Crowd-sourced equity funding: The regulatory challenges of innovative fintech and fundraising

In many ways debate about how best to legislate and regulate crowd-sourced equity funding grapples with concerns similar to those that existed at the time of the introduction of limited liability in the United Kingdom. How best can we balance the interests of investors and businesses seeking to raise funds? In Australia these policy deliberations are taking place within a broader debate as to how to formulate a regulatory framework supportive of innovation and entrepreneurship. This paper considers how these objectives might be achieved to the best advantage of small business and the economy. The immense potential of innovative businesses may turn on the effectiveness of such policy development and its place within the legal framework. This paper argues that the legal challenge is to recognise that the regulation of crowd-sourced equity funding is not a simple matter of accommodating new fundraising activities within an existing legal framework designed for big business. Rather, the law must re-conceptualise its approach to fundraising consistent with the broader policy ambition of supporting the businesses most likely to require access to non-traditional, innovative funding models such as crowd-sourced equity funding; namely innovative firms, entrepreneurial business, start-ups and other micro, small and medium enterprises which have emerged in recent times. Part 1 considers the regulatory challenges and policy underlying the introduction of crowd-sourced equity funding regulation. I propose that the challenges in supporting innovation and entrepreneurship include the shape and range of corporate forms available to enterprise. In Part 2 crowdfunding and fintech are explained. Part 3 outlines amendments to the Corporations Act 2001 (Cth) introducing crowd-sourced equity funding. Part 4 examines the extent to which the law has met its policy objectives. In part 5 the paper suggests that it is time to rethink the corporate form in Australia with a firm eye on the reality of the corporate landscape, and that any rethink of the nature and shape of corporate vehicles should include an understanding and acknowledgement of the long term economic benefits of the innovation agenda. The paper concludes in part 6.