'
227
A%%ordin& to t#e 5SC* t#is re<)irement.
is intended to promote (airness to investors +y pro#i+itin& an iss)er (rom o((erin&
se%)rities d)rin& t#e pres%ri+ed period at di((erent pri%es* or $it# di((erent terms and
%onditions* t#an t#ose +ein& distri+)ted )nder t#e LCS98 o((erM' ?imitin& t#e
pres%ri+ed period to one mont# (o,,o$in& t#e distri+)tion date is appropriate +e%a)se
on%e an iss)er re%eives t#e ()nds* t#e va,)e o( t#e iss)er or its operations %o),d
<)i%k,y %#an&e* t#)s C)sti(yin& o((erin& se%)rities at di((erent pri%es or $it# di((erent
terms and %onditions t#an t#ose t#at $ere distri+)ted )nder t#e %ro$d()ndin&
Lo((erM'
228
"#e intermediary %ond)%tin& t#e CS98 o((er %annot a,so a%t as t#e intermediary (or t#ese
additiona, transa%tions* $#i%# m)st a,so +e dis%,osed in t#e iss)er/s marketin& materia,s to
investors in t#e CS98 o((er'
229
5v6 %isclosure b* t"e issuer to investors
"#e 5SC #as o+served t#at.
8or %ro$d()ndin& to +e a via+,e met#od o( raisin& %apita,* investors m)st +e provided
$it# appropriate in(ormation to make in(ormed investment de%isions $it#o)t
imposin& e0%essive %osts on iss)ers'
2!0
22!
Appendi0 ; at ;-7 and s 71+2 o( Anne0 ;-! o( Appendi0 ; at ;-48'
224
Appendi0 ; at ;-7'
22
Appendi0 ; at ;-8'
226
Appendi0 ; at ;-1!'
227
s 14 o( Anne0 ;-! o( Appendi0 ; at ;-0'
228
Appendi0 ; at ;-14'
229
Appendi0 ; at ;-86'
2!0
Appendi0 ; at ;-21'
"#e intention is t#at t#e dis%,os)res in an iss)er/s B%ro$d()ndin& o((erin& do%)ment/
s#o),d +e stream,ined and (o%)s on materia, in(ormation t#at is re,evant to t#e iss)er/s
+)siness and an investment in t#e se%)rities o((ered'
2!1
An iss)er m)st make t#is do%)ment avai,a+,e to an investor t#ro)&# t#e intermediary
porta, +e(ore t#e investor enters into an a&reement to p)r%#ase t#e se%)rity'
2!2
"#e iss)er
m)st a,so o+tain a si&ned risk a%kno$,ed&ement (rom t#e investor +e(ore enterin& into t#e
a&reement
2!!
1see ()rt#er 1iii2 o( Se%tion A!'4'2 o( t#is paper2' "#e iss)er m)st a,so
provide a %opy o( t#e o((er do%)ment to t#e re&),ator'
2!4
"#e o((er do%)ment m)st %omprise items* to&et#er $it# a %erti(i%ate (rom t#e iss)er t#at
t#e o((er do%)ment does not %ontain a misrepresentation'
2!
)tem 1% 2equired statements
"#is invo,ves.
t#e risk $arnin& to investors'
2!6
)tem *% 5inancing facts
"#is invo,ves.
o((erin& s)mmary
2!7
des%ription o( se%)rities o((ered and re,evant ri&#ts
2!8
a+i,ity to rese,, se%)rities
2!9
ri&#t o( a%tion (or misrepresentation and ri&#t o( $it#dra$a,
240
%on%)rrent o((erin&s
241
)se o( pro%eeds
242
a+i,ity to a%#ieve ne0t mi,estone or +)siness p,an
24!
ot#er %ro$d()ndin& o((erin&s
244
persons promotin& and marketin& t#e o((erin&'
24
)tem =% )ssuer facts
"#is invo,ves.
+)siness o( t#e iss)er
246
prin%ipa, risks (a%in& t#e +)siness
247
2!1
i+id'
2!2
s 71(21i2 o( Anne0 ;-! o( Appendi0 ; at ;-48'
2!!
s 71(21ii2 o( Anne0 ;-! o( Appendi0 ; at ;-48'
2!4
2!
Appendi0 ; at ;-21 - ;-22* s 1112* 122 o( Anne0 ;-! o( Appendi0 ; at ;-0 Q ;-1 and Anne0 ;-4 1;-
6 Q ;- 772 o( Appendi0 ;'
2!6
Appendi0 ; at ;-67'
2!7
Appendi0 ; at ;-67 Q ;-68'
2!8
Appendi0 ; at ;-68 Q ;-69'
2!9
Appendi0 ; at ;-69' An iss)er m)st dis%,ose $#et#er t#ere is any market (or t#e se%)rities and t#e impa%t
on an investor/s a+i,ity to rese,, t#e se%)rities'
240
Appendi0 ; at ;-69'
241
Appendi0 ; at ;-70'
242
i+id'
24!
i+id'
244
Appendi0 ; at ;-71'
24
i+id'
246
i+id'
247
Appendi0 ; at ;-71 Q ;-72'
(inan%ia, in(ormation
248
on&oin& in(ormation
249
minin& iss)er dis%,os)re Lre,evant on,y to CanadaM
20
%apita, str)%t)re
21
e0e%)tive o((i%ers* dire%tors and ot#er prin%ipa,s
22
mana&ement %ompensation
2!
24
ot#er re,evant in(ormation'
2
)tem >% 2egistrant facts
"#is invo,ves.
re&istered ()ndin& porta,'
26
)tem ?% Contact information
"#is invo,ves.
%onta%t in(ormation (or t#e iss)er
27
%onta%t in(ormation (or t#e re&istered intermediary'
28
Certificate
"#is invo,ves.
statement o( no misrepresentation'
29
Eario)s aspe%ts o( t#ese dis%,os)re re<)irements are o)t,ined +e,o$'
0isk warning to investors
"#e iss)er m)st provide a risk $arnin& to investors* at t#e top o( its %ro$d()ndin& o((er
do%)ment* indi%atin& t#at.
many start-)ps and sma,, +)sinesses (ai,
investors may not +e a+,e to rese,, t#eir se%)rities
investors may re%eive ,imited on&oin& in(ormation a+o)t t#e iss)er/s per(orman%e
no se%)rities re&),atory a)t#ority #as revie$ed t#e CS98 o((er'
260
248
Appendi0 ; at ;-72 Q ;-7!'
249
Appendi0 ; at ;-7!'
20
i+id'
21
i+id'
22
Appendi0 ; at ;-7! Q ;-74'
2!
Appendi0 ; at ;-7'
24
i+id'
2
i+id'
26
Appendi0 ; at ;-76'
27
i+id'
28
Appendi0 ; at ;-77'
29
Appendi0 ; at ;-77'
260
Appendi0 ; at ;-67'
(#siness plan and risks
An iss)er m)st dis%,ose t#e nat)re o( its e0istin& or proposed +)siness* its +)siness p,an*
and t#e )se o( t#e pro%eeds o( t#e distri+)tion in ()rt#eran%e o( t#e +)siness p,an'
261
As ear,ier indi%ated 1see 1i2 /*pes of issuer2* t#ere $i,, +e a pro#i+ition on iss)ers makin&
o((ers in B+,ind poo,s/* $#i%# in%,)des arran&ements $#ere an iss)er does not #ave a
,ffer si9e
An iss)er/s o((er do%)ment (or a %ro$d()ndin& distri+)tion m)st dis%,ose t#e minim)m
n)m+er or prin%ipa, amo)nt o( se%)rities +ein& o((ered* and $#et#er t#ere is a ma0im)m
n)m+er or prin%ipa, amo)nt o( se%)rities +ein& o((ered'
262

,vers#3scription$ offering additional sec#rities
An iss)er $i,, +e permitted to o((er more t#an t#e n)m+er o( se%)rities initia,,y proposed
to +e o((ered in its o((er do%)ment i( it #as dis%,osed t#e ma0im)m n)m+er o( se%)rities
t#at %o),d +e o((ered )nder CS98 and t#e )se o( t#e additiona, pro%eeds t#at $o),d +e
raised'
26!
-o$ever* t#e O1' mi,,ion ,imit on t#e a&&re&ate amo)nt t#at %an +e raised )nder
CS98 +y t#e iss)er &ro)p in a spe%i(ied time period m)st +e %omp,ied $it#'
264
A%%ordin& to t#e 5SC.
"#is approa%# $i,, a,,o$ an iss)er to raise additiona, ()nds to a,,o%ate to t#e
advan%ement o( its +)siness p,an i( t#ere is stron& investor interest in t#e o((erin&*
s)+Ce%t to t#e overa,, distri+)tion ,imit o( O1' mi,,ion'
26
Length of time an offer can remain open
An iss)er/s o((er do%)ment m)st dis%,ose #o$ ,on& t#e o((er $i,, remain open* $#i%#
%annot e0%eed 90 days'
266
I( an iss)er %annot %omp,ete a %ro$d()ndin& o((er $it#in
90 days* it m)st $it#dra$ it'
267
"#e 5SC #as taken t#e vie$ t#at a 90 day ,imit on t#e ,en&t# o( time an o((er %an remain
open $i,, #e,p to ens)re t#at t#e in(ormation in t#e o((er do%)ment does not +e%ome
sta,e'
268
"#e iss)er %an %ommen%e a ne$ %ro$d()ndin& o((er a(ter t#e 90 day period' "#is ri&#t is
parti%),ar,y si&ni(i%ant to t#e ma0im)m ()nds t#at ea%# investor %an %ontri+)te t#ro)&#
CS98* &iven t#at t#e Canadian proposa, is to impose a O2*00 investment %ei,in& (or ea%#
o((er* $it#in a tota, O10*000 %ei,in& per year 1see ()rt#er Se%tion A!'4'22'
&revio#s CS! offers
An iss)er makin& a CS98 o((er m)st dis%,ose a,, %)rrent* previo)s,y %,osed* and (ai,ed
CS98 distri+)tions +y ea%# iss)er %omprised in t#e iss)er &ro)p'
269
261
Appendi0 ; at ;-'
262
Appendi0 ; at ;-8'
26!
Appendi0 ; at ;-9'
264
Appendi0 ; at ;-10'
26
Appendi0 ; at ;-9'
266
;e(inition o( Bdistri+)tion period/ in s 1112 o( Anne0 ;-! o( Appendi0 ; at ;-44* and s 71d2 o( Anne0 ;-!
o( Appendi0 ; at ;-48'
267
Appendi0 ; at ;-10'
268
i+id'
269
Appendi0 ; at ;-8'
Sec#rities holdings 3' principles in an iss#er
"#e prin%ipa,s
270
o( an iss)er seekin& to raise %apita, t#ro)&# CS98 are not re<)ired to
invest t#eir o$n money in t#e vent)re +e(ore makin& an o((er to t#e p)+,i%' -o$ever* an
iss)er m)st dis%,ose.
$#et#er or not t#e prin%ipa,s o$n se%)rities o( t#e iss)er
i( so* t#e n)m+er and type o( t#e se%)rities
#o$ m)%# t#e prin%ipa,s paid (or t#em
$#et#er or not t#e se%)rities are s)+Ce%t to an es%ro$ or #o,d period* and* i( so* detai,s
o( t#e es%ro$ or #o,d period'
271
"#e 5SC %onsidered t#at $#i,e t#ere is a +ene(it in prin%ipa,s o( a +)siness investin& t#eir
o$n money in t#e iss)er* as t#is $o),d a,i&n t#eir interests $it# t#ose o( ot#er investors in
t#e iss)er* t#is s#o),d not +e a mandatory re<)irement.
5ne o( t#e prin%ipa, p)rposes o( Lpermittin& CS98M is to ena+,e an entreprene)r to
(inan%e a start-)p $#ere #e or s#e does not #ave t#e persona, (inan%ia, reso)r%es to do
so'
272
:at#er* a%%ordin& to t#e 5SC* dis%,os)re $o),d s)((i%e.
-o$ever* re<)irin& an iss)er to dis%,ose $#et#er or not t#e prin%ipa,s o$n se%)rities
o( t#e iss)er* t#e n)m+er and type o( t#e se%)rities* #o$ m)%# t#e prin%ipa,s paid (or
t#e se%)rities* $#et#er or not t#e se%)rities are s)+Ce%t to an es%ro$ or #o,d period and
detai,s o( any es%ro$ or #o,d period $i,, #e,p investors make in(ormed investment
de%isions'
27!
)ntended #se of CS! proceeds
"#e iss)er m)st state #o$ it intends to spend t#e net pro%eeds to +e raised (rom a CS98
o((er* in%,)din& t#e prin%ipa, p)rposes to $#i%# pro%eeds $i,, +e a,,o%ated* (or +ot# o( t#e
(o,,o$in& %ir%)mstan%es.
1a2 i( t#e iss)er raises t#e minim)m ()nds to +e raised in t#is o((er* and
1+2 i( t#e iss)er raises more t#an t#e minim)m ()nds'
"#e iss)er m)st a,so dis%,ose i( any o( t#e (o,,o$in& persons $i,, re%eive any pro%eeds
(rom t#e ()nds re%eived t#ro)&# CS98 dire%t,y or indire%t,y and* i( so* t#e amo)nt ea%#
person $i,, re%eive.
1a2 any o( e0e%)tive o((i%ers* dire%tors or (o)nders o( t#e iss)er
1+2 any person promotin& or marketin& t#e CS98 o((er
1d2 any ot#er person t#at is a re,ated party to t#e iss)er'
274
270
4rin%ipa,s in%,)de dire%tors and senior o((i%ers o( t#e %ompany* some promoters* and s#are#o,ders $it# at
,east 10P o( t#e votin& s#ares. see ()rt#er Appendi0 ;* 8ootnote 1 o( ;-11'
271
Appendi0 ; at ;-10'
272
i+id'
27!
Appendi0 ; at ;-11'
274
Appendi0 ; at ;-70'
,ngoing disclos#re
:eportin& iss)ers t#at )ti,ise CS98 m)st %omp,y $it# a,, t#e on&oin& reportin& o+,i&ations
o( s)%# entities* in%,)din& t#e %ontin)o)s dis%,os)re o+,i&ations )nder Canadian se%)rities
,a$'
Non-reportin& iss)ers are re<)ired to make avai,a+,e to t#eir CS98 investors %ertain
on&oin& dis%,os)res* in%,)din& (inan%ia, in(ormation and noti%es dis%,osin& t#e )se o(
CS98 pro%eeds' Noti%e o( a pres%ri+ed event m)st +e &iven to investors $it#in 10 days o(
t#e o%%)rren%e o( t#e event' Iss)ers may %#oose to make in(ormation avai,a+,e to investors
in di((erent $ays* provided t#ey take reasona+,e steps to ens)re t#at a,, t#eir investors
re%eive or %an a%%ess t#e do%)ments'
27
!inancial information
An iss)er m)st provide t#e (o,,o$in& (inan%ia, in(ormation.
if the issuer has not incurred any e,penditures and its on"y asset is cash. t#e amo)nt o(
t#e iss)er/s %as#* to&et#er $it# t#ird party %on(irmation o( %as# #e,d in a +ank a%%o)nt
or #e,d in tr)st
if the issuer has incurred e,penditures. ann)a, (inan%ia, statements* to +e a)dited i( t#e
iss)er #as a%#ieved t#e (inan%ia, t#res#o,d 1see +e,o$2 or to +e revie$ed +y an
independent p)+,i% a%%o)ntin& (irm i( t#e iss)er #as not a%#ieved t#e (inan%ia,
t#res#o,d'
An iss)er a%#ieves t#e (inan%ia, t#res#o,d i(* sin%e its (ormation* it #as raised more t#an
O00*000 t#ro)&# CS98 or any ot#er prospe%t)s e0emption and #as e0pended more t#an
O10*000'
276
As s)mmed )p +y t#e 5SC.
"#e most si&ni(i%ant on&oin& e0pendit)re (or non-reportin& iss)ers $o),d invo,ve
preparation o( ann)a, (inan%ia, statements' Iss)ers $o),d need to provide ann)a,
(inan%ia,s at point o( sa,e i( t#ey #ave #ad in%)rred any e0pendit)res and $o),d #ave
to provide t#em on an ann)a, +asis to investors' Ann)a, (inan%ia, statements $o),d
need to +e revie$ed +y an independent p)+,i% a%%o)ntin& (irm' -o$ever* i( t#e
a&&re&ate amo)nt raised )nder LCS98M and any ot#er prospe%t)s e0emption is over
O00*000 sin%e t#e iss)er/s (ormation and t#e iss)er #as e0pended at ,east O10*000
sin%e t#at time* t#en t#e ann)a, (inan%ia, statements $o),d need to +e a)dited'
277
"#e Mar%# 2014 5SC 4aper raises t#e <)estions $#et#er t#ese (inan%ia, in(ormation
reportin& re<)irements 1i2 provide ade<)ate prote%tion to investors and 1ii2 are too %ost,y
(or iss)ers.
7o),d it +e appropriate to re<)ire t#at a,, non-reportin& iss)ers provide (inan%ia,
statements t#at are eit#er a)dited or revie$ed +y an independent p)+,i% a%%o)ntin&
(irmA Are (inan%ia, statements $it#o)t t#is ,eve, o( ass)ran%e ade<)ate (or investorsA
7o),d an a)dit or revie$ +e too %ost,y (or non-reportin& iss)ersA
"#e proposed (inan%ia, t#res#o,d to determine $#et#er (inan%ia, statements are
re<)ired to +e a)dited is +ased on t#e amo)nt o( %apita, raised +y t#e iss)er and t#e
amo)nt it #as e0pended' Are t#ese appropriate parameters on $#i%# to +ase t#e
27
Appendi0 ; at ;-88'
276
Mar%# 2014 5SC 4aper at 17 and Appendi0 ; at ;-28 and s 2! o( Anne0 ;-! o( Appendi0 ; at ;-! Q ;-
4'
277
(inan%ia, reportin& re<)irementsA Is t#e do,,ar amo)nt spe%i(ied (or ea%# parameter
appropriateA
278
,ther information
Iss)ers m)st maintain %ertain +ooks and re%ords (or vario)s p)rposes* in%,)din& to
&enerate (inan%ia, statements and to make vario)s dis%,os)res* in%,)din& #o$ t#e &ross
pro%eeds (rom a CS98 e0er%ise #ave +een e0pended +y t#e iss)er'
279
"#e 5SC o+served t#at.
it $i,, +e a nove, approa%# in Canada to re<)ire t#at a non-reportin& iss)er provide
on&oin& dis%,os)re' -o$ever* sin%e t#e LCS98 provisionsM $i,, a,,o$ iss)ers to raise
money (rom a ,ar&e n)m+er o( retai, investors* $e t#ink t#at re<)irin& %ertain ,imited
on&oin& dis%,os)re is appropriate'
280
5vi6 !ro"ibition on lendin to investors
:estri%tions app,y to an investors/ a+i,ity to +orro$ money (rom or t#ro)&# %ertain parties
to (inan%e t#e p)r%#ase o( se%)rities t#ro)&# CS98'
Fnder t#is approa%#* iss)ers 1as $e,, as intermediaries2 and t#eir respe%tive dire%tors and
e0e%)tive o((i%ers* m)st not ,end or (inan%e* or arran&e ,endin& or (inan%in& 1(or instan%e*
(rom an a((i,iate2* (or an investor to p)r%#ase se%)rities o( t#e iss)er t#ro)&# CS98'
281
)sin& ,evera&e to invest t#ro)&# %ro$d()ndin&* t#o)&# a possi+,e ()rt#er step o(
pro#i+itin& a potentia, investor o)tri&#t (rom +orro$in& money to (inan%e t#e p)r%#ase o(
se%)rities t#ro)&# CS98 $as seen as over,y intr)sive and di((i%),t to en(or%e'
282
5vii6 Controls on advertisin
"#e on,y materia,s t#at may +e made avai,a+,e to potentia, investors in %onne%tion $it# a
CS98 o((er* in addition to t#e mandatory o((er do%)ment* are.
any do%)ment t#at is des%ri+ed in t#e o((er do%)ment* s)%# as t#e iss)er/s +)siness
p,an or s#are#o,ders/ a&reements* and
any term s#eet or ot#er s)mmary* in%,)din& a video* o( t#e in(ormation t#at is in%,)ded
in t#e o((er do%)ment'
28!
A,, o((er materia,s m)st +e made avai,a+,e to potentia, investors t#ro)&# t#e
intermediary/s $e+site' "#e iss)er m)st a,so provide a %opy o( t#ese o((er materia, to t#e
re&),ator'
284
An iss)er 1as $e,, as an intermediary and any ot#er person invo,ved $it# a CS98 o((er2
may not advertise t#e o((er or so,i%it potentia, investors'
28
-o$ever an iss)er 1as $e,, as
an intermediary and any ot#er person invo,ved $it# a CS98 o((er2 may advise potentia,
investors t#at t#e iss)er is proposin& to make t#e o((er and re(er t#e potentia, investors to
278
at 20'
279
Appendi0 ; at ;-2 Q ;-27 and ss 24-27 o( Anne0 ;-! o( Appendi0 ; at ;-4 Q ;'
280
Appendi0 ; at ;-2'
281
ss 10 and 4 o( Anne0 ;-! o( Appendi0 ; at ;-49 and ;-60'
282
Appendi0 ; at ;-17'
28!
284
28
t#e $e+site o( t#e intermediary t#ro)&# $#i%# t#e o((er is made'
286
"#is advi%e may +e
provided in paper (ormat or t#ro)&# so%ia, media'
287
5viii6 Conditions to complete t"e distribution
A CS98 o((er %annot +e %omp,eted )n,ess.
t#e minim)m amo)nt o( ()nds to +e raised* as dis%,osed in t#e %ro$d()ndin& o((er
do%)ment 1see a+ove2* #as +een s)+s%ri+ed (or* and
at t#e time o( %omp,etion o( t#e o((er* t#e iss)er #as (inan%ia, reso)r%es 1$#i%# may
in%,)de ()nds raised ot#er t#an t#ro)&# CS982 t#at are s)((i%ient to a%#ieve t#e ne0t
mi,estone set o)t in its $ritten +)siness p,an* or i( t#e iss)er does not #ave any
mi,estones set o)t in its $ritten +)siness p,an* to %arry o)t t#e a%tivities set o)t in its
288
It is intended t#at t#ese re<)irements.
$i,, provide an e,ement o( investor prote%tion* as a p)r%#aser $i,, #ave some
ass)ran%e t#at t#e iss)er $i,, raise a s)((i%ient amo)nt o( pro%eeds to a%#ieve t#e ne0t
mi,estone or a%tivities set o)t in its $ritten +)siness p,an' In addition* permittin& t#e
additiona, (inan%ia, reso)r%es o( t#e iss)er to +e in%,)ded in t#e determination as to
$#et#er t#is re<)irement #as +een satis(ied $i,, permit an iss)er to satis(y t#e
re<)irement as <)i%k,y as possi+,e'
289
An intermediary m)st ens)re t#at a %ro$d()ndin& o((er is not %omp,eted )nti, t#ese
%onditions #ave +een satis(ied* t#ro)&# iss)er %on(irmation'
290
An iss)er t#at distri+)tes se%)rities )nder a %omp,eted CS98 o((er m)st (i,e a report to t#e
re&),ator $it#in 10 days o( %omp,etion o( t#e distri+)tion'
291
5i$6 (ees paid b* issuers
An iss)er $i,, +e pro#i+ited (rom* dire%t,y or indire%t,y* payin& a %ommission* (inder/s (ee*
re(erra, (ee or simi,ar payment to any person in %onne%tion $it# any CS98 o((er ot#er t#an
to t#e intermediary t#ro)&# $#i%# t#e o((ers are made'
292
A%%ordin& to t#e 5SC* t#is
pro#i+ition does not app,y to payments +y iss)ers to persons as %ompensation (or t#eir
servi%es to an iss)er in preparin& materia,s in %onne%tion $it# a CS98 o((er* s)%# as
a%%o)ntin& or ,e&a, (ees'
29!
In t#e vie$ o( t#e 5SC* t#ese (ee restri%tions $i,, miti&ate potentia, %on(,i%ts o( interest'
294
5$6 #iabilit* of issuers
Certificate from the issuer
A %ro$d()ndin& o((er do%)ment m)st %ontain a %erti(i%ate* si&ned +y vario)s persons
asso%iated $it# t#e iss)er* statin& t#at t#e o((er do%)ment does not %ontain a
misrepresentation* and t#at investors #ave ri&#ts o( a%tion and $it#dra$a, in t#e %ase o( a
286
s 181221+2 o( Anne0 ;-! o( Appendi0 ; at ;-2'
287
Appendi0 ; at ;-87'
288
Appendi0 ; at ;-8 - ;-9 and ;-86* s 1!112 and 122 o( Anne0 ;-! o( Appendi0 ; at ;-0'
289
Appendi0 ; at ;-86'
290
Appendi0 ; at ;-9 and s 1!1!2 o( Anne0 ;-! o( Appendi0 ; at ;-0'
291
292
29!
Appendi0 ; at ;-12'
294
i+id'
misrepresentation'
29
"#is re<)irement is intended to make mana&ement and dire%tors o(
t#e iss)er a%%o)nta+,e (or t#e dis%,os)re* $#i,e makin& investors a$are o( t#eir ri&#ts o(
a%tion'
296

A,so* i( a %erti(i%ate %eases to +e tr)e a(ter it #as +een made avai,a+,e to a potentia,
investor* t#e iss)er is pro#i+ited (rom a%%eptin& any o((er (rom t#at investor to a%<)ire
se%)rities )nti,.
an amended o((er and %erti(i%ate is p)+,is#ed on t#e intermediary $e+site and made
avai,a+,e to t#e investor* and
t#e investor re%on(irms its o((er to a%<)ire se%)rities* or does not $it#dra$ its o((er* to
p)r%#ase t#e se%)rities d)rin& t#e o((er period'
297
-iabi"ity for misrepresentation
"#e 5SC %onsidered it important (or market %on(iden%e t#at investors #ave a %ontra%t)a,
ri&#t to s)e (or misrepresentation' 8or t#is p)rpose* t#e iss)er m)st provide a %ontra%t)a,
ri&#t o( a%tion (or res%ission or dama&es to ea%# investor and se%)rity #o,der in t#e event
o( a misrepresentation* s)+Ce%t to a d)e di,i&en%e de(en%e and a de(en%e t#at t#e investor
kne$ o( t#e misrepresentation'
298
A."ntermediaries
"#e FS and Canadian approa%#es %an +e %ompared on a series o( e,ements app,i%a+,e to
intermediaries.
1i2 so,e on,ine on,y intermediary
1ii2 permitted types o( intermediary
1iii2 matters re,ated to iss)ers
1iv2 matters re,ated to investors'
A..1 Enited States
"it,e III o( t#e >5BS A%t %reates an entire,y ne$ type o( re&),ated entity in t#e FSA* t#e
B()ndin& porta,/* and permits CS98 on,y t#ro)&# a ()ndin& porta, or a re&istered +rokerQ
dea,er'
"#e essentia, p)rpose o( t#is %#anne,,in& t#ro)&# t#e intermediary approa%# is t$o(o,d.
information$ to ens)re t#at a,, potentia, investors #ave a%%ess to t#e same
in(ormation* and in one ,o%ation
risks$ to impose on intermediaries an o+,i&ation to %ond)%t +a%k&ro)nd %#e%ks o(
iss)ers to #e,p &)ard a&ainst (ra)d and ot#er$ise red)%e risks to investors +y ens)rin&
t#at t#ey are proper,y in(ormed a+o)t t#e in#erent risks o( CS98 and do not e0%eed
investment ,imits'
29
s 11121+2 o( Anne0 ;-! o( Appendi0 ; at ;-1* Appendi0 ; at ;-77' See a,so ;-6! Q;-64 %on%ernin&
$#o is re<)ired to si&n t#e %erti(i%ate'
296
Appendi0 ; at ;-20'
297
s 11!2 o( Anne0 ;-! o( Appendi0 ; at ;-1'
298
Appendi0 ; at ;-20 and s 22 o( Anne0 ;-! o( Appendi0 ; at ;-2 Q ;-!'
In t#at %onte0t* as noted +y one S9C Commissioner.
Fnder t#e proposed r),es* t#e LCS98M intermediary is re<)ired to keep an eye o)t (or
(ra)d and to #ave a reasona+,e +asis (or +e,ievin& t#at t#e iss)er #as %omp,ied $it#
t#e re<)irements o( t#e e0emption' "#e LCS98M intermediary $i,, a,so provide a
(or)m (or in(ormation s#arin&* $it# %omm)ni%ations +y an iss)er or paid promoter
%,ear,y identi(ied as s)%#'
299
5ne %ommentary* in s)pportin& t#e approa%# in t#e >5BS A%t t#at intermediaries provide
to investors &enera, dis%,os)res re,ated to t#e in#erent risks invo,ved in CS98* o+served
t#at.
Sin%e t#e risks o( %ro$d ()ndin& are )niversa,,y very #i&#* it makes sense to $arn
investors o( t#is in t#e +roader terms o( an investment in t#e risky market of crowd
funding rat#er t#an in t#e narro$er terms o( an investment in a particu"ar crowd
funding scheme' In ot#er $ords* a standard $arnin& %o),d +e provided to investors*
,ike t#is e0amp,e (rom t#e Fnited States* rat#er t#an re<)irin& %ro$d ()ndin& s%#emes
to e0pend si&ni(i%ant reso)r%es and time to prod)%e a B+espoke/ dis%,os)re do%)ment*
even +e(ore t#e s%#eme is a,,o$ed to advertise and test t#e marketa+i,ity o( its idea'
!00
Set o)t +e,o$ are re,evant provisions in t#e >5BS A%t and t#e dra(t S98 :),es
15%to+er 201!2 as t#ey app,y to intermediaries'
5i6 Sole online onl* intermediar*
A key )nder,yin& prin%ip,e is t#at any o((er to investors to take )p se%)rities in an iss)er
)ti,isin& t#ese CS98 provisions m)st +e %ond)%ted e0%,)sive,y t#ro)&# a so,e
intermediary* operatin& on,ine-on,y.
a %entra, tenet o( t#e %on%ept o( %ro$d()ndin& is presentin& mem+ers o( t#e %ro$d
$it# an idea or +)siness so mem+ers o( t#e %ro$d %an s#are in(ormation and eva,)ate
t#e idea or +)siness' A,,o$in& an iss)er to %ond)%t a sin&,e o((erin& or sim),taneo)s
o((erin&s in re,ian%e on L"it,e III o( t#e >5BS A%tM t#ro)&# more t#an one
intermediary $o),d diminis# t#e a+i,ity o( t#e mem+ers o( t#e %ro$d to e((e%tive,y
s#are in(ormation* +e%a)se essentia,,y* t#ere $o),d +e m),tip,e S%ro$ds'T
!01
A,so.
an Son,ine-on,yT re<)irement ena+,es t#e p)+,i% to a%%ess o((erin& in(ormation and
s#are in(ormation p)+,i%,y in a $ay t#at $i,, a,,o$ mem+ers o( t#e %ro$d to de%ide
$#et#er or not to parti%ipate in t#e o((erin& and ()nd t#e +)siness or idea K 5((erin&s
made +y ot#er means $o),d not +e $ide,y a%%essi+,e +y t#e p)+,i%* $#i%# $o),d
de(eat t#e +ene(it o( t#e %o,,e%tive $isdom o( t#e mem+ers o( t#e %ro$d'
!02
"#e proposed r),es $o),d re<)ire t#at a re&istered intermediary e0e%)te CS98
transa%tions on,y t#ro)&# its on,ine p,at(orm' An intermediary or its asso%iated persons
$o),d +e pro#i+ited (rom a%%eptin& an investment %ommitment )nti, t#e investor #as
opened an a%%o)nt $it# t#e intermediary and t#e intermediary #as o+tained t#e investor/s
%onsent to e,e%troni% de,ivery o( materia,s.
"#is re<)irement $o),d #e,p ens)re t#at %ertain +asi% in(ormation a+o)t t#e investor
is on (i,e $it# t#e intermediary and t#at a,, investors are on noti%e o( t#e primary
met#od o( de,ivery (or %omm)ni%ations (rom t#e intermediary'
!0!
299
S9C Commissioner ?A A&)i,ar* Darnessing the )nternet to .romote Access to Capita" for (ma""
/usinesses Ahi"e .rotecting the )nterests of )nvestors 17as#in&ton* ;'C' 2! 5%to+er 201!2'
!00
" 7on&* BCro$d ()ndin&. :e&),atin& t#e ne$ p#enomenon/ 1201!2 !1 Companies and (ecurities -aw
Bourna" 89 at 104'
!01
!02
id at !1* !!'
!0!
id at !88'
"#e on,ine p,at(orm re<)irement is intended to +ene(it +ot# iss)ers and investors.
"#is re<)irement s#o),d #e,p iss)ers &ain e0pos)re to a $ide ran&e o( potentia,
investors* $#o a,so may +ene(it (rom #avin& n)mero)s investment opport)nities
a&&re&ated in one p,a%e* res),tin& in ,o$er sear%# %osts or +)rdens re,ated to
identi(yin& s)ita+,e investment opport)nities'
!04
5ii6 !ermitted t*pes of intermediar*
2egistration requirement
CS98 o((ers m)st +e %ond)%ted t#ro)&# an Bintermediary/ t#at is re&istered $it# t#e S9C
eit#er as a +roker-dea,er or as a B()ndin& porta,/'
!0
A ()ndin& porta, $i,, +e re<)ired to #ave $ritten po,i%ies and pro%ed)res reasona+,y
desi&ned to a%#ieve %omp,ian%e $it# its CS98 stat)tory o+,i&ations and S9C :),es*
!06
as
$e,, as %omp,yin& $it# anti-money ,a)nderin& re<)irements' A ()ndin& porta, m)st a,so
maintain (ide,ity +ond %overa&e* as some prote%tion to CS98 investors (rom potentia, ,oss
t#ro)&# (ra)d'
!07
Non-resident ()ndin& porta,s $i,, +e permitted provided t#at %ertain
%onditions are met'
!08
As e0p,ained +y t#e S9C.
"#e )se o( a re&istered intermediary to mat%# iss)ers and investors $o),d re<)ire t#at
t#ey in%)r %ertain transa%tions %osts ne%essary to s)pport t#e intermediation a%tivity*
+)t a,so $o),d provide %entra,iDed ven)es (or %ro$d()ndin& a%tivities t#at s#o),d
,o$er investor and iss)er sear%# %osts'
!09
Iss)ers and investors may a,so +ene(it (rom %ompetition +et$een re&istered intermediaries.
It a,so is ,ike,y t#at t#ere $i,, +e si&ni(i%ant deve,opments in t#e types and ran&es o(
%ro$d()ndin& prod)%ts and servi%es o((ered to potentia, iss)ers and investors*
parti%),ar,y as %ompetitors ,earn (rom t#eir e0perien%es'
!10
)nformation co""ection
Intermediaries m)st %o,,e%t and transmit CS98 transa%tion data to t#e S9C (or
administration and data ana,ysis'
!11
"#ey m)st a,so maintain and preserve %ertain re%ords
re,atin& to t#eir +)siness* in%,)din& a,, re%ords re,ated to persons t#at )se t#e
%omm)ni%ation servi%es provided +y a ()ndin& porta, to promote an iss)er/s se%)rities or
to %omm)ni%ate $it# potentia, investors* as $e,, as re%ords o( a,, CS98 a&reements.
7e Lt#e S9CM +e,ieve t#at it is important (or ()ndin& porta,s to +e s)+Ce%t to a
re%ordkeepin& re<)irement in order to %reate a meanin&(), a)dit trai, o( t#e
%ro$d()ndin& transa%tions and %omm)ni%ations'
!12
!04
id at !87'
!0
ss 41621C2* 4A1a2112' A ()ndin& porta, m)st a,so +e a mem+er o( a re&istered nationa, se%)rities
asso%iation'
!06
!07
id at 404'
!08
id at 21-219 and 402-40!'
!09
id at !78'
!10
id at !80'
!11
s 4A1a2162* 192'
!12
5iii6 Matters related to issuers
Checks on issuers
Intermediaries m)st take s)%# meas)res to red)%e t#e risk o( (ra)d as $i,, +e esta+,is#ed
+y t#e S9C* in%,)din& +a%k&ro)nd and re&),atory %#e%ks on dire%tors* o((i%ers and
si&ni(i%ant s#are#o,ders o( iss)ers'
!1!
"#e S9C #as taken t#e vie$ t#at p,a%in& a responsi+i,ity on intermediaries to %ond)%t
%#e%ks o( iss)ers 1$#i%# mi&#t +e done +y t#ird parties emp,oyed +y intermediaries (or
t#is p)rpose2 so,ves an iss)er assessment pro+,em t#at $o),d +e pro#i+itive,y %ost,y i( ,e(t
to individ)a, investors* and t#at.
to t#e e0tent t#ese %#e%ks ,essened t#e ,ike,i#ood o( inappropriate or ne(ario)s
a%tivity* t#ey %o),d in%rease investor $i,,in&ness to p)r%#ase %ro$d()ndin& se%)rities*
t#ere+y potentia,,y res),tin& in iss)ers #avin& &reater a%%ess to %apita,'
!14
Fnder t#e proposed r),es* t#e S9C $o),d permit an intermediary to re,y on an iss)er/s
representations %on%ernin& %omp,ian%e $it# t#e vario)s spe%i(i% re&),atory re<)irements
)n,ess t#e intermediary #as reason to <)estion t#e re,ia+i,ity o( t#e representations.
"#e proposed r),es $o),d permit intermediaries to reasona+,y re,y on representations
o( t#e iss)er* a+sent kno$,ed&e or ot#er in(ormation or indi%ations t#at t#e
representations are not tr)e'
!1
-o$ever an intermediary $o),d +e re<)ired to deny a%%ess to an iss)er i( it #as a
reasona+,e +asis (or +e,ievin& t#at t#e iss)er or any o( its o((i%ers* dire%tors 1or any person
o%%)pyin& a simi,ar stat)s or per(ormin& a simi,ar ()n%tion2 $as s)+Ce%t to a
dis<)a,i(i%ation )nder t#e proposed r),es' A,so* t#e proposed r),es $o),d re<)ire an
intermediary to deny a%%ess to its p,at(orm i( t#e intermediary +e,ieves t#at t#e iss)er or
t#e o((er presents t#e potentia, (or (ra)d or ot#er$ise raises %on%erns re&ardin& investor
prote%tion'
!16
"#e po$er o( an intermediary to deny a%%ess.
$o),d ()rt#er en#an%e investor prote%tion +y &ivin& ()ndin& porta,s t#e (,e0i+i,ity to
deny a%%ess to potentia, +ad a%tors'
!17
"#e S9C #as re%o&nised t#e ,imits o( t#ese r),es in red)%in& t#e risk o( (ra)d* +)t #as a,so
identi(ied some %o)nter-vei,in& %onsiderations.
7e a,so re%o&niDe t#at permittin& an intermediary to re,y on an iss)er/s
representations )n,ess t#e intermediary #as reason to <)estion t#e re,ia+i,ity o( t#e
representations %o),d potentia,,y ,essen t#e in%entive (or an intermediary to
t#oro)&#,y investi&ate t#e iss)ers and se%)rities to +e o((ered on its p,at(orm' S)%# an
o)t%ome %o),d res),t in a #i&#er ,eve,s o( (ra)d %ompared to a re<)irement t#at
intermediaries per(orm a t#oro)&# investi&ation to ens)re t#at t#e iss)er %omp,ied
$it# a,, t#e re<)irements' A #i&#er ,eve, o( (ra)d $o),d ne&ative,y a((e%t +ot#
investors in %ro$d()ndin& o((erin&s and non-(ra)d),ent iss)ers K #o$ever* $e
+e,ieve it is ,ike,y t#at investors and interested parti%ipants $o),d provide re,evant
adverse in(ormation a+o)t an iss)er or an o((erin& t#ro)&# postin&s on %#at sites*
messa&e +oards* and ot#er %omm)ni%ation %#anne,s* in%,)din&* +)t not ,imited to* t#e
%omm)ni%ation %#anne,s to +e provided +y t#e intermediary'
!18
!1!
s 4A1a212'
!14
!1
id at 1!7'
!16
id at 141-144 and !94-!9'
!17
id at 407-408'
!18
id at !96'
7#i,e intermediaries may re%eive %ompensation (rom t#e iss)er* i( (),,y dis%,osed*
!19
o((i%ers o( intermediaries* or persons per(ormin& simi,ar ()n%tions* are pro#i+ited (rom
#avin& any (inan%ia, interest in any iss)er )sin& its servi%es'
!20
"#e S9C a,so proposes t#at
t#ese persons +e pro#i+ited (rom re%eivin& a (inan%ia, interest in t#e iss)er as
%ompensation (or servi%es provided to* or (or t#e +ene(it o(* t#e iss)er* in %onne%tion $it#
t#e o((er and sa,e o( its se%)rities'
!21
"o avoid a possi+,e %on(,i%t o( interest* t#e S9C $o),d e0tend t#ese pro#i+itions on #avin&
a (inan%ia, interest* ot#er t#an %ompensation* to t#e intermediary itse,(.
S)%# a pro#i+ition $o),d +e +ene(i%ia, to investors and iss)ers +e%a)se i( an
intermediary $ere to #ave a (inan%ia, interest in one or more iss)ers t#at p,an to )se
its servi%es* t#e intermediary %o),d #ave an in%entive not +ased so,e,y on merit to
promote t#at iss)er/s o((erin&* potentia,,y to t#e detriment o( investors and ot#er
iss)ers'
!22
5iv6 Matters related to investors
)nvestor access to issuer disc"osures
Intermediaries m)st make t#e iss)er dis%,os)res avai,a+,e to t#e S9C and potentia,
investors not ,ater t#an 21 days +e(ore t#e (irst day on $#i%# se%)rities are so,d to any
investor'
!2!
A%%ordin& to t#e S9C.
"#e iss)er dis%,os)re re<)irements s#o),d +ene(it investors +y ena+,in& t#em to +etter
eva,)ate t#e iss)er and t#e o((erin&' :e<)irin& intermediaries to make t#e iss)er
in(ormation p)+,i%,y avai,a+,e and easi,y a%%essi+,e on t#eir p,at(orms $o),d red)%e
in(ormation asymmetries +et$een iss)ers and investors and $o),d en#an%e +ot#
transparen%y and e((i%ien%y o( t#e market'
!24
An intermediary $o),d +e pro#i+ited (rom re<)irin& any person to esta+,is# an a%%o)nt
$it# t#e intermediary in order to a%%ess t#is in(ormation'
!2
.ersona" information concerning potentia" and actua" investors
)dentif'ing information
Intermediaries are pro#i+ited (rom %ompensatin& promoters* (inders or ,ead &enerators (or
providin& t#e intermediary $it# persona, identi(yin& in(ormation %on%ernin& any potentia,
investor'
!26
"#e S9C noted t#at t#is pro#i+ition $o),d #e,p to remove t#e in%entive (or #i&#-press)re
sa,es ta%ti%s and ot#er a+)sive pra%ti%es'
!27
"#e S9C noted* #o$ever* t#at intermediaries
may #ave a ,e&itimate need (or re(erra,s to t#e intermediary/s p,at(orm' A%%ordin&,y.
It $o),d +e a%%epta+,e )nder t#e proposed r),es* t#ere(ore* (or an intermediary to
make payments to advertise its e0isten%e* provided t#at in doin& so* it does not pay (or
t#e persona,,y identi(ia+,e in(ormation o( investors or potentia, investors'
!28
!19
s 4A1+21!2' See S9C 4roposed Cro$d()ndin& :),es )nder "it,e III o( t#e >5BS A%t 15%to+er 201!2 at !90'
!20
s 4A1a21112'
!21
S9C 4roposed Cro$d()ndin& :),es )nder "it,e III o( t#e >5BS A%t 15%to+er 201!2 at 1!2'
!22
id at !99'
!2!
s 4A1a2162'
!24
S9C 4roposed Cro$d()ndin& :),es )nder "it,e III o( t#e >5BS A%t 15%to+er 201!2 at !90-!91'
!2
id at 16'
!26
s 4A1a21102'
!27
!28
i+id'
&rivac' of information
Intermediaries m)st a,so take s)%# steps as are re<)ired +y S9C :),es to prote%t t#e
priva%y o( in(ormation %o,,e%ted (rom investors'
!29
"#at in(ormation may in%,)de detai,s o(
t#e in%ome and net $ort# o( t#e investor* &iven t#e FS approa%# to t#e ma0im)m ()nds
t#at ea%# investor %an %ontri+)te 1see ()rt#er Se%tion A!'4'12'
"#e S9C #as %ommented t#at.
re<)irin& a ()ndin& porta, to %omp,y $it# priva%y o+,i&ations $o),d #e,p prote%t t#e
persona,,y identi(ia+,e in(ormation o( investors and potentia, investors* %onsistent
$it# #o$ it is prote%ted +y ot#er (inan%ia, intermediaries'
!!0
2isk disc"osure
Intermediaries m)st provide &enera, dis%,os)res to investors re,ated to t#e in#erent risks
invo,ved in CS98 1in%,)din& t#e spe%),ative nat)re o( start-)p %ompanies and t#e i,,i<)id
nat)re o( t#eir se%)rities2 and s)%# ot#er investor ed)%ation materia,s as t#e S9C deems
appropriate*
!!1
and ens)re t#at investors revie$ s)%# dis%,os)res* a((irm t#e risk o( ,oss and
ans$er vario)s <)estions'
!!2
In t#is %onte0t* t#e S9C #as indi%ated t#at t#e intermediary $o),d +e re<)ired to )ndertake
t#is e0er%ise ea%# time an investor seeks to make an investment %ommitment'
!!!
A,so* t#e
<)estionnaire re<)ired )nder t#e proposed r),es $o),d #e,p address %on%erns t#at not#in&
more is re<)ired o( an investor t#an a mere se,(-%erti(i%ation'
!!4
"#e re<)ired ed)%ationa, materia,s $o),d +e set o)t in t#e S9C :),es'
!!
In re&ard to t#eir
)ti,ity* t#e S9C #as o+served t#at.
t#e e((e%tiveness o( t#e ed)%ationa, materia,s to en#an%e investor prote%tion $o),d
vary dependin& )pon t#e ed)%ation and e0perien%e o( retai, investors' In addition* a
presentation t#at #i&#,i&#ts t#e risks o( se%)rities-+ased %ro$d()ndin& %o),d
dis%o)ra&e investor parti%ipation'
!!6
)nvestor "imits
Intermediaries m)st make s)%# e((orts as t#e S9C determines appropriate to ens)re t#at no
investor in a 12 mont# period e0%eeds t#e CS98 investment ,imits
!!7
1see Se%tion A!'4'1
Ma,imum funds that each investor can contribute2'
Advice to investors
8)ndin& porta,s are pro#i+ited (rom o((erin& investment advi%e or makin&
re%ommendations to investors'
!!8
"#e %on%ept o( investment advi%e %o),d* (or instan%e*
in%,)de any promotion o( a parti%),ar o((er* s)%# as a ()ndin& porta, pointin& o)t t#at t#e
o((er is attra%tin& a n)m+er o( investors'
"o avoid ,imitin& t#e )ti,ity o( ()ndin& porta,s* t#e S9C is %onsiderin& introd)%in& a
%onditiona, sa(e #ar+o)r t#at $o),d permit ()ndin& porta,s to en&a&e in a ran&e o(
a%tivities $it#o)t +rea%#in& t#is pro#i+ition'
!!9
8or instan%e.
!29
s 4A1a2192'
!!0
!!1
s 4A1a21!2'
!!2
s 4A1a2142'
!!!
!!4
id at 172'
!!
id at 1!-14'
!!6
id at !89'
!!7
s 4A1a2182'
!!8
s !1a21802 o( t#e Se%)rities 90%#an&e A%t o( 19!4 1introd)%ed +y s !04 o( t#e >5BS A%t2'
!!9
7e anti%ipate t#at some ()ndin& porta,s may $is# to ,imit* to some e0tent* t#e s%ope
o( t#eir +)sinesses +y* (or e0amp,e* spe%ia,iDin& in o((erin&s +y iss)ers in %ertain
ind)stries or &eo&rap#i% ,o%ations' In some %ir%)mstan%es* t#ese ,imitations %o),d +e
vie$ed as providin& investment advi%e' "o a%%ommodate reasona+,e ,imitations* t#e
proposed sa(e #ar+or $o),d permit a ()ndin& porta, to app,y o+Ce%tive %riteria to ,imit
t#e o((erin&s on its p,at(orm* $it#o)t +ein& deemed to +e providin& investment
advi%e' "#ose %riteria $o),d +e re<)ired to +e reasona+,y desi&ned to res),t in a +road
se,e%tion o( iss)ers o((erin& se%)rities t#ro)&# t#e ()ndin& porta,/s p,at(orm and +e
app,ied %onsistent,y to a,, potentia, iss)ers and o((erin&s* so as not to re%ommend or
imp,i%it,y endorse one iss)er or o((erin& over ot#ers' "#e %riteria a,so $o),d +e
re<)ired to +e %,ear,y disp,ayed on t#e ()ndin& porta,/s p,at(orm'
!40
In t#e vie$ o( t#e S9C* t#is approa%# s#o),d #e,p investors +etter appre%iate any ni%#e
(o%)s o( a parti%),ar ()ndin& porta, and t#e s%ope o( t#e o((ers avai,a+,e on t#at ()ndin&
porta,/s p,at(orm'
(o"icitation
Intermediaries are pro#i+ited (rom so,i%itin& transa%tions (or se%)rities o((ered or
disp,ayed on t#eir porta,s* or %ompensatin& emp,oyees or a&ents (or doin& so'
!41
)nvestor funds
Intermediaries m)st prevent t#e iss)er #avin& a%%ess to CS98 pro%eeds )nti, a desi&nated
()nds tar&et (or t#at %ompany is rea%#ed and a,so a,,o$ a,, investors to %an%e, t#eir
%ommitments to invest as determined +y S9C :),es'
!42
Intermediaries t#emse,ves are pro#i+ited (rom #o,din& or mana&in& any investor ()nds or
se%)rities'
!4!
"#e proposed r),es $o),d o+,i&e intermediaries to dire%t investors to transmit
t#e ()nds dire%t,y to an a%%o)nt $it# a <)a,i(ied t#ird party +ank* $#i%# #as a&reed in
$ritin& to #o,d t#e ()nds and to transmit t#em to t#e iss)er or t#e investors* dependin& on
$#et#er t#e o((er $as %omp,eted or $as %an%e,,ed'
!44
A,so.
t#e re<)irement t#at t#e L+ankM a%%o)nt in $#i%# ()nds are deposited +e e0%,)sive,y
(or t#e +ene(it o( investors and t#e iss)er $o),d #e,p prevent t#e intermediary or ot#er
parties (rom %,aimin& or ot#er$ise )n,a$(),,y takin& ()nds (rom t#at a%%o)nt'
!4
<n"ine communications
"#e proposed r),es $o),d re<)ire an intermediary to provide %#anne,s on its on,ine
p,at(orm t#ro)&# $#i%# investors %an %omm)ni%ate $it# one anot#er and $it#
representatives o( t#e iss)er a+o)t o((ers made avai,a+,e on t#at p,at(orm'
As o+served +y t#e S9C.
A premise o( %ro$d()ndin& is t#at investors $o),d re,y* at ,east in part* on t#e
%o,,e%tive $isdom o( t#e %ro$d to make +etter in(ormed investment de%isions
!46
and t#at.
individ)a,s de%ide $#et#er or not to invest a(ter s#arin& in(ormation a+o)t t#e idea or
+)siness $it#* and ,earnin& (rom* ot#er mem+ers o( t#e %ro$d'
!47
!40
id at 229-2!0'
!41
!42
s 4A1a2172'
!4!
!44
!4
id at 400'
!46
id at !76'
!47
id at 11'
"#e %omm)ni%ation %#anne,s proposed +y t#e S9C are intended to provide a %entra,iDed
and transparent means (or mem+ers o( t#e p)+,i% t#at #ave opened an a%%o)nt $it# an
intermediary to s#are t#eir vie$s a+o)t investment opport)nities and to %omm)ni%ate $it#
representatives o( t#e iss)er to +etter assess t#e iss)er and investment opport)nity'
A,so* t#o)&# %omm)ni%ations +et$een investors %o),d o%%)r o)tside t#e intermediary/s
p,at(orm* %omm)ni%ations +y an investor $it# a %ro$d()ndin& iss)er or its representatives
a+o)t t#e terms o( t#e o((er $o),d +e re<)ired to o%%)r t#ro)&# t#is sin&,e intermediary
on,ine p,at(orm t#ro)&# $#i%# t#e o((er is %ond)%ted' "#is re<)irement is desi&ned to
provide transparen%y and a%%o)nta+i,ity* and t#ere+y ()rt#er t#e prote%tion o( investors'
"#e proposed r),es $o),d a,so re<)ire t#e intermediary to make t#e %omm)ni%ations on
t#e on,ine %#anne,s p)+,i%,y avai,a+,e (or vie$in&* t#o)&# on,y persons $#o #ad opened
an a%%o)nt $it# t#e intermediary %o),d post %omments on t#e on,ine p,at(orm'
!48
"#e S9C a,so proposes dis%,os)re r),es to dea, $it# possi+,e %on(,i%ts o( interest t#at
%o),d arise in t#e )se o( t#ese on,ine %omm)ni%ation %#anne,s' 8or instan%e.
"#e proposed r),es a,so $o),d re<)ire any person postin& a %omment in t#e
%omm)ni%ation %#anne,s to %,ear,y and prominent,y dis%,ose $it# ea%# postin&
$#et#er #e or s#e is a (o)nder or an emp,oyee o( an iss)er en&a&in& in promotiona,
a%tivities on +e#a,( o( t#e iss)er* or is ot#er$ise %ompensated* $#et#er in t#e past or
prospe%tive,y* to promote t#e iss)er/s o((erin&'
!49
A..2 Canada
intermediaries'
In settin& o)t a proposed re&),atory (rame$ork (or intermediaries 1see +e,o$2 t#e
Mar%# 2014 5SC 4aper a,so raised (or %omment t#e &enera, <)estion $#et#er t#at
(rame$ork $o),d permit intermediaries to appropriate,y %arry on +)siness and $#et#er
ot#er re<)irements s#o),d +e imposed on intermediaries to prote%t t#e interests o(
investors'
!0
5i6 Sole online onl* intermediar*
An iss)er $i,, on,y +e permitted to o((er its se%)rities to t#e %ro$d t#ro)&# one
intermediary d)rin& t#e distri+)tion period esta+,is#ed +y t#e iss)er'
!1
An o((er do%)ment
%annot +e posted on any ot#er $e+site'
!2
"#e 5SC ar&)ed t#at.
A,, re,evant in(ormation s#o),d +e in%,)ded in one p,a%e 1i'e'* t#e porta,/s $e+site2 (or
ease o( investor re(eren%e and to (a%i,itate t#e e0%#an&e o( in(ormation and vie$s t#at
is %ond)%ive to e,i%itin& t#e B$isdom o( t#e %ro$d/' It $i,, a,so make it easier to
monitor +ot# t#e distri+)tion and investment ,imits'
!!
!48
id at 17-179'
!49
id at 178'
!0
!1
s 11 and s 1142 o( Anne0 ;-! o( Appendi0 ; at ;-0 Q ;-1'
!2
Appendi0 ; at ;-2! Q ;-24 and s 16122 o( Anne0 ;-! o( Appendi0 ; at ;-1'
!!
Appendi0 ; at ;-12'
5ii6 !ermitted t*pes of intermediar*
2egistration requirement
CS98 o((ers m)st +e %ond)%ted t#ro)&# an on,ine intermediary re&istered as a restri%ted
dea,er'
!4
"#e 5SC des%ri+ed t#is ,i%ensin& re<)irement (or intermediaries as a key investor
prote%tion e,ement in CS98.
:e&istration is ne%essary to address* amon& ot#er t#in&s* potentia, inte&rity*
pro(i%ien%y and so,ven%y %on%erns t#at may app,y to ()ndin& porta,s and t#e persons
operatin& t#em* as $e,, as potentia, %on%erns re,atin& to %on(,i%ts o( interest and se,(-
dea,in&' "#e re&istration re<)irement is a,so intended to serve as a sa(e&)ard a&ainst
()ndin& porta,s +ein& )sed to (a%i,itate (ra)d),ent o((erin&s o( se%)rities t#ro)&# t#e
internet'
!
Intermediaries m)st %omp,y $it# &enera, re&istrant re<)irements* in%,)din& a%%o)nt
openin&* reportin&* re%ord-keepin& and re%ord-retention re<)irements* +)t $it# %ertain
adC)stments to ot#er ,i%ensin& re<)irements to take into a%%o)nt t#e CS98 provisions
app,i%a+,e to t#em'
!6
Intermediaries $i,, a,so +e s)+Ce%t to a minim)m net %apita, re<)irement o( O0*000 and a
(ide,ity +ond ins)ran%e o+,i&ation providin& (or %overa&e o( at ,east O0*000 1to #e,p
ins)re a&ainst t#e ,oss o( investor ()nds t#at may o%%)r i(* (or e0amp,e* an intermediary or
any o( its o((i%ers or dire%tors +rea%#es t#e pro#i+itions on #o,din&* mana&in&* possessin&
or ot#er$ise #and,in& investor ()nds or se%)rities2'
!7
Simi,ar to ot#er re&istrants* t#e intermediary $i,, +e re<)ired to a%t #onest,y* (air,y and in
&ood (ait#'
!8
An intermediary m)st provide <)arter,y reports to t#e re&),ator on vario)s aspe%ts o( t#e
CS98 a%tivities on its $e+site'
!9
Iss)ers $i,, #ave o+,i&ations to provide some o( t#is
in(ormation* +)t t#e o+,i&ation %o),d +e de,e&ated to t#e intermediary' "#e re&),ator may
a,so re<)est ot#er in(ormation or in(ormation on a more (re<)ent +asis'
!60
A,so* %#an&es in %ontro, o( t#e intermediary $i,, re<)ire re&),atory approva,'
!61
"#e re&),ator #as e0emption po$ers in re&ard to t#e o+,i&ations app,i%a+,e to CS98
intermediaries'
!62
Advertising its e,istence
An intermediary may advertise its e0isten%e* t#e (a%t t#at %ro$d()ndin& o((ers %an +e
made t#ro)&# its on,ine porta, and t#e (a%t t#at in(ormation a+o)t s)%# o((ers is posted on
its $e+site'
!6!
!4
Appendi0 ; at ;-!0 and ss 4 and 71%2 o( Anne0 ;-! o( Appendi0 ; at ;-47 Q ;-48'
!
Appendi0 ; at ;-!0'
!6
s 29 o( Anne0 ;-! o( Appendi0 ; at ;- Q ;6'
!7
Appendi0 ; at ;-!4 and s 44 o( Anne0 ;-! o( Appendi0 ; at ;-60'
!8
Appendi0 ; at ;-!1 and ;-!4 and s 291!2 o( Anne0 ;-! o( Appendi0 ; at ;-6'
!9
!60
Appendi0 ; at ;-!9 Q ;-40'
!61
Appendi0 ; at ;-!' "#e test o( B%ontro,/ in t#is %onte0t is set o)t in s ! o( Anne0 ;-! o( Appendi0 ; at
;-47'
!62
!6!
Mar%# 2014 5SC 4aper at ;-!8'
C($5 offers on"y
An intermediary a%tin& in %onne%tion $it# CS98 o((ers o( a parti%),ar iss)er %annot a,so
o((er t#ose se%)rities )nder ot#er e0emptions to t#e prospe%t)s re<)irements* nor %an it a%t
as an intermediary in any se%ondary transa%tions in t#ose se%)rities* s)%# as %,earin& or
sett,in& any trades in an iss)er/s se%)rities'
!64

"#e 5SC pointed o)t t#at t#ese ,imitations app,y on,y to a%tivities in %onne%tion $it# a
distri+)tion o( se%)rities t#ro)&# t#e CS98 pro%ess' An intermediary may en&a&e in ot#er
types o( %ro$d()ndin& a%tivities t#at do not invo,ve a distri+)tion o( se%)rities* s)%# as
donation ()ndin&* re$ard ()ndin& or pre-p)r%#ase ()ndin&'
!6
5iii6 Matters related to issuers
)ne"igib"e issuers for a particu"ar intermediary
An intermediary m)st not a,,o$ an iss)er a%%ess to t#e on,ine porta, to p)+,is# its o((er i(
t#e intermediary* or any o((i%er* dire%tor or si&ni(i%ant s#are#o,der o( t#e intermediary or
o( any a((i,iate o( t#e intermediary.
1a2 #as +ene(i%ia, o$ners#ip o(* or %ontro, or dire%tion over* more t#an 10P o( t#e
iss)ed and o)tstandin& se%)rities o( t#e iss)er* or se%)rities %onverti+,e into
se%)rities o( t#e iss)er* or
1+2 e0%ept as permitted )nder 1a2* ot#er$ise #as an e%onomi% interest in t#e iss)er'
!66
Checks on issuers
"#e intermediary m)st take reasona+,e steps to esta+,is# t#at t#e +)siness o( t#e iss)er $i,,
+e %ond)%ted $it# inte&rity and in t#e +est interests o( t#e se%)rity #o,ders o( t#e iss)er*
+ased on t#e in(ormation %ontained in t#e iss)er/s app,i%ation and t#e res),ts o(
+a%k&ro)nd %#e%ks'
!67
(ackgro#nd checks
8or t#is p)rpose* intermediaries $i,, +e re<)ired to %ond)%t +a%k&ro)nd %#e%ks on iss)ers*
and t#eir dire%tors* e0e%)tive o((i%ers* promoters and %ontro, persons* to veri(y t#e
<)a,i(i%ations* rep)tation and tra%k re%ord o( t#e parties invo,ved in t#e key aspe%ts o( t#e
o((er' "#e %#e%ks $i,, in%,)de identi(yin& %rimina, and re&),atory iss)es'
!68
"#e 5SC #as indi%ated t#at* at a minim)m* an intermediary s#o),d %ond)%t t#e (o,,o$in&
%#e%ks.
1a2 (or iss)ers.
1i2 t#e e0isten%e o( t#e iss)er and its +)siness re&istration* in%,)din& a revie$ o(
t#e iss)er/s %onstit)tiona, do%)ments
1ii2 %rimina, re%ord and se%)rities en(or%ement #istory %#e%ks
1iii2 +ankr)pt%yN,i<)idation %#e%ks* and
1iv2 %o)rt re%ord %#e%ks* $#ere avai,a+,e
!64
Appendi0 ; at ;-!0* ;-!! and ;-41 and ss !1 and !2 o( Anne0 ;-!* at ;-6' A,so t#e intermediary
%annot a%t as an investment dea,er* port(o,io mana&er or investment ()nd mana&er. ;-!1'
!6
Appendi0 ; at ;-89'
!66
s !9 o( Anne0 ;-! o( Appendi0 ; at ;-9'
!67
Appendi0 ; at ;-6'
!68
Appendi0 ; at ;-! - ;-!6 and ss ! and !6 o( Anne0 ;-! o( Appendi0 ; at ;-7 Q ;-8'
1+2 (or dire%tors* e0e%)tive o((i%ers* %ontro, persons and promoters o( t#e iss)er.
1i2 %rimina, re%ord and se%)rities en(or%ement #istory %#e%ks
1ii2 +ankr)pt%y %#e%ks* and
1iii2 %o)rt re%ord %#e%ks* $#ere avai,a+,e'
An intermediary may retain a t#ird party to per(orm t#ese %#e%ks' -o$ever* t#e stat)tory
o+,i&ation remains $it# t#e intermediary'
!69
An intermediary m)st deny a%%ess to an iss)er i(* +ased )pon its revie$ o( t#e iss)er/s
app,i%ation and in(ormation o+tained t#ro)&# +a%k&ro)nd %#e%ks* it +e,ieves t#at t#e
+)siness o( t#e iss)er may not +e %ond)%ted $it# inte&rity and in t#e +est interests o(
se%)rity #o,ders +e%a)se o(* amon& ot#er reasons* t#e %ond)%t o( t#e iss)er* or any o( t#e
iss)er/s e0e%)tive o((i%ers* dire%tors* promoters* or %ontro, persons'
!70
D#e diligence on the iss#er8s offer
An intermediary m)st #ave t#e pro(i%ien%y t#at a reasona+,e person $o),d %onsider
ne%essary to per(orm its ro,e %ompetent,y* in%,)din& to )nderstand t#e str)%t)re* (eat)res
and risks o( ea%# se%)rity %omin& $it#in a CS98 o((er on its $e+site'
!71
An intermediary is e0pe%ted to deve,op t#is )nderstandin& +ased on a revie$ o( t#e
iss)er/s arti%,es o( in%orporation* ot#er re,evant %onstit)tiona, do%)ments and ot#er
materia,s in%,)ded in t#e iss)er/s app,i%ation (or a%%ess to t#e intermediary/s porta,' 8or
e0amp,e* i( an iss)er proposes to o((er se%)rities t#at %ontain restri%tions on votin&* or
%ontain redemption ri&#ts t#at a,,o$ t#e iss)er to redeem t#e s#ares in %ertain
%ir%)mstan%es* or t#at insiders or promoters o( t#e iss)er #o,d anot#er %,ass o( se%)rities
t#at #ave m),tip,e votes* t#e intermediary s#o),d )nderstand t#at it may +e mis,eadin& to
investors i( t#e iss)er des%ri+es t#e se%)rities as B%ommon s#ares/ or does not dis%,ose t#e
e0isten%e and materia, terms o( t#e se%)rities #e,d +y t#e insiders and promoters'
!72
?ike$ise* i( an iss)er is part o( a %orporate &ro)p* and t#e iss)er/s interest in t#e +)siness
or t#e assets o( t#e +)siness are o$ned t#ro)&# one or more s)+sidiaries* t#e intermediary
s#o),d )nderstand t#e (eat)res and risks o( t#e %apita, str)%t)re o( t#e %orporate &ro)p and
assess $#et#er t#e iss)er/s dis%,os)re ade<)ate,y dis%,oses t#ese risks'
!7!
7it#in t#is (rame$ork* an intermediary m)st revie$ t#e in(ormation intended to +e
presented +y t#e iss)er on t#e porta,/s $e+site (or t#e p)rpose o( (ormin& a reasona+,e
+e,ie( t#at t#e in(ormation ade<)ate,y sets o)t.
t#e &enera, (eat)res and str)%t)re o( t#e se%)rity to +e o((ered
iss)er-spe%i(i% risks
parties invo,ved and any in#erent %on(,i%ts o( interest* and
t#e intended )se o( ()nds raised t#ro)&# t#e iss)e'
-o$ever* t#is o+,i&ation does not in%,)de an o+,i&ation to assess.
!69
Appendi0 ; at ;-91'
!70
Appendi0 ; at ;-!2 and s !71+2 o( Anne0 ;-! o( Appendi0 ; at ;-8'
!71
!72
Appendi0 ; at ;-89'
!7!
i+id'
t#e merits or e0pe%ted ret)rns o( an investment to p)r%#asers* or
t#e %ommer%ia, via+i,ity o( a proposed +)siness or o((er'
!74
A,so* +)siness p,ans m)st +e prepared +y t#e iss)er/s mana&ement' Intermediaries $i,, not
+e re<)ired to assess t#e %ommer%ia, via+i,ity o( t#ese p,ans'
!7
In addition* t#e intermediary is not o+,i&ed to determine $#et#er an iss)er/s mi,estones are
rea,isti% or a%#ieva+,e or to assess t#e e0perien%e o( t#e dire%tors or e0e%)tive o((i%ers o(
t#e iss)er'
!76
"#e 5SC $as o( t#e vie$ t#at.
Many LintermediariesM $i,, rea,iDe t#e importan%e o( %ond)%tin& d)e di,i&en%e on
iss)ers* espe%ia,,y i( t#e porta, e0pe%ts to maintain its +)siness in $#at is e0pe%ted to
+e a very %ompetitive market'
!77
D#t' to act
7#i,e an intermediary $i,, not +e a)tomati%a,,y ,ia+,e (or t#e a%%)ra%y or %omp,eteness o(
t#e iss)er in(ormation* it may not in%,)de on its $e+site any iss)er in(ormation or
%omm)ni%ation t#at appears to +e (a,se* de%eptive* mis,eadin& or %ontains a
misrepresentation' ?ike$ise* an intermediary m)st deny a%%ess +y an iss)er to its on,ine
porta, i( t#e intermediary #as reason to +e,ieve t#at t#e iss)er or its o((er is (ra)d),ent "#e
intermediary m)st terminate any s)%# o((er and m)st a,so report immediate,y to t#e
prin%ipa, re&),ator i( (ra)d is dis%overed d)rin& t#e distri+)tion period'
!78
)ssuer access agreements
Be(ore an intermediary may permit an iss)er to a%%ess its on,ine porta,* t#e intermediary
m)st enter into an Biss)er a%%ess a&reement/ $it# t#at iss)er'
!79
"#e iss)er a%%ess a&reement m)st %ontain vario)s provisions* in%,)din& a %on(irmation
(rom t#e iss)er t#at it $i,, %omp,y $it# t#e intermediary/s postin& po,i%ies* in%,)din&
%on(irmation t#at t#e in(ormation t#at t#e iss)er provides to t#e intermediary or posts on
t#e intermediary/s $e+site $i,,.
%omp,y $it# app,i%a+,e se%)rities ,e&is,ation
not %ontain )nd),y promotiona, statements or materia, t#at %annot +e reasona+,y
s)pported or any misrepresentation
+e presented in a (air and +a,an%ed manner* and
not +e mis,eadin&'
!80
Assistance to issuers
An intermediary may assist an iss)er in t#e preparation o( an o((er do%)ment* +)siness
p,an or ot#er permissi+,e do%)ment* provided t#at t#e servi%e is ,imited to assistin& t#e
!74
!7
Appendi0 ; at ;-!7'
!76
Appendi0 ; at ;-89'
!77
!78
Appendi0 ; at ;-!2* ;-!6 Q ;-!7 and ss !7-!8 o( Anne0 ;-! o( Appendi0 ; at ;-8 Q ;-9'
!79
!80
;e(inition o( Biss)er a%%ess a&reement/ in s 1112 o( Anne0 ;-! o( Appendi0 ; at ;-4'
iss)er to %omp,y $it# its dis%,os)re o+,i&ations and to ens)re t#at t#e in(ormation is
presented in a (air* +a,an%ed and reasona+,e manner'
!81
Intermediaries may a,so assist iss)ers to meet t#eir dis%,os)re and re%ord-keepin&
o+,i&ations' -o$ever* t#e provision o( s)%# assistan%e is at t#e dis%retion o( t#e
intermediary and $i,, not +e a %ondition o( intermediary re&istration'
!82
<b"igations that intermediaries may p"ace on issuers
As part o( its &atekeepin& ro,e* an intermediary may* at its dis%retion* impose )pon iss)ers
s)%# ot#er re<)irements as t#e porta, %onsiders desira+,e to prote%t t#e interests o(
investors' An intermediary may deve,op standard (orm do%)ments (or t#at p)rpose'
!8!
t#at it may %#ar&e to* or impose on* an iss)er'
!84
In re&ard to t#e (orms o( payment* t#e 5SC noted t#at i( an intermediary #as a (inan%ia,
stake in a parti%),ar iss)er* it may #ave an in%entive to promote t#at iss)er over ot#er
iss)ers on its porta,' -o$ever* t#e 5SC a,so noted t#at t#at many start-)ps and sma,, and
medi)m enterprises may #ave ,imited reso)r%es to pay intermediary (ees' "#e 5SC
t#ere(ore proposes t#at iss)ers +e permitted to pay t#ese (ees in se%)rities o( t#e iss)er 1i(
a&reed +y t#e intermediary2* provided t#is %ompensation is (),,y dis%,osed to investors*
and t#e investment $o),d not res),t in t#e intermediary o$nin& or %ontro,,in& more t#an
10P o( t#e iss)er'
!8

Beyond t#at* an intermediary may not invest in an iss)er or )nder$rite an iss)er on its
$e+site'
!86
"#e Mar%# 2014 5SC 4aper raised t#e <)estion $#et#er permittin& iss)ers to pay
intermediary (ees in se%)rities o( t#e iss)er is appropriate.
"#e Lre<)irementsM $o),d a,,o$ LintermediaryM (ees to +e paid in se%)rities o( t#e
iss)er so ,on& as t#e Lintermediary/sM investment in t#e iss)er does not e0%eed 10P' Is
t#e investment t#res#o,d appropriateA In ,i&#t o( t#e potentia, %on(,i%ts o( interest
(rom t#e porta,/s o$ners#ip o( an iss)er* s#o),d LintermediariesM +e pro#i+ited (rom
re%eivin& (ees in t#e (orm o( se%)ritiesA
!87
Conf"icts of interest
Intermediaries m)st identi(y and appropriate,y dea, $it# any %on(,i%ts o( interest t#at may
arise in t#e a%tivities o( t#e on,ine porta,s'
!88
A,so* an intermediary m)st not parti%ipate in a Bre(erra, arran&ement/ e0%ept to
%ompensate a t#ird party (or re(errin& an iss)er to it'
!89
!81
Appendi0 ; at ;-!1 Q ;-!2 and s !!1221d2 o( Anne0 ;-! o( Appendi0 ; at ;-7'
!82
Appendi0 ; at ;-!9'
!8!
Appendi0 ; at ;-!! Q ;-!4'
!84
Appendi0 ; at ;-!7and s 401+21iii2 o( Anne0 ;-! o( Appendi0 ; at ;-60'
!8
Appendi0 ; at ;-!2'
!86
Appendi0 ; at ;-!!'
!87
!88
Appendi0 ; at ;-!7'
!89
5iv6 Matters related to investors
(creening and education of investors
:isk $arnin&s to investors m)st +e set o)t at t#e top o( t#e iss)er o((er'
!90
In addition* an intermediary m)st prominent,y state on its on,ine porta, t#at.
no se%)rities re&),atory a)t#ority or re&),ator #as approved or e0pressed an opinion
a+o)t t#e se%)rities o((ered on t#e porta,
BA %ro$d()ndin& investment is #i&#,y risky' =o) may ,ose a,, yo)r investment and yo)
may not +e a+,e to se,, any se%)rities yo) p)r%#ase/'
!91
An intermediary $i,, not +e s)+Ce%t to B%,ient-spe%i(i%/ kno$-yo)r-%,ient and s)ita+i,ity
re<)irements (or investors takin& )p iss)er o((ers t#at are posted on t#e intermediary/s
$e+site'
!92
:at#er* an intermediary m)st take reasona+,e steps to ens)re t#at investors )nderstand t#e
risks o( a %ro$d()ndin& investment'
!9!
In t#at respe%t.
Lan intermediaryM s#o),d not re,y so,e,y on t#e risk a%kno$,ed&ement (orm si&ned +y
an investor'
!94
7it#o)t +ein& pres%riptive* t#e 5SC #as indi%ated t#at (or t#e p)rpose o( ens)rin& t#at
investors )nderstand t#e risks o( a %ro$d()ndin& investment* an intermediary mi&#t
re<)ire investors to.
%orre%t,y ans$er <)estions in an intera%tive <)estionnaire %ond)%ted at t#e time o( t#e
a%%o)nt openin& t#at demonstrates t#at t#e investor )nderstands t#e ,eve, o( risk
&enera,,y app,i%a+,e to investments in start-)ps* emer&in& +)sinesses* and sma,,
iss)ers and t#e risk o( i,,i<)idity* and
%orre%t,y ans$er <)estions in an intera%tive <)estionnaire %ond)%ted ann)a,,y
t#erea(ter'
!9
)nvestor "imits
Intermediaries m)st o+tain a $ritten %erti(i%ation (rom investors t#at t#ey are %omp,yin&
$it# t#e ann)a, investment ,imit'
!96
A,so* ()rt#er* %)m),ative investments made +y t#e
same investor on t#e intermediary/s p,at(orm m)st +e monitored +y t#e intermediary to
ens)re t#at t#e ann)a, investment ,imit is not e0%eeded'
!97
Advice to investors
?eneral prohi3ition
An intermediary is pro#i+ited (rom providin& re%ommendations or advi%e to investors
a+o)t spe%i(i% se%)rities'
!98
It %annot re%ommend or endorse a parti%),ar iss)er or o((er on
its $e+site'
!90
"#e $ordin& is set o)t in Appendi0 ; at ;-67'
!91
s 401+21i2* 1ii2 o( Anne0 ;-! o( Appendi0 ; at ;-9 Q ;-60'
!92
Appendi0 ; at ;-!4' "#e term B%,ient-spe%i(i% s)ita+i,ity/ re(ers to t#e o+,i&ation to determine t#at an
investment is s)ita+,e (or a parti%),ar %,ient in ,i&#t o( t#e parti%),ar %,ient/s investment needs and o+Ce%tives'
!9!
Appendi0 ; at ;-!8'
!94
Appendi0 ; at ;-91'
!9
Appendi0 ; at ;-!8'
!96
i+id'
!97
Appendi0 ; at ;-!8 Q ;-!9'
!98
Appendi0 ; at ;-!1 and s !!112 o( Anne0 ;-! o( Appendi0 ; at ;-7'
8or instan%e* %ommentin& to investors on t#e merits o(* or e0pe%ted ret)rns (rom* an iss)er
o((er on its $e+site $o),d %onstit)te a re%ommendation or advi%e'
!99
A,so* #i&#,i&#tin&*
s#o$%asin& or spot,i&#tin& a parti%),ar iss)er on its $e+site %o),d +e %onsidered as a (orm
o( e0press or imp,ied re%ommendation* endorsement or advi%e to investors'
400
+emptions
An intermediary may per(orm vario)s a%tions $#i%# ot#er$ise mi&#t +e seen as %omin&
$it#in t#e &enera, pro#i+ition on providin& advi%e to investors* provided t#at t#ose a%tions
$o),d not +e vie$ed +y a reasona+,e person as an assessment o( t#e <)a,ity or %ommer%ia,
via+i,ity o( a %ro$d()ndin& o((er* name,y to.
present or disp,ay in(ormation a+o)t an iss)er or a %ro$d()ndin& o((er on its $e+site*
i( t#e in(ormation is presented or disp,ayed in a (air* +a,an%ed and reasona+,e manner
)se o+Ce%tive %riteria to ,imit t#e CS98 o((ers on its p,at(orm* provided t#e %riteria are
dis%,osed on t#e $e+site* are app,ied %onsistent,y* and $o),d not +e vie$ed +y a
reasona+,e person as a re%ommendation or endorsement
pro#i+it %ro$d()ndin& o((ers on its $e+site +ased on a &ood (ait# determination t#at
an iss)er is not %omp,yin& $it# se%)rities ,a$
assist an iss)er in t#e preparation o( an o((er do%)ment* +)siness p,an or ot#er
permissi+,e do%)ment* provided t#at t#e servi%e is ,imited to assistin& t#e iss)er to
%omp,y $it# its dis%,os)re o+,i&ations and to ens)re t#e in(ormation is presented in a
provide &enera, in(ormation and ed)%ationa, materia,s to potentia, p)r%#asers a+o)t
%ro$d()ndin& o((ers* provided t#at t#e in(ormation and materia,s are presented in a
provide on its $e+site sear%# ()n%tions or ot#er too,s (or potentia, p)r%#asers to
sear%#* sort or %ate&orise %ro$d()ndin& o((ers avai,a+,e on t#e ()ndin& porta,/s
$e+site a%%ordin& to o+Ce%tive %riteria* and
provide %omm)ni%ation %#anne,s or dis%)ssion +oards to ena+,e potentia, p)r%#asers
p)rs)ant to a %ro$d()ndin& o((ers* to %omm)ni%ate $it# one anot#er and $it#
representatives o( t#e iss)er a+o)t a %ro$d()ndin& o((er disp,ayed on t#e
intermediary/s $e+site provided t#at %omm)ni%ation +y a person %an +e tra%ed +a%k to
its a)t#or'
401
Advertising and so"icitation
An intermediary $i,, not +e a+,e to advertise t#e o((er or so,i%it transa%tions o( se%)rities
o((ered on its p,at(orm* ot#er t#an t#ro)&# postin& an o((er 1and ot#er permitted
do%)ments
402
2 on its p,at(orm'
40!
"#is pro#i+ition in%,)des an intermediary %ompensatin&
its emp,oyees or a&ents to so,i%it t#e sa,e o( se%)rities on t#e on,ine p,at(orm'
404
!99
Appendi0 ; at ;-!2'
400
Appendi0 ; at ;-90'
401
s !!122 o( Anne0 ;-! o( Appendi0 ; at ;-7'
402
40!
404
Appendi0 ; at ;-!1'
-o$ever* an intermediary may advise potentia, investors* or advertise t#e (a%t 1(or
instan%e* t#ro)&# so%ia, media2* t#at a CS98 o((er is +ein& made* or $i,, +e made* t#ro)&#
its on,ine porta,'
40
.rohibition on "ending to investors
Intermediaries $i,, +e pro#i+ited (rom ,endin& money* e0tendin& %redit or providin&
mar&in to any investor or re%ommend t#at an investor )se +orro$ed money to (inan%e any
p)r%#ase o( a se%)rity'
Fnder t#is approa%#* intermediaries 1as $e,, as iss)ers2 and t#eir respe%tive dire%tors and
e0e%)tive o((i%ers* m)st not ,end or (inan%e* or arran&e ,endin& or (inan%in& 1(or instan%e*
(rom an a((i,iate2* (or an investor to p)r%#ase se%)rities o( t#e iss)er t#ro)&# CS98'
406
)sin& ,evera&e to invest t#ro)&# %ro$d()ndin&' A,so* to permit intermediaries to ()nd
investors in %ro$d-+ased ()ndraisin& B$o),d %reate a %on(,i%t o( interest $#i%# %annot +e
proper,y mana&ed/'
407
.ayment from investors
t#at it may %#ar&e to* or impose on* an investor'
408
<n"ine communications
Intermediaries may 1+)t are not o+,i&ed2 to provide on,ine %omm)ni%ation +et$een iss)ers
and investors' I( an intermediary %#ooses to o((er a dis%)ssion +oard or ot#er means o(
%omm)ni%ation +et$een investors andNor an iss)er and its investors 1(or e0amp,e* via %#at
rooms or a +,o&2* it m)st ens)re t#at a,, %omments made $it#in s)%# (or)m %an +e tra%ed
+a%k to t#eir a)t#ors'
409
"#e intermediary m)st a,so monitor postin&s to %on(irm t#at t#e iss)er is not makin&
statements or providin& in(ormation t#at are in%onsistent $it# t#e %ro$d()ndin& o((er
do%)ment and may remove any materia, t#at it deems inappropriate or raises investor
prote%tion %on%erns'
410
Materia" change in the offer
7#ere a materia, %#an&e in t#e o((er o%%)rs* t#e intermediary m)st noti(y %ommitted
investors o( t#e %#an&e and re<)ire re%on(irmation o( t#eir %ommitment $it#in (ive
+)siness days' I( re%on(irmation is not re%eived $it#in t#at time* t#e investment m)st +e
a)tomati%a,,y %an%e,,ed and t#e ()nds ret)rned'
411
Cance""ed offer
Intermediaries $i,, +e re<)ired to noti(y %ommitted investors $it#in (ive +)siness days i(
t#e o((er is %an%e,,ed and m)st take appropriate steps so t#at investor money is ret)rned'
412
40
Appendi0 ; at ;-24 and s 18122* 1!2 o( Anne0 ;-! o( Appendi0 ; at ;-2'
406
Appendi0 ; at ;-!! and ss 10 and 4 o( Anne0 ;-! o( Appendi0 ; at ;-49 and ;-60'
407
Appendi0 ; at ;-9!'
408
s 401+21iii2 o( Anne0 ;-! o( Appendi0 ; at ;-60'
409
Appendi0 ; at ;-!9 and s !!1221&2 o( Anne0 ;-! o( Appendi0 ; at ;-7'
410
411
Appendi0 ; at ;-!'
412
i+id'
)nvestor funds
Intermediaries $i,, not +e a+,e to #o,d* #and,e* or #ave a%%ess to* investor ()nds or assets
o( investors'
41!
Indi%ia o( #o,din& or #avin& a%%ess to an investor/s ()nds or assets in%,)de.
#o,din& an investor/s se%)rities* %erti(i%ates or %as# (or any period o( time
#avin& a)t#ority 1e'&'* a po$er o( attorney2 to $it#dra$ ()nds or se%)rities (rom an
investor/s a%%o)nt
a%%eptin& ()nds (rom an investor dire%t,y 1e'&'* a %#e<)e made paya+,e to t#e
intermediary2 or a%%eptin& ()nds on t#e investor/s +e#a,( (rom a %)stodian
a%tin& in t#e %apa%ity o( a tr)stee (or an investor
#avin&* in any %apa%ity* ,e&a, o$ners#ip o(* or a%%ess to* t#e investor/s ()nds or
se%)rities'
414
:at#er* intermediaries m)st arran&e (or rep)ta+,e t#ird parties to #and,e investor ()nds'
41
"#ese ()nds $o),d #ave to +e #e,d e0terna,,y in a tr)st or es%ro$ arran&ement )nti, t#e
o((er minim)m #as +een a%#ieved'
416
-o$ever* to a ,imited e0tent* intermediaries may +e a+,e to provide dire%tions as to $#en
and to $#om %,ient ()nds may +e re,eased'
417
In t#is %onte0t* t#e intermediary m)st take
reasona+,e steps to %on(irm t#at t#e minim)m o((er t#res#o,d is a%#ieved +e(ore investor
()nds are trans(erred to t#e iss)er'
418
A.!"nvestors
Fnder +ot# t#e FS and Canadian approa%#es* investors m)st +e provided $it# %ertain
in(ormation +y iss)ers* and #ave remedies a&ainst iss)ers (or any misin(ormation
provided'
8or t#is p)rpose* t#e FS and Canadian approa%#es %an +e %ompared on a series o(
e,ements app,i%a+,e to investors.
1i2 permitted types o( investor
1ii2 ma0im)m ()nds t#at ea%# investor %an %ontri+)te
1iii2 risk a%kno$,ed&ement +y t#e investor
1iv2 %an%e,,ation ri&#ts
1v2 resa,e restri%tions
1vi2 s#are#o,der ri&#ts'
In parti%),ar* p,a%in& monetary ,imits on t#e siDe o( investments t#at may +e made +y
investors* eit#er +y re(eren%e to t#eir (inan%ia, position 1FSA2* or &enera,,y 1Canada2* is
41!
Appendi0 ; at ;-!! and s 42 o( Anne0 ;-! o( Appendi0 ; at ;-60'
414
Appendi0 ; at ;-92'
41
s 4! o( Anne0 ;-! o( Appendi0 ; at ;-60'
416
Appendi0 ; at ;-!1'
417
i+id'
418
Appendi0 ; at ;-!7'
desi&ned to ,imit t#e adverse impa%t on investors o( poor investment de%isions' "o some
e0tent t#is represents a <)antitative rat#er t#an <)a,itative approa%# to investor prote%tion'
A.!.1 Enited States
Set o)t +e,o$ are re,evant provisions in t#e >5BS A%t and t#e dra(t S98 :),es 15%to+er 201!2 as
t#ey app,y to investors'
5i6 !ermitted t*pes of investor
"#ere are no restri%tions on $#o %an +e a CS98 investor' Instead %aps app,y to t#e ()nds
t#at ea%# investor %an invest 1see 5ii6, +e,o$2'
5ii6 Ma$imum funds t"at eac" investor can contribute
"#ere are vario)s approa%#es 1a,one or in %om+ination2 t#at %o),d +e taken to t#e ()nds
t#at an investor %o),d p)t into CS98 i( t#e intention is to ,imit t#e possi+,e ,osses to retai,
investors t#ro)&# CS98' "#ey in%,)de.
)nvestor cap per issuer% various approaches
first approach. ,imitin& t#e n)m+er o( CS98 iss)ers in $#i%# an investor may invest
in one year
second approach. ,imitin& t#e monetary amo)nt t#at an investor may invest in ea%#
third approach. ,imitin& t#e monetary amo)nt t#at an investor may invest in ea%#
fourth approach. ,imitin& t#e monetary amo)nt t#at an investor may invest in ea%#
)nvestor cap on a"" issuers
fifth approach. ,imitin& t#e tota, monetary amo)nt t#at an investor may invest in a,,
si,th approach. ,imitin& t#e tota, monetary amo)nt t#at an investor may invest in a,,
seventh approach% ,imitin& t#e tota, monetary amo)nt t#at an investor may invest in
a,, CS98 iss)ers* re&ard,ess o( time'
"#e eight approach is to p,a%e no mandatory %ap on t#e ()nds t#at an investor %o),d p)t
into CS98'
"#e >5BS A%t #as adopted t#e si,th approach* $it# t$o %aps.
"ower cap% (or an investor $it# an ann)a, in%ome or net $ort# +e,o$ O100*000* t#e
investor/s ann)a, a&&re&ate investment in CS98 se%)rities is %apped at t#e &reater o(
O2*000 or P o( t#e investor/s ann)a, in%ome or net $ort#
higher cap% (or an investor $it# an ann)a, in%ome or net $ort# o( at ,east O100*000*
t#e investor/s ann)a, a&&re&ate investment in CS98 se%)rities is %apped at 10P o( t#e
investor/s ann)a, in%ome or net $ort#* not to e0%eed O100*000'
419
419
s 41a21621B2'
7#i,e no additiona, %ap is made (or a%%redited investors )nder "it,e III o( t#e >5BS A%t*
e<)ity o((ers %an a,so +e made to t#em* promoted on,ine or t#ro)&# ot#er means* )nder
"it,e II o( t#e >5BS A%t'
"#ese %ap amo)nts are to +e periodi%a,,y adC)sted +ased on t#e %ons)mer pri%e inde0'
"#e S9C noted t#at t#e investment %aps $o),d ,imit t#e potentia, )pside (or investors in
t#e CS98 market.
"#is mi&#t parti%),ar,y a((e%t t#e de%isions o( t#ose $it# ,ar&e port(o,ios $#o mi&#t
+e a+,e to a+sor+ ,osses and )nderstand t#e risks asso%iated $it# risky investments'
8or t#ese investors* t#e O100*000 a&&re&ate %ap mi&#t ,imit t#eir in%entive to
parti%ipate in t#e se%)rities-+ased %ro$d()ndin& market* %ompared to ot#er types o(
investments* potentia,,y deprivin& t#e se%)rities-+ased %ro$d()ndin& market o( more
e0perien%ed and kno$,ed&ea+,e investors and possi+,y impedin& %apita, (ormation'
?imitin& t#e parti%ipation o( s)%# investors $o),d +e ,ike,y to ne&ative,y a((e%t t#e
in(ormationa, e((i%ien%y o( t#e se%)rities-+ased %ro$d()ndin& market +e%a)se
sop#isti%ated investors are +etter a+,e to a%%)rate,y pri%e s)%# o((erin&s'
420
"#e S9C a,so noted t#at t#e investment %aps %o),d ,imit t#e a+i,ity o( investors to
diversi(y $it#in t#e CS98 market +y.
,imit1in&2 an investor/s a+i,ity to %#oose a s)((i%ient,y ,ar&e n)m+er o( investments to
o((set t#is risk and to re%over t#e d)e di,i&en%e %osts o( s)((i%ient,y investi&atin&
individ)a, investments' 5ne potentia, so,)tion to t#is diversi(i%ation pro+,em $o),d
+e to invest sma,,er amo)nts in more vent)res' "#e dra$+a%k is t#at t#e %osts
asso%iated $it# identi(yin& and revie$in& investment opport)nities are* to a ,ar&e
e0tent* (i0ed'
421

In re&ard to %omp,ian%e $it# t#e investment %aps* t#e proposed S9C :),e $o),d provide
t#at +e(ore permittin& an investor to make an investment %ommitment on its p,at(orm* an
intermediary m)st #ave a reasona+,e +asis to +e,ieve t#at t#e investor %omes $it#in t#e
investment %aps'
422
-o$ever* t#e S9C a,so re%o&nises t#e di((i%),ties t#at t#is may impose
on intermediaries' A%%ordin&,y* t#e S9C proposes t#at* not$it#standin& t#at investors
mi&#t make ina%%)rate representations* $#et#er intentiona,,y or not.
an intermediary may re,y on an investor/s representations %on%ernin& %omp,ian%e $it#
t#e investment ,imits )n,ess t#e intermediary #as reason to <)estion t#e re,ia+i,ity o(
t#e representations'
42!
In re&ard to re,ian%e on an investor/s representations* t#e S9C a,so %ommented t#at.
it $o),d not +e reasona+,e (or an intermediary to i&nore ot#er investments made +y an
investor in se%)rities so,d in re,ian%e on Lt#e CS98 provisionsM t#ro)&# an a%%o)nt
$it# t#at intermediary or ot#er in(ormation or (a%ts a+o)t an investor $it#in its
possession'
424
5iii6 .is' ac'nowledement b* t"e investor
"#e investor m)st positive,y a((irm an )nderstandin& t#at t#e entire investment is at risk
and t#at t#e investor $o),d +e a+,e to +ear s)%# a ,oss'
42
"#e investor m)st a,so ans$er
vario)s <)estions demonstratin& an )nderstandin& o( vario)s risks'
426
420
421
id at !'
422
id at 168'
42!
id at !96'
424
id at 170'
42
s 4A1a21421B2'
426
s 4A1a21421C2'
5iv6 Cancellation ri"ts
"#e S9C #as proposed t#at investors #ave an )n%onditiona, ri&#t* (or any reason* to %an%e,
t#eir a%%eptan%es )p to 48 #o)rs prior to t#e end o( t#e o((er period.
Fnder t#is approa%#* an investor %o),d re%onsider #is or #er investment de%ision $it#
t#e +ene(it o( t#e vie$s o( t#e %ro$d and ot#er in(ormation* )nti, t#e (ina, 48 #o)rs o(
t#e o((erin&'
427

In t#e vie$ o( t#e S9C.
t#e proposed r),es strike an appropriate +a,an%e +et$een &ivin& investors t#e
%ontin)in& +ene(it o( t#e %o,,e%tive vie$s o( t#e %ro$d and t#en* i( desired* to %an%e,
t#eir investment %ommitments* $#i,e providin& iss)ers $it# %ertainty a+o)t t#eir
a+i,ity to %,ose an o((erin& at t#e end o( t#e o((erin& period'
428
"#e S9C %onsiders t#at iss)ers s#o),d +e entit,ed to vary t#e se%)rities o((er pri%e
1Bdynami% pri%in&/2 d)rin& s)%# time as investors #ave %an%e,,ation ri&#ts.
t#e investor/s a+i,ity to %an%e, #is or #er investment %ommitment %o),d miti&ate
potentia, %on%erns t#at dynami% pri%in& %o),d +e )sed to provide pre(erentia,
treatment to %ertain investors 1e!g!* $#en an iss)er o((ers +etter pri%es to re,atives or
insiders2' 7e a,so +e,ieve t#at t#e proposed %an%e,,ation ri&#ts $o),d address t#e
%on%erns a+o)t time press)re on t#e investment de%ision +e%a)se investors $o),d
#ave t#e opport)nity to %an%e, t#eir investment %ommitments i( t#ey de%ide to do
so'
429
I( t#ere is a materia, %#an&e to t#e terms o( an o((er* in%,)din& t#e o((er pri%e* or to t#e
in(ormation provided +y t#e iss)er re&ardin& t#e o((er* t#e proposed r),es $o),d re<)ire
t#e intermediary to &ive ea%# investor $#o #as made an investment %ommitment noti%e o(
t#e materia, %#an&e and $it# t#e noti%e a,so statin& t#at t#e investor/s investment
%ommitment $i,, +e a)tomati%a,,y %an%e,,ed )n,ess t#e investor re%on(irms #is or #er
%ommitment $it#in (ive +)siness days o( re%eipt o( t#e noti%e.
7e +e,ieve t#at $#en materia, %#an&es arise d)rin& t#e %o)rse o( an o((erin&* an
investor $#o #ad made a prior investment %ommitment s#o),d #ave a reasona+,e
period d)rin& $#i%# to revie$ t#e ne$ in(ormation and to de%ide $#et#er to invest'
"#is noti(i%ation $o),d +e re<)ired to +e provided +y e-mai, or ot#er e,e%troni%
media'
4!0
5v6 .esale restrictions
Se%)rities p)r%#ased )nder t#e CS98 provisions are s)+Ce%t to %ertain resa,e restri%tions
(or one year'
4!1
"#e S9C #as des%ri+ed t#is restri%tion* $#i%# it re%o&nises may impede se%)rities pri%e
dis%overy* as nevert#e,ess important (or investor prote%tion.
By restri%tin& t#e trans(er o( se%)rities (or a one-year period* t#e proposed r),es $o),d
&ive investors in a +)siness a de(ined period to o+serve t#e per(orman%e o( t#e
+)siness and to potentia,,y o+tain more in(ormation a+o)t t#e potentia, s)%%ess or
(ai,)re o( t#e +)siness +e(ore tradin& o%%)rs'
4!2
427
S9C 4roposed Cro$d()ndin& :),es )nder "it,e III o( t#e >5BS A%t 15%to+er 201!2 at 19!'
428
i+id'
429
id at !77'
4!0
id at 19'
4!1
s 4A1e2'
4!2
S9C 4roposed Cro$d()ndin& :),es )nder "it,e III o( t#e >5BS A%t 15%to+er 201!2 at !77-!78'
5vi6 S"are"older ri"ts
Consistent $it# t#e >5BS A%t re<)irement*
4!!
t#e proposed S9C r),es $o),d re<)ire an
iss)er to provide a des%ription o( its o$ners#ip and %apita, str)%t)re' "#is dis%,os)re $o),d
in%,)de.
t#e terms o( t#e se%)rities +ein& o((ered and ea%# ot#er %,ass o( se%)rity o( t#e iss)er*
in%,)din& t#e n)m+er o( se%)rities +ein& o((ered andNor o)tstandin&* $#et#er or not
s)%# se%)rities #ave votin& ri&#ts* any ,imitations on s)%# votin& ri&#ts* #o$ t#e terms
o( t#e se%)rities +ein& o((ered may +e modi(ied and a s)mmary o( t#e di((eren%es
+et$een s)%# se%)rities and ea%# ot#er %,ass o( se%)rity o( t#e iss)er* and #o$ t#e
ri&#ts o( t#e se%)rities +ein& o((ered may +e materia,,y ,imited* di,)ted or <)a,i(ied +y
t#e ri&#ts o( any ot#er %,ass o( se%)rity o( t#e iss)erU
a des%ription o( #o$ t#e e0er%ise o( t#e ri&#ts #e,d +y t#e prin%ipa, s#are#o,ders o( t#e
iss)er %o),d a((e%t t#e p)r%#asers o( t#e se%)rities
t#e name and o$ners#ip ,eve, o( persons $#o are 20P or more o$ners
#o$ t#e se%)rities +ein& o((ered are +ein& va,)ed* and e0amp,es o( met#ods (or #o$
s)%# se%)rities may +e va,)ed +y t#e iss)er in t#e ()t)re* in%,)din& d)rin& s)+se<)ent
%orporate a%tions
t#e risks to p)r%#asers o( t#e se%)rities re,atin& to minority o$ners#ip in t#e iss)er and
t#e risks asso%iated $it# %orporate a%tions in%,)din& additiona, iss)an%es o( se%)rities*
iss)er rep)r%#ases o( se%)rities* a sa,e o( t#e iss)er or o( assets o( t#e iss)er or
transa%tions $it# re,ated partiesU and
a des%ription o( t#e restri%tions on t#e trans(er o( t#e se%)rities'
4!4
A.!.2 Canada
"#e 5SC made t#e (o,,o$in& &enera, o+servations a+o)t t#e imp,i%ations o( CS98 (or
investors.
LCS98M $i,, a,,o$ retai, investors to parti%ipate in t#e vario)s ()ndin& sta&es o( start-
)ps and SM9s* providin& +roader a%%ess to investment opport)nities' -o$ever*
%ro$d()ndin& may +e a #i&#,y risky investment and investors may e0perien%e a #i&#
pro+a+i,ity o( ,oss* even i( t#ere is no (ra)d' Many start-)ps and SM9s are e0pe%ted to
(ai,' Canadian data s#o$s t#at on,y 72P o( SM9s t#at entered t#e marketp,a%e in
2007 s)rvived (or t$o years and on,y 1P o( SM9s t#at entered t#e market p,a%e in
200 s)rvived (or (ive years' "#e s)rviva, rate o( iss)ers t#at re,y on e<)ity
%ro$d()ndin& may +e ,o$er sin%e t#ere is t#e possi+i,ity o( adverse se,e%tion'
B)sinesses $it# &ood prospe%ts may &ravitate to$ards donation or re$ards-+ased
%ro$d()ndin& or ot#er %#eaper so)r%es o( (inan%in& $#ereas ,ess s)%%ess(),
+)sinesses may )se se%)rities-+ased %ro$d()ndin& +e%a)se t#ey are )na+,e to raise
()nds (rom ot#er so)r%es'
-o$ever* investors t#at parti%ipate in se%)rities-+ased %ro$d()ndin& may do so (or a
n)m+er o( di((erent reasons to s)pport an ear,y sta&e +)siness and not stri%t,y as an
investment' 8)rt#er* t#e re<)irements (or investors to si&n a risk a%kno$,ed&ment
(orm and t#e re<)irement (or t#e porta, to provide &enera, in(ormation and
ed)%ationa, materia,s to investors $i,, #e,p investors )nderstand t#e #i&# risk o(
investin& in a +)siness t#ro)&# %ro$d()ndin&' In addition* any investment ,oss $i,, +e
,imited +e%a)se o( t#e restri%tions on t#e amo)nts an investor %an invest'
4!
4!!
s 4A1+21121-2'
4!4
4!
Mar%# 2014 5SC 4aper at 26-27'
investors'
5i6 !ermitted t*pes of investor
"#ere are no restri%tions on $#o %an +e a CS98 investor' Instead %aps app,y to t#e ()nds
t#at ea%# investor %an invest 1see 5ii6, +e,o$2'
5ii6 Ma$imum funds t"at eac" investor can contribute
"#ere are vario)s approa%#es 1a,one or in %om+ination2 t#at %o),d +e taken to t#e ()nds
t#at an investor %o),d p)t into CS98* i( t#e intention is to ,imit t#e possi+,e ,osses to retai,
investors t#ro)&# CS98' "#ey in%,)de.
)nvestor cap per issuer% different approaches
first approach% ,imitin& t#e n)m+er o( CS98 iss)ers in $#i%# an investor may invest
in one year
second approach% ,imitin& t#e monetary amo)nt t#at an investor may invest in ea%#
third approach. ,imitin& t#e monetary amo)nt t#at an investor may invest in ea%#
fourth approach. ,imitin& t#e monetary amo)nt t#at an investor may invest in ea%#
)nvestor cap on a"" issuers% different approaches
fifth approach% ,imitin& t#e tota, monetary amo)nt t#at an investor may invest in a,,
si,th approach% ,imitin& t#e tota, monetary amo)nt t#at an investor may invest in a,,
seventh approach% ,imitin& t#e tota, monetary amo)nt t#at an investor may invest in
a,, CS98 iss)ers* re&ard,ess o( time!
"#e eight approach is to p,a%e no mandatory %ap on t#e ()nds t#at an investor %o),d p)t
into CS98'
7#i,e t#e FS >5BS A%t #as adopted t#e si,th approach* t#e Canadian proposa, #as
adopted a %om+ination o( t#e fourth and fifth approach'
Fnder t#e proposa,s* an investor/s investment in se%)rities o( a parti%),ar iss)er t#ro)&#
CS98 %annot e0%eed O2*00 per o((er +y t#at iss)er 1fourth approach2' In addition* a
p)r%#aser/s tota, investment in a,, CS98 o((ers d)rin& a %a,endar year %annot e0%eed
O10*000 1fifth approach2'
4!6
In p)ttin& (or$ard t#is %om+ined approa%#* t#e 5SC ar&)ed t#at #avin& ,o$ investment
,imits minimiDes an investor/s e0pos)re' A,so* spe%i(ied ma0im)m do,,ar amo)nts are
easier to administer t#an t#e si,th approach* as adopted )nder t#e FS >5BS A%t* t#at
re<)ires %a,%),ations +ased on an investor/s ann)a, in%ome or net $ort#' In addition* it
avoids t#e %on%ern* )nder t#e si,th approach* t#at investors may +e )n$i,,in& to s#are
4!6
Appendi0 ; at ;-1 and s 9 o( Anne0 ;-! o( Appendi0 ; at ;-49'
t#eir ta0 ret)rns or ot#er persona, (inan%ia, in(ormation $it# iss)ers or porta,s to esta+,is#
t#ey are investin& $it#in t#e pres%ri+ed ,imits'
4!7

7it# ea%# investment* t#e intermediary is responsi+,e (or veri(yin& t#at t#e investor is not
e0%eedin& t#e %aps* more spe%i(i%a,,y t#at in any 12 mont# period.
t#e investor is not investin& more t#an O2*00 in a parti%),ar o((er
t#e investor $i,, not #ave invested more t#an O10*000 t#ro)&# t#e porta, o( t#at
intermediary'
-o$ever* an investor $i,, +e re<)ired to %erti(y t#at #e or s#e is $it#in t#e investment
,imits' "#e 5SC %onsidered t#at.
se,(-%erti(i%ation +o,stered +y a porta, monitorin& %omp,ian%e +y t#e investor $it# t#e
investment ,imits +ased on investments made +y t#e investor t#ro)&# t#e porta, is a
reasona+,e and pra%ti%a, approa%#'
4!8
"o rein(or%e t#is approa%#* t#e p)r%#aser o( t#e CS98 se%)rities m)st p)r%#ase t#em as t#e
prin%ipa,'
4!9
5iii6 .is' ac'nowledement b* t"e investor
Investor $i,, +e re<)ired positive,y to a((irm t#at t#ey )nderstand t#ey are makin& a
#i&#-risk investment'
8or t#is p)rpose* prior to an investor enterin& into an a&reement to p)r%#ase se%)rities
t#ro)&# t#e CS98 pro%ess* t#e investor m)st si&n a risk a%kno$,ed&ement (orm in $#i%#
t#e investor %on(irms t#at #e or s#e (a,,s $it#in t#e investment ,imits and a,so
a%kno$,ed&es t#e risks asso%iated $it# t#e investment* in%,)din& t#e (o,,o$in&.
it is a very risky investment
t#e investor %o),d ,ose a,, o( t#e money invested
t#e investor may never +e a+,e to se,, t#e se%)rities
t#e investor $i,, +e provided $it# ,ess dis%,os)re t#an p)+,i% %ompanies provide
t#e investor $i,, not #ave t#e +ene(it o( prote%tions asso%iated $it# an investment
made )nder a prospe%t)s
+orro$in& money in%reases t#e risk o( an investment
t#e intermediary porta, $i,, not +e responsi+,e i( t#e investor ,oses a,, or some o( t#e
money invested'
440
"#e risk a%kno$,ed&ement (orm may +e si&ned +y an on,ine si&nat)re'
441
"#e iss)er m)st retain t#e si&ned risk a%kno$,ed&ement (orm (or ei&#t years a(ter t#e
distri+)tion'
442
4!7
Appendi0 ; at ;-1'
4!8
Appendi0 ; at ;-16'
4!9
s 71e2 o( Anne0 ;-! o( Appendi0 ; at ;-48'
440
Appendi0 ; at ;-!8* ;-78 Q ;-80* and s 20112 o( Anne0 ;-! o( Appendi0 ; at ;-2'
441
Appendi0 ; at ;-87'
442
Appendi0 ; at ;-17 and ;-18 and s 20122 o( Anne0 ;-! o( Appendi0 ; at ;-2'
"#e 5SC %ommentary stated t#at.
:e<)irin& t#at an investor si&n a risk a%kno$,ed&ement (orm may #e,p to a,ert t#e
investor to t#e risks o( t#e investment* in%,)din& t#at t#e investor may ,ose #is or #er
entire investment'
44!
5iv6 Cancellation ri"ts
An iss)er t#at o((ers se%)rities )nder t#e CS98 pro%ess m)st provide an investor $it# a
%ontra%t)a, ri&#t to %an%e, an a&reement to p)r%#ase t#e se%)rity +y de,iverin& a noti%e to
t#e iss)er $it#in at ,east 48 #o)rs prior to t#e date o( %omp,etion o( t#e distri+)tion
dis%,osed in t#e iss)er/s o((er do%)ment'
444
"#e 5SC %onsidered t#at a ri&#t o( $it#dra$a, $o),d provide an investor $it# a B%oo,in&
o((/ period to %onsider t#e dis%,os)re provided and re(,e%t on #is or #er investment
de%ision'
44
An investor a,so #as $it#dra$a, ri&#ts in t#e event o( materia, %#an&es in t#e o((er'
446
5v6 .esale restrictions
"#e investor ed)%ation materia,s m)st make it %,ear to investors t#at t#ere are si&ni(i%ant
resa,e restri%tions and t#e se%)rities %annot +e reso,d t#ro)&# t#e intermediary porta,'
447
(ecurities of a non1reporting issuer
Se%)rities o( a non-reportin& iss)er a%<)ired t#ro)&# %ro$d()ndin& %annot +e reso,d )nti,
t#e iss)er +e%omes a reportin& entity* )n,ess t#e sa,e is made )nder a prospe%t)s
e0emption ot#er t#an t#e %ro$d()ndin& e0emption 1(or instan%e* to a sop#isti%ated
investor2'
448
"#e 5SC e0pressed %on%ern a+o)t permittin& a sa,e +e(ore an iss)er +e%omes a reportin&
entity and is t#ere(ore s)+Ce%t to t#e %ontin)o)s and time,y dis%,os)re re<)irements'
449
(ecurities of a reporting issuer
Se%)rities o( a reportin& iss)er a%<)ired t#ro)&# %ro$d()ndin& are s)+Ce%t to a (o)r mont#
#o,d period'
40
5vi6 S"are"older ri"ts
It is not proposed to re<)ire t#at %ro$d investors +e provided $it# s#are#o,der ri&#ts* s)%#
as ta&-a,on& or pre-emptive ri&#ts'
:at#er* an iss)er m)st dis%,ose t#e spe%i(i% risks to investors i( s)%# ri&#ts are not
provided and t#at t#e a+sen%e o( s)%# ri&#ts a((e%ts t#e va,)e o( t#e se%)rities'
41

In re&ard to di,)tion* t#e o((er do%)ment m)st %ontain t#e (o,,o$in& statement.
"#e ri&#ts o( p)r%#asers o( t#e se%)rities )nder t#is o((erin& may +e di,)ted or
ne&ative,y a((e%ted as a res),t o( a n)m+er o( (a%tors* in%,)din& t#e ri&#ts and
44!
Appendi0 ; at ;-17'
444
44
Appendi0 ; at ;-18'
446
See Materia" change in the offer )nder 1iv2 in Se%tion A!'!'2 o( t#is report'
447
Appendi0 ; at ;-41'
448
i+id'
449
Appendi0 ; at ;-19'
40
i+id'
41
Appendi0 ; at ;-69'
%#ara%teristi%s o( ot#er se%)rities a,ready iss)ed +y t#e iss)er* ()t)re iss)an%es o(
se%)rities +y t#e iss)er* and potentia, %#an&es to t#e %apita, str)%t)re andNor %ontro, o(
t#e iss)er'
42
8)rt#er* t#e risk a%kno$,ed&ement (orm to +e si&ned +y investors $i,, identi(y t#e
potentia, risks $#i%# may arise'
An intermediary may* in its dis%retion* impose re<)irements (or t#e &rantin& +y t#e iss)er
o( ta&-a,on& or pre-emptive ri&#ts to investors'
4!
42
i+id'
4!
Appendi0 ; at ;-19'
Appendi$ ! )urope
This Appendi, out"ines deve"opments in C($5 in the $uropean &nion inc"uding the
provisions in )ta"y being the first $& member to introduce C($5 "aws as we"" as
deve"opments in the &@!
A!.1.verview
"#e 9)ropean Fnion 19F2 approa%# to %ro$d so)r%ed ()ndin& &enera,,y* in%,)din& CS98*
#as +een in(,)en%ed to a %onsidera+,e de&ree +y t#e &,o+a, (inan%ia, %rises* $#i%# red)%ed
t#e ,endin& a%tivities o( +anks in 9)rope* makin& a%%ess to (inan%e +y 9)ropean
+)sinesses more di((i%),t'
8or instan%e* t#e stated aim o( t#e $ntrepreneurship *+*+ Action ."an 1 2eigniting the
entrepreneuria" spirit in $urope 1201!2 is to in%rease t#e ,eve, o( emp,oyment t#ro)&#
rein(or%in& entreprene)rs#ip a%ross 9)rope' It invites 9F Mem+er States to.
assess t#e need o( amendin& %)rrent nationa, (inan%ia, ,e&is,ation $it# t#e aim o(
(a%i,itatin& ne$* a,ternative (orms o( (inan%in& (or start-)ps and SM9s Lsma,, to
medi)m enterprisesM in &enera,* in parti%),ar as re&ards p,at(orms (or %ro$d ()ndin&'
"#e 9)ropean Commission Cons),tation 4aper Crowdfunding in the $&3$,p"oring the
added va"ue of potentia" $& action 15%to+er 201!2 pointed o)t t#at.
9)ropean SM9s ,ar&e,y depend on +ank (inan%in&* +)t sin%e t#e (inan%ia, %risis +anks
are m)%# more restri%tive in t#eir ,endin&'
44
In %onse<)en%e.
In t#e %onte0t o( SM9/s (inan%e e%osystem* it appears t#at %ro$d()ndin& may respond
to t#e needs o( many sma,, start-)ps t#at do not mana&e to a%%ess +ank (inan%e*
vent)re %apita, or rea%# t#e sta&e o( initia, p)+,i% o((erin& 1I452' Cro$d()ndin& %o),d
t#)s %ontri+)te to +rid&in& t#e (inan%e &ap (or sma,, (irms and innovative proCe%ts' It
%o),d %omp,ement ot#er so)r%es o( (inan%e' Better a%%ess to (inan%e (or sma,,
+)sinesses $o),d promote entreprene)rs#ip and ),timate,y %ontri+)te to &ro$t# and
Co+ %reation' Cro$d()ndin& %reates opport)nities to t)rn ,ar&er &ro)ps o( peop,e* $#o
ot#er$ise $o),d not #ave a%%ess to traditiona, %#anne,s o( (inan%e* into sma,,-s%a,e
entreprene)rs'
4
"#e Cons),tation 4aper identi(ied a ran&e o( opport)nities* risks and %#a,,en&es $it#
%ro$d()ndin&'
46
In a %omm)ni%ation &n"eashing the potentia" of Crowdfunding in the $uropean &nion
127 Mar%# 20142* $#i%# re(ers to vario)s types o( %ro$d()ndin&* in%,)din& CS98* t#e
9)ropean Commission proposed vario)s steps to s)pport t#e &ro$t# o( %ro$d()ndin& in
t#e 9F* in%,)din& t#e (ormation o( an 90pert 3ro)p and Stake#o,der 8or)m to provide
advi%e and e0pertise to t#e Commission in t#is area' "#e Commission a,so noted t#at as
%ro$d()ndin& is a &,o+a, a%tivity* t#e Commission $i,, %,ose,y (o,,o$ internationa,
deve,opments and $i,, s)pport e((orts to promote re&),atory %onver&en%e o( approa%#es at
44
p 6' See a,so I5SC5* Crowd1funding% An )nfant )ndustry 9rowing 5ast 18e+r)ary 20142* 8i&)re 2 on p 1!'
4
p 7'
46
pp 6-9'
$urope
t#e internationa, ,eve,' "#e Commission $i,, report +a%k on pro&ress in t#e %o)rse o(
201'
In addition to t#ese &enera, 9F initiatives* vario)s spe%i(i% CS98 and ot#er (orms o(
%ro$d so)r%ed ()ndin& approa%#es #ave +een adopted* or are )nder %onsideration* in
vario)s 9F Mem+er States* in%,)din& Ita,y and t#e FG'
A!.2"ta#y
In ,ate 2012* t#e Ita,ian 4ar,iament passed a de%ree $#i%# in%,)ded t#e re%o&nition and
,e&a,isation o( e<)ity-+ased %ro$d()ndin&'
47
In >),y 201! t#e Ita,ian se%)rities re&),ator
1Commissione NaDiona,e per ,e So%ietR e ,a Borsa2 1C5NS5B2 iss)ed re&),atory
provisions ne%essary (or t#eir imp,ementation*
48
t#)s makin& Ita,y t#e (irst %o)ntry in
9)rope to operate CS98 ,a$s'
In vario)s respe%ts* as e0p,ained +e,o$* t#e Ita,ian approa%#* as it app,ies to iss)ers*
intermediaries and investors* di((ers (rom t#at in t#e FSA or Canada'
A!.2.1 "ssuers
/*pes of issuer
CS98 in Ita,y is ,imited to Binnovative start-)ps/' "o +e Binnovative/* a (irm m)st +e
re%o&nised as s)%# +y t#e C#am+er o( Commer%e* +e%a)se* (or e0amp,e* it #as invested in
:J; a%tivities or emp,oys resear%#ers'
49
"o +e a Bstart-)p/* t#e (irm %an +e no more t#an
48 mont#s in e0isten%e'
Ma$imum funds t"at an issuer ma* raise
"#e ma0im)m ()nds raised +y an e,i&i+,e start-)p t#ro)&# CS98 %annot e0%eed V mi,,ion
per year'
A!.2.2 "ntermediaries
!ermitted t*pes of intermediar*
CS98 investments m)st +e arran&ed t#ro)&# Bpermitted mana&ers/* %overin& +roker-
dea,ersN(inan%ia, instit)tions and ot#er persons $#o mat%# re<)irements o( pro(essiona,ism
and tr)st$ort#iness* to %omp,y $it# anti-,a)nderin& ,a$s and t#e 9F Markets in 5inancia"
)nstruments #irective 1Mi8I;2'
Matters related to issuers
Intermediaries are responsi+,e to veri(y t#at t#e start-)ps #ave satis(ied a,, t#e ne%essary
re<)irements to re&ister on t#e porta,'
Matters related to investors
"#e 9F Mi8I; in%,)des o+,i&ations on Bpermitted mana&ers/ %on%ernin& mat%#in& an
investor/s pro(i,e to investment risk' -o$ever* t#ere $i,, +e an e0emption (rom Mi8I; (or
47
Arti%,e !0 o( #ecreto Crescita 13ro$t# ;e%ree2* 2acco"ta diffusa di capita"i di rischio tramite porta"i
on"ine 1$idespread %o,,e%tion o( vent)re %apita, t#ro)&# on,ine porta,s2'
48
C5NS5B* :e&o,amento 1de,i+era n' 1892 de, 26 &i)&no 201!2 in materia di ;2acco"ta di capita"i di
rischio da parte di imprese start1up innovative tramite porta"i on1"ine6 1e<)ity %ro$d()ndin&2'
49
"#e %ompany p)rpose s#o),d e0press,y in%,)de t#e Bdeve,opment and %ommer%ia,isation o( #i&#-te%# va,)e
prod)%ts or servi%es/'
$urope
sma,, investments 1investments not e0%eedin& V00 (rom ea%# investor* and V1*000 tota,
per year in CS98 (or ea%# investor2 provided t#e investors* $#en %ontri+)tin& t#ro)&# a
%ro$d()ndin& p,at(orm* take a test to demonstrate t#at t#ey are a$are o( t#e risks t#ey are
takin& $#en investin&* and t#at t#ey %an a((ord t#e possi+,e ,oss o( t#e amo)nt invested'
A!.2. "nvestors
/"res"old sop"isticated investor involvement
4ro(essiona, investors
460
andNor C5NS5B-re&istered instit)tions m)st o$n at ,east P o(
t#e e<)ity o( a %ro$d()nded (irm a(ter t#e %ro$d()ndin& e0er%ise* (or t#at met#od o(
()ndraisin& to +e va,id' "#e apparent intention is to &ive some (orm o( %om(ort to sma,,
investors t#at t#e investment is $ort#$#i,e* &iven t#at one or more sop#isti%ated investors
#as %#osen to invest'
Cancellation ri"ts
Investors %an $it#dra$ t#eir %ommitment at any moment )nti, t#e %ro$d()ndin&
%ampai&n is %,osed'
Subse0uent wit"drawal ri"ts
Start-)ps )sin& CS98 m)st insert a %,a)se in t#eir %onstit)tion $#i%# &)arantees investors
t#e ri&#t to $it#dra$ (rom t#e investment and to se,, t#eir s#ares +a%k to t#e (irm* in %ase
t#e maCor s#are#o,der se,,s its stake to a t#ird party 1Bta& a,on&/ ri&#t2'
"#ere is no e<)iva,ent ri&#t in t#e FS ,e&is,ation or t#e Canadian proposa,s'
A!.2.! *uture assessment
It is proposed t#at in mid-2014* C5NS5B $i,, eva,)ate t#e impa%t o( t#e re&),ation on t#e
Ita,ian %ro$d()ndin& market and de%ide $#et#er it is ne%essary to modi(y t#e ,a$ in some
respe%t'
A!.Enited Cingdom
A!..1 8ac(ground
In A)&)st 2012* t#e 8inan%ia, Cond)%t A)t#ority 18CA2 p)+,is#ed a %ons)mer in(ormation
+),,etin %a,,ed Crowdfunding% is your investment protected4' "#e +),,etin $arned investors
t#at many %ro$d()ndin& opport)nities are #i&#-risk and %omp,e0 and are s)ited to
sop#isti%ated investors on,y' "#e do%)ment a,so pointed o)t t#at t#ese types o(
investments are &enera,,y i,,i<)id and t#at investors s#o),d +e %are(), a+o)t investin& over
t#e internet +e%a)se o( t#e risk o( (ra)d'
"#e 8CA +),,etin a,so stated t#at.
460
In 9)rope* pro(essiona, investors 1des%ri+ed as Bpro(essiona, %,ients/2 are de(ined +y t#e 9F Markets in
5inancia" )nstruments #irective 1Mi8I;2 Anne0 II as individ)a,s or or&aniDations $#o possess t#e e0perien%e*
kno$,ed&e and e0pertise to make investment de%isions and proper,y assess risks' "#at %,assi(i%ation %an +e
satis(ied i( t#e investor meets at ,east t$o o( t#e (o,,o$in& %riteria.
#avin& %arried o)t market transa%tions o( at ,east V0*000 at an avera&e o( 10 transa%tions per <)arter (or a
year
#avin& a (inan%ia, instr)ment port(o,io $ort# more t#an V00*000
#avin& $orked in a pro(essiona, position re,evant to t#e transa%tions envisa&ed* and in t#e (inan%ia, se%tor'
$urope
7e +e,ieve most %ro$d()ndin& s#o),d +e tar&eted at sop#isti%ated investors $#o
kno$ #o$ to va,)e a start-)p +)siness* )nderstand t#e risks invo,ved and t#at
investors %o),d ,ose a,, t#eir money'
S)+se<)ent,y* t#e 8CA a)t#orised some intermediaries $#i%# it %onsidered #ad t#e
ne%essary ski,,s and e0pertise to p)+,is# e<)ity o((ers on t#eir $e+sites'
461
"#is (orm o(
CS98 $as %on(ined to a re,ative,y sma,, &ro)p o( investors* name,y t#ose persons $#o
se,(-%erti(ied t#at t#ey %ame $it#in vario)s pres%ri+ed tests o( +ein& sop#isti%ated
investors'
"#e 8CA p)+,is#ed a Cons),tation 4aper The 5CA6s regu"atory approach to crowdfunding
7and simi"ar activities8 15%to+er 201!2 1t#e Cons),tation 4aper2 dea,in&* amon& ot#er
t#in&s* $it# t#e ()t)re re&),ation o( CS98'
"#e 8CA s)+se<)ent,y iss)ed a 4o,i%y Statement 4S14N4 The 5CA6s regu"atory approach
to crowdfunding over the internet and the promotion of non1readi"y rea"isab"e securities
by other media 1Mar%# 20142 14S14N42 $#i%# %on(irmed and o)t,ined its approa%# to t#e
re&),ation o( CS98 in t#e FG 1and some ot#er matters2'
"#e re,evant r),es to imp,ement 4S14N4 %ommen%ed in Apri, 2014'
462

A!..2 .verview of the regu#ation
"#e FG approa%# to CS98 adopts a di((erent re&),atory arran&ement t#an t#at app,yin&
)nder t#e FS >5BS A%t or t#e Canadian proposa,s'
"#e 8CA re&),atory str)%t)re (or $#at it terms Binvestment-+ased %ro$d()ndin&/ %overs
t#e pro%esses +y $#i%# ,i%ensed intermediaries may market Bdire%t o((ers/ to vario)s
%,asses o( investors to a%<)ire Bnon-readi,y rea,isa+,e se%)rities/ in iss)ers'
"#e 8CA re&),ation is desi&ned to +e Bmedia-ne)tra,/ in t#at it app,ies to a,, intermediaries
marketin& t#ese types o( dire%t o((ers* $#et#er )sin& on,ine p,at(orms or ot#er media.
"#is $as done $it# Lt#e 8CA/sM %ompetition o+Ce%tive in mind and in order to provide
appropriate prote%tion (or a,, investors #o$ever t#ey invest K In o)r vie$ t#e same
prote%tion s#o),d app,y to investors $#et#er t#ey en&a&e $it# (irms on,ine or o((,ine
as a res),t o( dire%t marketin& or t#ro)&# te,ep#one se,,in& o( investments'
46!
"o +e a Bdire%t o((er/* t#e promotion needs to %ontain an o((er or invitation* and spe%i(y t#e
manner o( response or in%,)de a (orm +y $#i%# a response may +e made'
464
"#e %on%ept o( Bnon-readi,y rea,isa+,e se%)rities/ is desi&ned to %over e<)ity or de+t
se%)rities o( sma,, and medi)m enterprises (or $#i%# t#ere is no* or on,y a ,imited*
se%ondary market* and $#i%#* t#ere(ore* $o),d pose a ,i<)idity risk (or investors' "#e
%on%ept t#ere(ore e0%,)des (rom t#e 8CA re&),atory provisions (or investment-+ased
%ro$d()ndin& t#ose se%)rities $#i%# are Breadi,y rea,isa+,e/* meanin& se%)rities t#at are
admitted or a+o)t to +e admitted to an o((i%ia, ,istin&U or traded* or soon to +e traded* on a
re%o&nised investment e0%#an&e or desi&nated investment e0%#an&e' -o$ever* a
se%ondary market does not %over an on,ine +),,etin +oard on $#i%# peop,e %an ,ist
se%)rities t#ey $is# to se,,'
46
461
See* (or instan%e* Cro$d%)+e* Seedrs ?imited'
462
"#e re,evant r),es are set o)t in Appendi0 1 o( 4S14N4'
46!
Se%tions 4'18 and 4'19 o( 4S14N4'
464
Se%tion 4'12 o( 4S14N4'
46
Se%tion 4'11 o( 4S14N4'
$urope
"#e vario)s r),es t#at app,y to iss)ers* investors and intermediaries %on%ernin& dire%t
o((ers to a%<)ire non-readi,y rea,isa+,e se%)rities are o)t,ined +e,o$'
"#e 8CA noted t#at revie$ o( t#e r),es may +e ne%essary in t#e ()t)re.
7e t#ink o)r approa%# provides ade<)ate investor prote%tion and s)((i%ient (,e0i+i,ity
(or LintermediariesM to operate and arran&e (inan%e (or sma,, and medi)m enterprise'
-o$ever* &reater pres%ription is an option t#at t#e 8CA may %onsider in t#e ()t)re*
dependin& on #o$ t#e market evo,ves' 7e $i,, revie$ t#e market and o)r re&),atory
approa%# in t#e %omin& years'
466
A!.. Matters concerning issuers
/*pes of issuer
CS98 in t#e FG is e((e%tive,y ,imited to iss)ers t#at are p)+,i% %ompanies' A,t#o)&# t#ere
is no ma0im)m n)m+er o( s#are#o,ders o( a FG private %ompany 1in %ontrast $it# t#e
A)stra,ian 0 non-emp,oyee s#are#o,der %ap
467
2* t#e pro#i+ition on p)+,i% o((ers o( private
%ompany s#ares remains in t#e FG %onte0t
468
1as indi%ated in 8CA 4o,i%y Statement
4S14N42'
/*pes of permitted securities
"#e re&),atory str)%t)re app,ies to o((ers o( any non-readi,y rea,isa+,e se%)rities 1see
a+ove2'
Ma$imum funds t"at an issuer ma* raise
"#ere is no pres%ri+ed ma0im)m' -o$ever* dependin& )pon t#e amo)nt so)&#t* an iss)er
may #ave to p)+,is# a prospe%t)s or ot#er dis%,os)re do%)ment 1see +e,o$2'
%isclosure b* t"e issuer to investors
Iss)ers are s)+Ce%t to t#e prospe%t)s provisions* t#o)&# FG %orporate ,a$ %ontains some
e0emptions (or promotions o( sma,, se%)rities iss)es'
469
Comin& $it#in an e0emption (rom t#e prospe%t)s re<)irements sti,, imposes some
dis%,os)re re<)irements on an iss)er' A%%ordin& to one %ommentary on FG %orporate ,a$.
I( a prospe%t)s is not re<)ired* t#e o((er do%)ment 1or in(ormation memorand)m or
ot#er marketin& materia,2 $o),d not #ave to %omp,y $it# any re&),atory %riteria' "#e
on,y %onstraints $o),d +e )nder t#e %ommon ,a$* and s)+s%ri+ers %o),d #ave
remedies a&ainst t#e dire%tors (or ne&,i&ent misstatement andNor de%eit i( in%omp,ete
or mis,eadin& in(ormation is provided' It $o),d t#ere(ore +e pr)dent (or t#e %ontents
o( t#e o((er do%)ment to (o,,o$ t#e prospe%t)s re<)irements as (ar as possi+,e* as $e,,
as in%,)din& appropriate B#ea,t# $arnin&s/* even i( t#ese are not mandatory 1e'&' t#at
t#e va,)e o( t#e s#ares may (a,,* and t#at t#e investor may not &et +a%k a,, t#e money
466
Se%tion 2'19 o( 4S14N4'
467
See Se%tion A2'1'2 o( t#is report'
468
Se%tion 4'20 o( 4S14N4 %on(irms t#at ss 7 and 76 o( t#e FG Companies A%t 2006 $i,, %ontin)e to
app,y' 4rivate %ompanies in t#e FG are pro#i+ited +y s 7 (rom iss)in& s#ares to t#e p)+,i%* or any se%tion o(
t#e p)+,i%' BAny se%tion o( t#e p)+,i%/ is $ide,y interpreted and %an app,y to any &ro)p o( peop,e* #o$ever (e$'
"#e e0emptions in s 76 are ,imited to persons $it# an e0istin& or previo)s %onne%tion $it# t#e %ompany'
469
8ootnote 1 o( 4S14N4 states. B90emptions are avai,a+,e in re,ation to promotions (or sma,, se%)rities
iss)es' I( t#e tota, %onsideration (or se%)rities o((ered does not e0%eed 100*000 9)ros 1or e<)iva,ent amo)nt2
8SMA s86 may provide an e0emption to 8SMA s8' I( o((ers (a,, +e,o$ t#e V mi,,ion ,imit* t#ey may +e
e0empt (rom t#e need (or a prospe%t)s )nder t#e 4rospe%t)s ;ire%tive' In re,ation to +)siness t#at is not Mi8I;
+)siness* d)e to t#e e0emption in t#e 845 arti%,e 70* t#e 8SMA s21 (inan%ia, promotion restri%tion does not
app,y to any %omm)ni%ation t#at is in%,)ded in ,istin& parti%),ars* s)pp,ementary ,istin& parti%),ars* a
prospe%t)s* or a s)pp,ementary prospe%t)s or any ot#er do%)ment re<)ired or permitted to +e p)+,is#ed +y t#e
,istin& r),es or t#e prospe%t)s r),es' In re,ation to +)siness t#at is Mi8I; +)siness* e0emptions are avai,a+,e (or
t#ird party prospe%t)ses'/
$urope
#eNs#e paid (or t#em2' In t#is re&ard it $o),d +e appropriate to )ndertake d)e
di,i&en%e and veri(i%ation o( t#e o((er do%)ment to ens)re t#at t#e %ontents are
(a%t)a,,y %orre%t'
470
An iss)er is a,so s)+Ce%t to vario)s &enera, app,i%ation dis%,os)re r),es* dependin& )pon
t#e nat)re o( t#e o((er and t#e nat)re o( t#e investor' "#ey in%,)de.
8CA Conduct of /usiness (ourcebook 1C5BS2 2'2'1:. in(ormation dis%,os)re +e(ore
providin& servi%es
C5BS 4'7'1:. in(ormation to +e dis%,osed in dire%t o((er (inan%ia, promotions
C5BS 6'1. in(ormation %on%ernin& vario)s %#ar&es and rem)neration'
A!..! Matters concerning investors
!ermitted t*pes of investors
"#e %,asses o( investors to $#i%# dire%t o((ers o( non-readi,y rea,isa+,e se%)rities %an +e
made are ,imited to Bpro(essiona, %,ients/ 1sop#isti%ated investors2 and some retai,
investors'
"#e Cons),tation 4aper proposed t#at a)t#orised intermediaries* in addition to +ein& a+,e
to %omm)ni%ate o((ers in non-readi,y rea,isa+,e se%)rities to sop#isti%ated investors* +e
permitted to make t#ese o((ers to t#e (o,,o$in& %,asses o( retai, %,ient.
retai, %,ients $#o are vent)re %apita, %onta%ts or %orporate (inan%e %onta%ts
investment promoted* t#ey $i,, re%eive re&),ated investment advi%e*
471
or investment
port(o,io 1i'e' e0%,)din& t#eir primary residen%e* pensions and ,i(e %over2 in
non-readi,y rea,isa+,e se%)rities'
472
"#e Cons),tation 4aper proposed t#at $#ere re&),ated investment advi%e is not provided*
intermediaries s#o),d app,y an appropriateness test
47!
+e(ore sendin& retai, %,ients dire%t
o((er (inan%ia, promotions (or non-readi,y rea,isa+,e se%)rities' "#is $o),d #e,p ens)re
t#at on,y %,ients $#o #ave t#e kno$,ed&e or e0perien%e to )nderstand t#e risks $o),d
invest'
470
FG Instit)te o( ;ire%tors 3)idan%e Note (hare issues by private companies'
471
"#e r),es re,atin& to s)ita+i,ity o( investment advi%e are detai,ed in %#apter 9 o( t#e 8CA Conduct of
/usiness (ourcebook'
472
Se%tion 4'16 and Anne0 ; o( Appendi0 1 o( t#e Cons),tation 4aper'
47!
"#e r),es on appropriateness are detai,ed in %#apter 10 o( t#e 8CA Conduct of /usiness (ourcebook' In t#e
%onte0t o( CS98* t#e r),es $o),d re<)ire t#at $#ere a retai, %,ient does not re%eive re&),ated investment advi%e*
intermediaries m)st assess t#e appropriateness o( t#e transa%tion (or a parti%),ar %,ient' 8or t#is p)rpose an
intermediary $o),d #ave to ask t#e %,ient (or in(ormation and determine $#et#er t#e %,ient #as t#e ne%essary
e0perien%e and kno$,ed&e to )nderstand t#e risks invo,ved in re,ation to t#e prod)%t on o((er* and a,so $arn t#e
%,ient i( t#e intermediary determines t#e transa%tion is not appropriate'
$urope
"#e Cons),tation 4aper a,so %ommented t#at.
3iven o)r %ons)mer prote%tion o+Ce%tive* o)r aim is to ens)re t#at on,y t#ose retai,
investors $#o %an )nderstand and +ear t#e vario)s risks invo,ved are invited to invest
in Lnon-readi,y rea,isa+,e se%)ritiesM' I( LintermediariesM tar&et t#is $ider +)t sti,,
restri%ted a)dien%e o( retai, investors appropriate,y* t#is may res),t in &reater a%%ess to
a,ternative 1non-+ank2 (inan%e options (or +)sinesses seekin& (inan%e'
474
4S14N4 %on(irmed t#e approa%# taken in t#e Cons),tation 4aper 1des%ri+ed a+ove2 in
re&ard to t#e %,asses o( retai, investors 1in addition to sop#isti%ated investors2 to $#om
o((ers o( non-readi,y rea,isa+,e se%)rities %o),d +e made t#ro)&# an a)t#orised
intermediary* $#et#er t#ro)&# its on,ine porta, or )sin& ot#er media* and $#en an
appropriateness test $o),d app,y' "#e re,evant r),es are set o)t in t#e 8CA Conduct of
/usiness (ourcebook'
47

A%%ordin& to an 8CA media re,ease a%%ompanyin& 4S14N4.
"#e ne$ r),es (or se%)rities-+ased %ro$d()ndin& keep t#e %ro$d in %ro$d()ndin& +y
a,,o$in& anyone to invest )p to 10 per %ent o( t#eir avai,a+,e assets'
476
4S14N4 noted t#at its approa%# to permit CS98 o((ers to +e made to vario)s %,asses o(
retai, investors* )nder %ertain %onditions.
LisM aimed to provide ordinary retai, investors* $#o may ,a%k t#e kno$,ed&e*
e0perien%e and reso)r%es to )nderstand and %ope $it# t#e risks* $it# +ot# t#e (reedom
to invest and proportionate prote%tion $#en t#ey are invited to invest in non-readi,y
rea,isa+,e se%)rities t#at invo,ve potentia, (or si&ni(i%ant %apita, ,osses'
477
Ma$imum funds t"at eac" investor can contribute
As indi%ated a+ove* retai, investors $#o re,y on t#e %erti(i%ation t#at t#ey $i,, not invest
more t#an 10P o( t#eir net investi+,e port(o,io 1i'e' e0%,)din& t#eir primary residen%e*
pensions and ,i(e %over2 in non-readi,y rea,isa+,e se%)rities are ,imited to t#at %ap* $#i%#
app,ies independent,y o( any period' "#is investor ,inked %ap 1t#e seventh approach2
represents a di((erent approa%# to t#at adopted in t#e FSA or Canada'
"#ere is no investment %ap on sop#isti%ated investors* or ot#er %ate&ories o( e,i&i+,e retai,
investors* in re&ard to t#e a%<)isition o( non-readi,y rea,isa+,e se%)rities'
A!..% Matters concerning intermediaries
!ermitted t*pes of intermediar*
Intermediaries m)st +e a)t#orised +y t#e 8CA +e(ore +ein& permitted to market
non-readi,y rea,isa+,e se%)rities to e,i&i+,e investors* $#et#er t#ro)&# t#e internet or
ot#er$ise' A)t#orised intermediaries* and t#eir representatives* m)st %omp,y $it# t#e 8CA
-and+ook re<)irements 1$#i%# in%,)de t#e Conduct of /usiness (ourcebook2'
478
Intermediar* c"ec's on issuers
Apart (rom %ond)%tin& some +asi% %#e%ks* (or instan%e t#at an iss)er is in (a%t
in%orporated and t#e persons a%tin& on +e#a,( o( t#e iss)er are in (a%t %orporate o((i%ers*
intermediaries are not o+,i&ed to %ond)%t d)e di,i&en%e %#e%ks o( iss)ers t#at )se t#eir
474
Se%tion 4'4 o( t#e Cons),tation 4aper'
47
See Anne0 ; o( Appendi0 1 o( 4S14N4'
476
8CA 4ress :e,ease 6 Mar%# 2014'
477
Se%tion 4'4 o( 4S14N4'
478
Se%tion 4'! o( 4S14N4'
$urope
$e+sites' :at#er* as indi%ated in 4S14N4* t#ey #ave dis%,os)re o+,i&ations in re&ard to
$#et#er t#ey #ave %ond)%ted d)e di,i&en%e.
In satis(yin& t#e (inan%ia, promotion r),es $e e0pe%t s)((i%ient detai, to +e provided to
&ive a +a,an%ed indi%ation o( t#e +ene(its and t#e risk invo,ved* in%,)din& $#et#er or
not any d)e di,i&en%e #as +een %arried o)t on Lan iss)erM* t#e e0tent o( t#e d)e
di,i&en%e* and t#e o)t%ome o( any ana,ysis'
479
-o$ever* t#e 8CA #as a,so indi%ated t#at* in ,ine $it# 8CA 4rin%ip,es* (irms t#at operate
investment-+ased %ro$d()ndin& p,at(orms are e0pe%ted to %ond)%t t#eir +)sinesses $it#
inte&rity and #ave system and %ontro,s to miti&ate t#e risk o( o((ers +ein& made in
%ontravention o( app,i%a+,e ,e&is,ation'
480
Intermediar* obliations in relation to issuer promotions
Intermediaries t#at %omm)ni%ate or approve (inan%ia, promotions %on%ernin&
%ro$d()ndin& o((ers $i,, need to ens)re t#at t#ey %omp,y $it# app,i%a+,e (inan%ia,
promotion r),es* parti%),ar,y t#e re<)irement (or t#e promotion to +e (air* %,ear and not
mis,eadin&'
481
"#e 8CA %ommented t#at.
E),nera+,e investors may +e more s)s%epti+,e to emotive advertisin& #i&#,i&#tin& t#e
so%ia, +ene(its o( t#e investment* or #i&# #ead,ine rates o( ret)rn %ompared to ,o$er
interest rates on deposit a%%o)nts' =o)n&er investors may a,so +e more s)s%epti+,e to
so%ia, net$ork promotion o( p,at(orms' "o &)ard a&ainst t#is* $e s)&&ested t#at $e
$o),d p,a%e parti%),ar emp#asis on t#e need (or %omm)ni%ations to t#ese &ro)ps to +e
(air* %,ear and not mis,eadin&'
482
A,so* intermediaries* as $e,, as iss)ers* m)st satis(y t#emse,ves t#at iss)ers are meetin&
any re<)irement to p)+,is# a prospe%t)s 1or satis(y t#emse,ves t#at an e0emption
app,ies2'
48!
Intermediar* vettin of investors
Intermediaries m)st ens)re t#at t#eir retai, %,ients are e,i&i+,e 1see Se%tion A4'!'42 +e(ore
%omm)ni%atin& dire%t o((er promotions o( non-readi,y rea,isa+,e se%)rities to t#em'
-o$ever* 4S14N4 indi%ated t#at repeat appropriateness assessments +y intermediaries o(
retai, %,ients $#o #ave not re%eived advi%e $i,, not +e re<)ired i( it is reasona+,e to
%onsider t#at an ear,ier assessment is sti,, %)rrent'
484
A,so* $#ere retai, %,ients %erti(y t#at
t#ey $i,, not invest more t#an 10P o( t#eir net investi+,e assets in non-readi,y rea,isa+,e
se%)rities* intermediaries %an %omm)ni%ate s)%# o((ers to t#at individ)a, (or 12 mont#s
a(ter t#e date o( t#e statement $it#o)t a ne$ %erti(i%ation (rom t#at individ)a,' ;)rin& t#at
period intermediaries do not need to ens)re t#at individ)a,s %ontin)e to <)a,i(y on an
on&oin& +asis'
48
%isclosure of in"erent ris's to investors
"#e 8CA noted in 4S14N4 t#at investors (a%e si&ni(i%ant in#erent risks $#en +)yin&
non-readi,y rea,isa+,e se%)rities' "#ese in%,)de t#e risk o( %apita, ,oss 1$#i%# is
e0a%er+ated i( t#e pri%e paid (or a se%)rity is +ased on an over-va,)ation o( t#e +)siness2*
479
Se%tion 4'22 o( 4S14N4'
480
Se%tion 4'20 o( 4S14N4'
481
Se%tion 4'22 o( 4S14N4'
482
Se%tion 2'2 o( 4S14N4'
48!
Se%tion 4'20 o( 4S14N4'
484
Se%tion 4'24 o( 4S14N4'
48
Se%tion 4'28 o( 4S14N4'
$urope
t#e risk o( di,)tion o( s#are#o,der va,)e* t#e risk t#at dividends $i,, not +e de%,ared* and
i,,i<)idity risk 1t#e ,a%k o( a se%ondary market2'
486
"#e 8CA indi%ated t#at intermediaries are o+,i&ed to provide (air* %,ear and prominent risk
$arnin&s' -o$ever* +oi,er-p,ate standard $arnin&s may not s)((i%e.
As t#e risks invo,ved $#en investin& in di((erent non-readi,y rea,isa+,e se%)rities vary
&reat,y* dependin& on t#e nat)re o( t#e investment o((ered* it may not a,$ays +e
meanin&(), or #e,p(), to present %ons)mers $it# a sin&,e* )ni(orm 8CA-approved risk
$arnin&' ;i((erent $arnin&s $i,, +e needed in di((erin& %ir%)mstan%es* (or di((erent
investments and a)dien%es'
487
Conflicts
Intermediaries are e0pe%ted to mana&e any %on(,i%ts o( interest (air,y* +ot# +et$een
t#emse,ves and t#eir iss)er or investor %,ients* and +et$een t#e iss)er and investor
%,ients'
488
Intermediaries not to "old investor funds
"o avoid %omp,e0 %omp,ian%e re<)irements (or intermediaries t#at $o),d ot#er$ise +e
app,i%a+,e* t#e pra%ti%e #as +een t#at intermediaries do not #o,d investor ()nds' :at#er*
()nds are not provided (rom investors )nti, a stip),ated tar&et amo)nt #as +een rea%#ed*
$#ere)pon t#ey are trans(erred dire%t,y (rom t#e investors to t#e iss)er'
486
Se%tion 4'14 o( 4S14N4'
487
Se%tion 4'21 o( 4S14N4'
488
Se%tion 4'20 o( 4S14N4'
Appendi$ % >ew Bea#and
This Appendi, out"ines the 'ew Eea"and approach to C($5 which began in Apri" *+1>!
A%.1.verview
"#e 8inan%ia, Markets Cond)%t A%t 201! 1t#e A%t2 and 8inan%ia, Markets Cond)%t
14#ase 12 :e&),ations 2014 1t#e 8MA :e&),ations2 %ontain provisions t#at are desi&ned to
(a%i,itate CS98' "#ey %ame into (or%e in Apri, 2014' "#ese provisions* in t#e CS98
%onte0t* s)+stit)te (or t#e re&),atory re&ime ot#er$ise pertainin& to e<)ity-raisin& +y
%orporate entities'
In imp,ementin& t#is initiative* t#e Ne$ Hea,and 3overnment stated t#at ne$ (orms o(
intermediated ()ndraisin& s)%# as CS98.
ena+,e ()nds (or sma,, +)sinesses and individ)a,s to +e raised in internet-+ased market
p,a%es* potentia,,y more e((i%ient,y t#an t#ro)&# traditiona, p)+,i% or private
o((erin&s'
489
A,so.
9na+,in& %ro$d-()ndin& $as #i&#,i&#ted in t#e 3overnment/s B)siness 3ro$t#
A&enda as an initiative to s)pport ear,y-sta&e and &ro$t# %ompanies to a%%ess t#e
risk-%apita, t#ey need to &ro$ K 4ermittin& %ro$d-()ndin& p,at(orms $i,, open )p
si&ni(i%ant ne$ opport)nities (or sma,, +)sinesses to raise &ro$t# %apita,'
490
4art 6 o( t#e A%t and t#e asso%iated :e&),ations provide (or app,i%ations to +e made to t#e
8inan%ia, Markets A)t#ority 18MA2 to +e ,i%ensed to provide a B%ro$d ()ndin& servi%e/ (or
t#e p)rposes o( CS98' 8or t#is p)rpose* t#e 8MA #as p)+,is#ed Crowd funding .art /1%
0our guide to app"ying for a market service "icence 1Apri, 20142 18MA Cro$d ()ndin&
&)ide2'
Iss)ers makin& CS98 o((ers t#ro)&# ,i%ensed CS98 intermediaries $i,, +e e0empt (rom
t#e norma, re<)irement to re&ister a 4rod)%t ;is%,os)re Statement'
491
Ne$ Hea,and CS98 o((ers $o),d not <)a,i(y (or m)t)a, re%o&nition in A)stra,ia*
492
and
t#ere(ore some adC)stment to t#ese arran&ements may +e ne%essary'
"#e e,ements in t#e Ne$ Hea,and approa%# are set o)t in t#e (o,,o$in& se%tions o( t#is
Appendi0'
489
See t#e Ne$ Hea,and 3overnment /ui"ding Capita" Markets 4ro&ress :eport 18e+r)ary 201!2 o( its
/usiness 9rowth Agenda at 2!!
490
5((i%e o( t#e Minister o( Commer%e Ca+inet 4aper 5inancia" Markets Conduct 2egu"ations .aper > 3
-icensing regimes at paras 124-12'
491
8MA Cro$d ()ndin& &)ide at !'
492
C#apter 8 o( t#e Corporations A%t provides a &enera, me%#anism (or m)t)a, re%o&nition o( se%)rities o((ers
+y entities re&istered in ot#er C)risdi%tions' Ne$ Hea,and is a re%o&nised C)risdi%tions. de(inition o( Bre%o&nised
C)risdi%tion/ in s 1200A112* Corp :e& 8'1'0!' -o$ever* on,y o((ers (or $#i%# a prospe%t)s is re<)ired are
re%o&nised'
'ew Eea"and
A%.2"ssuers
A%.2.1 Types of permitted securities
CS98 is ,imited to s#ares in %ompanies' A s#are does not in%,)de a (inan%ia, prod)%t t#at
$i,, +e %onverted* or is or may +e%ome %onverti+,e* into anot#er (inan%ia, prod)%t'
49!
A%.2.2 Ma$imum funds that an issuer may raise
Iss)ers may raise a tota, o( O2 mi,,ion in ea%# 12 mont# period t#ro)&# a %om+ination o(
CS98 to retai, investors and any ()ndraisin& t#ro)&# t#e Ne$ Hea,and e<)iva,ent o( t#e
sma,,-s%a,e persona, o((ers e0%eption 1in s 708 o( t#e A)stra,ian ,e&is,ation2' -o$ever*
investments (rom $#o,esa,e investors $i,, not %o)nt in determinin& $#et#er t#e
()ndraisin& is $it#in t#e %ap.
"#is means t#at iss)ers $i,, +e a+,e to raise more t#an O2 mi,,ion per year 1sometimes
m)%# more2 t#ro)&# %ro$d ()ndin& servi%es i( some o( t#e investors are $#o,esa,e
investors )nder t#e 8MC A%t'
494
Intermediaries m)st ens)re t#at iss)ers do not e0%eed ()ndraisin& ,imits' 8or t#is p)rpose*
intermediaries m)st maintain ade<)ate systems and pro%ed)res to ens)re t#at iss)ers do
not e0%eed t#e iss)er %ap o( O2 mi,,ion in any 12 mont# period t#at t#e iss)er )ses t#e
intermediary/s servi%e'
49
An intermediary m)st noti(y t#e 8MA i( t#at party kno$s or s)spe%ts t#at an iss)er t#at
)ses t#e servi%e #as %ommitted* is %ommittin&* or is ,ike,y to %ommit a %ontravention o(
t#e O2 mi,,ion a&&re&ate ,imit'
496
A%.2. 0isc#osures in the o?er documents
Intermediaries m)st #ave ade<)ate dis%,os)re arran&ements $it# iss)ers to &ive investors*
or to ena+,e investors readi,y to o+tain* time,y and )nderstanda+,e in(ormation to assist
investors to de%ide $#et#er to a%<)ire parti%),ar s#ares on o((er on t#e intermediary/s
$e+site 1(or e0amp,e* t#ro)&# initia, dis%,os)re* or <)estion and ans$er (or)ms* or ot#er
in(ormation t#at is made avai,a+,e2'
497
In %onsiderin& $#et#er t#e dis%,os)re arran&ements are ade<)ate* t#e 8MA m)st #ave
re&ard to.
t#e ,imits 1i( any2 on t#e amo)nt t#at retai, investors may invest in an iss)erU and
t#e amo)nt t#at iss)ers may raise t#ro)&# t#e CS98 pro%ess'
498
Minimum disclosure arranements
"#e minim)m dis%,os)re arran&ements in%,)de.
a dedi%ated $e+pa&e on t#e intermediary (a%i,ity (or ea%# o((er* $#i%# is simp,e to
a%%ess and navi&ate and avai,a+,e to a,, investors
49!
8MA :e& 16142'
494
Ministry o( B)siness* Innovation J 9mp,oyment* 5inancia" Markets Conduct 2egu"ations% 5irst $,posure
#raft 15%to+er 201!2 at para&rap# 8'
49
8MA :e& 17112* 8MA Cro$d ()ndin& &)ide at 18'
496
8MA :e& 26'
497
8MA :e& 17112'
498
8MA :e& 17122'
'ew Eea"and
dis%,os)re o( a des%ription o( t#e iss)er +)siness and t#e p)rpose o( t#e ()ndraisin&
dis%,os)re o( t#e terms o( t#e o((er* in%,)din&.
6 pri%e
7 minim)m ()ndin& so)&#t
8 d)ration o( t#e o((er
9 amo)nts raised 1)pdated re&),ar,y2
10 investor %aps 1i( any2
11 ri&#ts atta%#in& to t#e s#ares 1and detai,s o( any ot#er se%)rities o( t#e iss)er2
in(ormation a+o)t #o$ s#ares %an +e so,d* in%,)din& a+o)t any avai,a+,e se%ondary
markets
t#e names and positions o( t#e iss)er/s dire%tors and senior mana&ers 1intermediaries
%o),d a,so %onsider re<)irin& dis%,os)re o( t#eir ed)%ation* ski,,s and e0perien%e2
arran&ements $it# iss)ers to s)pp,y re<)ired in(ormation'
499
An intermediary/s dis%,os)re arran&ements s#o),d a,so %over #o$ t#e intermediary $i,,
revie$ t#e in(ormation iss)ers/ s)pp,y to %#e%k t#at it is )nderstanda+,e and time,y 1$#en
dis%,osed2 or state #o$ t#e intermediary $i,, re,y on t#e iss)er to do t#is'
00
%iscretionar* disclosure arranements
Intermediaries may a,so %onsider in%,)din&.
a XJA ()n%tion on t#eir $e+sites
in(ormation (rom t#e Companies 5((i%e a+o)t iss)ers* or ,inks to t#e Companies
5((i%e BCompany S)mmary/ $e+pa&es (or iss)ers'
01
#evel of disclosure lin'ed to an* investor cap
02
A%.2.! 'ia,i#ity of issuers
An iss)er )sin& CS98 $i,, +e s)+Ce%t to ,ia+i,ity (or any misstatements or )ns)+stantiated
representations it makes 1)n,ess it %an prove a de(en%e* (or instan%e t#at t#e %ontravention
$as d)e to a %a)se +eyond its %ontro, and it took reasona+,e pre%a)tions and e0er%ised d)e
di,i&en%e to avoid t#e %ontravention2'
499
8MA Cro$d ()ndin& &)ide at 16'
00
i+id'
01
i+id'
02
i+id'
'ew Eea"and
A%."ntermediaries
A%..1 'icensing
A person $is#in& to provide a %ro$d ()ndin& servi%e m)st +e ,i%ensed (or t#at p)rpose' A
person provides a %ro$d ()ndin& servi%e i(.
it provides a (a%i,ity +y means o( $#i%# o((ers o( s#ares in a %ompany are madeU and
t#e prin%ipa, p)rpose o( t#e (a%i,ity is to (a%i,itate t#e mat%#in& o( %ompanies $#o
$is# to raise ()nds $it# many investors $#o are seekin& to invest re,ative,y sma,,
amo)nts'
0!
"o +e ,i%ensed* an intermediary m)st.
#ave (air* order,y* and transparent systems and pro%ed)res (or providin& t#e servi%e
04
satis(y %apa+i,ity standards'
0
In addition* t#e dire%tors and senior mana&ers o( t#e intermediary m)st +e (it and proper
persons to #o,d t#eir respe%tive positions'
06
"#e 8MA #as ,aid do$n minim)m standards
in t#is re&ard'
07
A n)m+er o( ot#er ,i%ensin& re<)irements app,y* in%,)din& in re,ation to t#e interna,
&overnan%e* (inan%ia, reso)r%es* indemnity ins)ran%e* and in(ormation te%#no,o&y
arran&ements o( intermediaries* and a p,an to prote%t t#e interests o( re,evant iss)ers or
investors i( t#e intermediary servi%es are terminated'
08
A%..2 1rocedures for attracting new c#ients
"#e pro%ed)res emp,oyed +y an intermediary (or attra%tin& ne$ %,ients 1+ot# iss)ers and
investors2 m)st ens)re t#at t#ey &et s)((i%ient in(ormation to make in(ormed de%isions
a+o)t t#e (inan%ia, servi%es o((ered* and t#at t#ese servi%es are not inappropriate,y
marketed'
09

"#e intermediary $i,, need to des%ri+e #o$ it intends to attra%t %,ients to its servi%e* s)%#
as )sin& advertisin& or re(erra,s'
10
"#e intermediary $i,, a,so need to demonstrate #o$ its pro%ed)res $i,, ens)re it meets
vario)s o+,i&ations* in%,)din&.
t#e re<)irement (or a $ritten %,ient a&reement $it# investors
(air dea,in& o+,i&ations* in%,)din& t#e pro%ess to ens)re its advertisements are not
mis,eadin& or de%eptive
0!
8MA :e& 161121a2' See a,so 8MA Cro$d ()ndin& &)ide 1Apri, 20142 at !'
04
8MA :e& 17112'
0
8MA Cro$d ()ndin& &)ide at 11-12'
06
07
8MA Cro$d ()ndin& &)ide at 9-10'
08
8MA Cro$d ()ndin& &)ide at 22-!6'
09
8MA Cro$d ()ndin& &)ide at 1!'
10
i+id'
'ew Eea"and
t#e o+,i&ation to provide a dis%,os)re do%)ment to investors* $it# parti%),ar attention
to dis%,os)re in respe%t o( t#e nat)re and e0tent o( d)e di,i&en%e %ond)%ted on iss)ers
and t#e )se o( t#e (a%i,ity +y persons asso%iated $it# asso%iated $it# t#e intermediary
t#e o+,i&ation to provide a $arnin& statement to investors* and to &et t#eir
%on(irmation t#at t#ey #ave seen t#e $arnin&'
11
A%.. 0isc#osures ,y intermediaries to intending
investors
Intermediaries $i,, +e re<)ired to provide a servi%e dis%,os)re statement to retai, investors
and enter into $ritten %,ient a&reements $it# t#em* dea,in& ade<)ate,y $it#.
#o$ t#e p,at(orm/s investment pro%esses operate
t#e me%#anisms to dea, $it# intera%tions +et$een iss)ers and investors
any on&oin& monitorin& o( iss)ers t#at t#e p,at(orm proposes to per(orm
#o$ any investor money is #and,ed +y t#e intermediary
t#e (ees and %#ar&es t#at $i,, app,y to investors
#o$ investors %an make %omp,aints'
12
"#e servi%e dis%,os)re statement m)st a,so %ontain t#e risk $arnin& statement'
1!
A%..! 0ue di#igence chec(s on issuers
Intermediaries m)st #ave anti-(ra)d and (air dea,in& po,i%ies t#at ena+,e t#em to assess
iss)ers* and i( needed* e0%,)de t#em (rom )sin& t#e on,ine (a%i,ity'
14
Anti&fraud
Intermediaries are re<)ired to %ond)%t %#e%ks to e0%,)de o((ers +y iss)ers on t#eir
$e+sites $#ere t#ere is eviden%e t#at dire%tors* senior mana&ers or %ontro,,in& o$ners o(
t#e iss)er are not o( &ood %#ara%ter and rep)tation'
At a minim)m* t#is m)st invo,ve.
%#e%kin&* a&ainst p)+,i%,y avai,a+,e and readi,y a%%essi+,e in(ormation* t#e identity o(
t#e iss)er and in(ormation provided +y t#e iss)er re,atin& to t#e identity and %#ara%ter
o( its dire%tors and senior mana&ersU and
e0%,)din& an iss)er (rom )sin& t#e servi%e i( t#e provider is not satis(ied as to t#e
identity o( t#e iss)er or o( t#e iss)er/s dire%tors and senior mana&ers* #as reason to
+e,ieve t#at any o( t#e iss)er/s dire%tors or senior mana&ers are not o( &ood %#ara%terU
or #as reason to +e,ieve t#at t#e iss)er is not ,ike,y to %omp,y $it# t#e o+,i&ations
imposed on it )nder t#e servi%e'
1
11
i+id'
12
8MA A%t s 42! and 8MA :e&s !6Q47'
1!
8MA :e& !61!2'
14
1
8MA :e& 17112'
'ew Eea"and
"#e 8MA #as indi%ated t#at t#e anti-(ra)d po,i%y m)st* at a minim)m* %on(irm t#e identity
and %#ara%ter o( t#e iss)er/s dire%tors and senior mana&ers (rom p)+,i%,y avai,a+,e and
readi,y assessa+,e in(ormation' "#is s#o),d in%,)de sear%#in& re,evant p)+,i% re&isters
1s)%# as t#e Companies :e&ister and Inso,ven%y :e&ister2 and t#e internet 1(or re,evant
ne$s arti%,es or ot#er %ommentary2 to identi(y eviden%e o(.
+ankr)pt%y or invo,vement $it# inso,vent %ompanies
in(ormation t#at may <)estion t#e identity o( dire%tors or senior mana&ers
%onvi%tions (or (ra)d or dis#onesty Q or invo,vement in ,iti&ation or ot#er disp)tes'
"#e intermediary m)st a,so identi(y t#e %riteria to #e,p assess t#is in(ormation and to make
de%isions a+o)t a,,o$in& iss)ers to )se t#e servi%e'
16
(air dealin
An intermediary m)st #as an ade<)ate po,i%y (or e0%,)din& an iss)er (rom )sin& t#e
servi%e i( t#e provider #as in(ormation 1(or e0amp,e* (rom %#e%ks or assessments it %arries
o)t 1i( any22 t#at &ives it reason to +e,ieve t#at t#e iss)er* in re,ation to any dea,in& in
s#ares )sin& t#e servi%e* #as.
en&a&ed in %ond)%t t#at is mis,eadin& or de%eptive or ,ike,y to mis,ead or de%eiveU or
made a (a,se or mis,eadin& representation in %ontravention o( s 22 o( t#e A%tU or
made an )ns)+stantiated representation in %ontravention o( s 2! o( t#e A%t'
17
"#e 8MA #as indi%ated t#at t#e (air dea,in& po,i%y o( an intermediary m)st ena+,e it to
e0%,)de an iss)er (rom )sin& t#e servi%e in %ertain %ir%)mstan%es' An intermediary/s (air
dea,in& po,i%y s#o),d set o)t.
t#e steps t#e intermediary $i,, take i( it identi(ies identi(y a%t)a, or s)spe%ted eviden%e
o( mis%ond)%t o( t#e type set o)t in :e&),ation 171121e2 1see a+ove2
t#e pro%ess an intermediary $i,, )se to e0%,)de an iss)er* and #o$ t#at e0%,)sion $i,,
+e &iven e((e%t to* (or e0amp,e t#ro)&# appropriate provisions in a&reements $it#
iss)ers'
18
Ot"er due dilience
"#e intermediary m)st maintain %,ear and transparent in(ormation a+o)t $#at d)e
di,i&en%e t#e intermediary #as and #as not %arried o)t on iss)ers* so investors %an make
reasona+,e C)d&ments a+o)t t#e risks o( investin&'
19
More spe%i(i%a,,y* t#e intermediary m)st dis%,ose t#e nat)re and e0tent o( t#e %#e%ks* i(
any* o( t#e risks invo,ved $it# t#e s#ares t#at are s)+Ce%t to t#e o((er* or dis%,ose t#at s)%#
%#e%ks are not part o( t#e intermediary/s servi%e'
20
16
17
8MA :e& 17112'
18
19
20
8MA :e& !61121(21iii2'
'ew Eea"and
A%..% ConAict of interest
An intermediary m)st #ave ade<)ate systems and pro%ed)res (or #and,in& %on(,i%ts
+et$een t#e %ommer%ia, interests o( t#e provider 1or o( its asso%iated persons2 and t#e
need (or t#e provider to #ave (air* order,y* and transparent systems and pro%ed)res (or
providin& t#e servi%e'
21
An intermediary $i,, +e re<)ired to identi(y and dea, $it# %on(,i%ts o( interest in a (air*
order,y and transparent $ay' An intermediary m)st #ave ade<)ate systems and pro%ed)res
(or #and,in& %on(,i%ts +et$een its %ommer%ia, interests and t#e need to #ave (air* order,y
and transparent systems and pro%ed)res'
22
8or t#is p)rpose* an intermediary m)st %,ear,y and prominent,y dis%,ose.
i( t#e intermediary or anyone %ommer%ia,,y asso%iated $it# t#e intermediary #as a
dire%t or indire%t interest in any o((er made t#ro)&# t#e intermediary/s (a%i,ity
t#e nat)re and e0tent o( t#e interest 1or intended investment2 and any (ees t#e iss)er
pays t#e intermediary a+ove t#e standard dis%,osed amo)nt'
2!
A%..& *ees charged ,y the intermediary
"#e intermediary m)st %,ear,y and prominent,y dis%,ose a,, (ees paid +y iss)ers in
%onne%tion $it# t#e o((er* $#et#er dire%t or indire%t and #o$ever des%ri+ed'
24
A%..7 "ntermediary investment in an issuer
Intermediaries $i,, +e permitted to invest in o((ers made on t#e intermediary/s $e+site*
provided t#ey provide detai,s o( t#e ,ike,y nat)re and e0tent o( s)%# investment 1i(
kno$n2'
2
I( an intermediary* or an asso%iated person* $is#es to invest in t#is manner* t#e
intermediary m)st e0p,ain #o$ its systems and pro%ed)res (or #and,in& %on(,i%ts o(
interest $i,, ens)re ot#er investors are not preC)di%ed' An intermediary m)st a,so ens)re
t#at potentia, %on(,i%ts are dis%,osed %,ear,y and prominent,y on its (a%i,ity'
26
A%..: "nvestor funds
I( intermediaries re%eive* #o,d* pay or trans(er ()nds (rom investors to pay (or investments*
t#ey m)st %omp,y $it# t#e +roker o+,i&ations in t#e 8inan%ia, Advisers A%t* meanin& t#at
t#e ()nds m)st +e #e,d in tr)st'
27
An intermediary m)st a,so dis%,ose #o$ investor money is re%eived and dea,t $it#'
28
A%..; 0ispute reso#ution
Intermediaries are e0pe%ted to #ave a %omp,aints pro%ess* in%,)din& +e,on&in& to a disp)te
reso,)tion s%#eme* as re<)ired )nder t#e 8inan%ia, Servi%e 4roviders 1:e&istration and
21
8MA :e& 17'
22
2!
i+id'
24
i+id'
2
i+id'
26
i+id'
27
28
8MA :e& !61121e2* :e& 41%2'
'ew Eea"and
;isp)te :eso,)tion2 A%t 2008' "#is is one o( t#e re<)irements o( re&isterin& to +e%ome a
(inan%ia, servi%e provider to retai, %,ients'
29
A%..1< "ndemnity insurance
An intermediary m)st maintain an appropriate ,eve, o( pro(essiona, indemnity ins)ran%e
%over (or its +)siness'
!0
A%.!Matters re#ated to investors
A%.!.1 1ermitted types of investor
"#ere are no ,imitations on $#o may invest t#ro)&# CS98'
A%.!.2 >o investor cap
Fn,ike t#e proposa,s in t#e FSA or Canada* t#ere are no ,imits on #o$ m)%# %an investor
%an invest in CS98'
:at#er* $#en assessin& an intermediary/s arran&ements t#e 8MA is re<)ired to %onsider
t#e ,imits 1i( any2 on t#e amo)nt t#at retai, investors may invest'
!1
!2
A%.!. Ris( disc#osure
An intermediary m)st ens)re t#at a $arnin& statement is prominent,y disp,ayed on t#e
#ome pa&e o( its on,ine siteU and on a pa&e on t#e site* immediate,y +e(ore t#e investor
)ses t#e site to app,y (or* or ot#er$ise a%<)ire* e<)ity'
"#e $arnin& statement m)st +e in t#e (o,,o$in& (orm.
9<)ity %ro$d ()ndin& is risky'
Iss)ers )sin& t#is (a%i,ity in%,)de ne$ or rapid,y &ro$in& vent)res' Investment in
t#ese types o( +)sinesses is very spe%),ative and %arries #i&# risks' L5mit t#ese
senten%es i( t#e (a%i,ity is %on(ined to iss)ers (or $#om t#e senten%es $o),d +e
inapp,i%a+,eM
=o) may ,ose yo)r entire investment* and m)st +e in a position to +ear t#is risk
$it#o)t )nd)e #ards#ip'
Ne$ Hea,and ,a$ norma,,y re<)ires peop,e $#o o((er (inan%ia, prod)%ts to &ive
in(ormation to investors +e(ore t#ey invest' "#is re<)ires t#ose o((erin& (inan%ia,
prod)%ts to #ave dis%,osed in(ormation t#at is important (or investors to make an
in(ormed de%ision'
29
!0
8MA Cro$d ()ndin& &)ide at !1'
!1
!2
'ew Eea"and
"#e )s)a, r),es do not app,y to o((ers +y iss)ers )sin& t#is (a%i,ity' As a res),t* yo)
may not +e &iven a,, t#e in(ormation )s)a,,y re<)ired' =o) $i,, a,so #ave (e$er ot#er
,e&a, prote%tions (or t#is investment'
Ask <)estions* read a,, in(ormation &iven %are(),,y* and seek independent (inan%ia,
advi%e +e(ore %ommittin& yo)rse,('
!!
A%.!.! Ris( ac(now#edgement ,y the investor
Investors $i,, +e re<)ired to a((irm to t#e intermediary t#at t#ey )nderstand t#e risks
invo,ved in CS98' 8or t#is p)rpose* an intermediary m)st o+tain (rom ea%# %ro$d
investor* a %on(irmation to t#e (o,,o$in& e((e%t.
I %on(irm t#at I #ave seen t#e $arnin& statement a+o)t %ro$d ()ndin&U and
I )nderstand t#at e<)ity %ro$d ()ndin& is risky and I may ,ose my entire investmentU and
I %on(irm t#at I %o),d +ear t#at ,oss $it#o)t s)((erin& )nd)e #ards#ipU and
I )nderstand t#at t#e )s)a, ,e&a, prote%tions do not app,y to t#is investmentU and
I )nderstand t#at I may not +e &iven t#e same in(ormation as is )s)a,,y re<)ired +y Ne$
Hea,and ,a$ (or investments'
!4
"#e %on(irmation m)st +e o+tained in $ritin& in a separate do%)ment or* i( it is o+tained
+y e,e%troni% means* t#ro)&# a pro%ess +y $#i%# it is o+tained separate,y (rom t#e
a&reement to )se t#e intermediary servi%e'
"#e %on(irmation m)st +e o+tained +y t#e intermediary +e(ore t#e investor is a)t#orised to
)se t#e intermediary servi%e'
!
!!
8MA :e& 27'
!4
8MA :e& 28112'
!
8MA :e& 28122* 1!2'
Appendi$ & Respondents
A)stra,ian Se%)rities 90%#an&e
?a$ Co)n%i, o( A)stra,ia
A)stra,ian Sma,, S%a,e 5((erin&s Board
BiDDB)i,d
Minter 9,,ison
Marina Ne#me
Capita, "e%#no,o&ies 4ty ?td
C#)((ed
Comm)nity Se%tor Bankin&
C,earSky
:amin MarD+ani
Cro$d()ndF4 4ty ?imited
B Mor&an* ; G)%# J > N&o
Cro$dIX
;anie, Meyero$itD-GatD and -anna# 3,ass
9,aine ?ie$
Capita, 4otentia,
9mma "omkinson
3erard S#ea
Innovation A)stra,ia
i4,ed& 1Andy "ompkins J Bryan Eadas2
Gy,ie -ammond J :o&er B)%kerid&e
Cassandra 7i,kinson
4#i,ant#ropy A)stra,ia
Matt#e$ Eita,e
Norton :ose 8),+ri&#t
5((i%e o( t#e NS7 Sma,, B)siness Commissioner
5s%ar S%#er,
4ennam 4artners
So%ia, B)siness A)stra,ia
4ete Cooper
C?9ANaS
"om Camp#in
4oDi+,e and C,earpoint Co)nse,
X)eens,and 3overnment
:o+yn ;onne,,y
Seavie$ Cons),tin&
S<)areknot
Andre$ 7ard
A)stra,ian Comm)nity :ene$a+,e 9ner&y

CAMAC Report: CSEF Report 21may2014

Загружено:

Сведения о документе

Оригинальное название

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

CAMAC Report: CSEF Report 21may2014

Загружено:

Авторское право:

Доступные форматы

Corporations and Markets

"#e %ontents o( an app,i%ation (or re&istration are %ontained in s 117'

Вам также может понравиться