A Guide to Crowdfunding for Businesses

Crowdsourced funding (CSF) has transformed the way businesses raise capital. Whether you are a startup, an established business, or a social enterprise, crowdfunding provides a way to secure funding directly from the public while building community support. However, CSF comes with legal and regulatory requirements, and businesses must carefully navigate these obligations to ensure compliance and protect investors.

Why Crowdfunding is a Disruptive Business Model

Traditionally, businesses relied on venture capital (VC), bank loans, or private investments to raise funds. Crowdfunding democratises this model by allowing businesses to obtain funding directly from members of the public as well as retail investors, sophisticated & wholesale investors, and institutional investors, through online platforms.

If your company meets the eligibility criteria, you can use CSF to:

• Raise up to $5 million per year across all investor types through public fundraising.
• Issue new fully-paid ordinary shares to investors in exchange for funding.
• Engage a broad base of supporters who become shareholders.
• Test market interest in your business model before seeking larger investments.
• Fund product development, expansion, or working capital needs.

Eligibility Requirements

To qualify for CSF in Australia, your business must:

• Be an Australian public or proprietary company with at least two directors.
• Have less than $25 million in annual revenue and gross assets.
• Not be listed on a stock exchange.
• Use an ASIC-licensed CSF intermediary to run the campaign.

Businesses and Activities that cannot use CSF

It is worth noting at this point that there are restrictions on the types of businesses and projects that can use it. Under ASIC regulations, certain industries, business structures, and activities are prohibited or restricted from raising funds through CSF:

• Investment & Financial Services: Companies whose main business is investing in securities or financial products, including cryptocurrency trading or issuing tokens;
• Lending Businesses: Businesses engaged in providing loans, payday lending, or credit services;
• Property Development & Real Estate Investment: Companies primarily engaged in property development, land banking, or real estate speculation;
• Gambling, Adult, and Illegal Activities; and
• Businesses Over the Asset & Revenue Cap: CSF is only for small to medium enterprises (SMEs) with less than $25 million in gross assets and less than $25 million in annual revenue.

If your business is eligible for CSF, you should consider the different models of CSF available and determine which approach suits your goals and objectives.

We can assist you to identify whether your business can use CSF. Call us on 1300 654 590 or email us.

Different Models of Crowdsourced Funding

Before choosing a CSF approach, it’s important to understand the different models available. Each has its own advantages and regulatory considerations:

Equity Crowdfunding

• Investors receive shares in exchange for their funding.
• This method is ideal for startups and established businesses looking to raise capital without taking on debt.
• Investors gain potential returns if the company grows or is acquired.
• This method is regulated under ASIC’s CSF rules, requiring an Offer Document and disclosures.

Rewards-Based Crowdfunding

• Investors contribute funds in exchange for a product, service, or exclusive perks.
• This method is best for companies launching a new product or validating demand.
• No equity or repayment obligations, making it a lower-risk funding option.
• An Offer Document is not required since no equity or financial return is offered.
• This method is not regulated under ASIC’s CSF rules.

Donation-Based Crowdfunding

• Contributors donate money without expecting financial returns.
• This method is most common for social enterprises, charities, or community projects.
• Less applicable to commercial businesses but useful for mission-driven initiatives.
• An Offer Document is not required since contributors do not expect a financial return.
• This method is not regulated under ASIC’s CSF rules.

Understanding these models helps businesses align their funding approach with their financial strategy and growth objectives. You should seek professional advice before deciding which method to utilise.

Legal Requirements & Restrictions

For consumer protection reasons, CSF operates in a legal and regulatory framework overseen by ASIC and is governed by the Corporations Act 2001 (Cth), which regulates CSF for public and proprietary companies. CSF offers must comply with ASIC Regulatory Guide 261 (RG 261).

RG 261 is a key regulation designed to protect investors. Such protections include requiring a 5-Day Cooling-Off Period in which investors can withdraw their investment.

We can help you to comply with the CSF regulatory framework. Call us on 1300 654 590 or email us.

For businesses, this regulatory framework requires you to meet the CSF eligibility criteria discussed above, and your CSF campaign must include a detailed Offer Document for equity and debt CSF that:

• Explains your business and market potential.
• Provides financial statements and projections.
• Discloses risks, including regulatory hurdles.
• States how funds will be used (e.g., product development, expansion, marketing).
• Warns investors that investments are high-risk and illiquid.

Failing to comply with these requirements can lead to ASIC stop orders, investor lawsuits, reputational damage or criminal liability.

We can assist you to meet your obligations under the CSF regulatory regime. Call us on 1300 654 590 or email us.

Directors’ Responsibilities in a CSF Campaign

In addition to the above, the usual legal, financial and governance responsibilities apply to directors. These include:

Corporate Governance & Compliance

• Ensuring the company meets ASIC eligibility requirements before launching a CSF campaign.
• Providing accurate and transparent disclosures in the CSF Offer Document.
• Monitoring financial health to prevent insolvency and protect investor interests.
• Maintaining proper records and reporting to comply with shareholder obligations.

Fiduciary Duties

• Acting in good faith and in the best interests of the company and shareholders.
• Exercising due diligence and care when managing investor funds.
• Avoiding conflicts of interest and disclose any personal financial interests in the company.
• Prevent misleading or deceptive statements in fundraising materials.

Financial Management & Fund Allocation

• Ensuring CSF funds are used as outlined in the Offer Document.
• Tracking and reporting fund usage to investors.
• Avoiding misuse of funds, such as excessive director salaries or unrelated expenditures.

Investor Relations & Communication

• Providing regular updates to investors on business progress and financial health.
• Addressing investor concerns and inquiries transparently.
• Clarifying investor rights, including dividends, voting power, and share transfer restrictions.

The legal consequences for non-compliance by directors are significant:

• Personal liability if directors allow insolvent trading.
• Fines and regulatory penalties for failing to disclose material business risks.
• Potential ASIC enforcement action, including banning from future directorships.
• Investors may take legal action if misled or harmed by breaches of duty.

We can help you to understand your obligations as a director. Call us on 1300 654 590 or email us.

Key Legal Documents for a CSF Campaign

As you can see, CSF is highly regulated.  This is because the Government recognises that investors are usually not sophisticated and therefore vulnerable to exploitation. To ensure compliance and protect both the company and investors, you’ll need a suite of documents that includes the following:

1. CSF Offer Document

• Provides details about the business, financials, and investment terms.
• Discloses potential risks (including regulatory and market risks).
• Must comply with ASIC’s CSF regulations.

2. Company Constitution

• Sets out the rules and regulations governing the company’s internal management, operations and the rights and obligations of its directors and shareholders
• Important to have a well-drafted constitution in place to ensure effective company operation after CSF

3. Terms & Conditions of the CSF Platform

• Details the platform’s fees, escrow arrangements, and compliance policies.

This is where a lawyer with experience in CSF comes in handy.

We can assist you to prepare these key documents for your CSF campaign. Call us on 1300 654 590 or email us.

Key Takeaways for Companies Considering CSF

Crowdsourced funding can be a game-changer for startups and growing businesses, providing access to capital while building a community of investor-supporters. However, it is not a one-size-fits-all solution. If your business qualifies, careful planning, legal structuring, and regulatory compliance are essential to running a successful campaign.

Here are our key takeaways:

1. CSF is an effective way to raise capital, but your business must meet ASIC’s eligibility criteria.
2. Directors are legally responsible for ensuring compliance, financial management, and investor transparency.
3. Not all forms of CSF require a disclosure document—however equity and debt crowdfunding typically do.
4. The process is strictly regulated and requires adherence to disclosure rules where applicable.
5. Investors face risks, including business failure and illiquidity, so transparency is key.
6. Strong legal documentation (Subscription Agreement, Shareholders Agreement, CSF Offer Document) can help protect your business and investors.
7. Compliance is ongoing — companies that raise funds via CSF must adhere to shareholder reporting and financial disclosure requirements.

Next Steps

If you’re planning to launch a crowdfunding campaign for your business, ensure your legal and compliance framework is solid. Work with us to navigate the complexities and maximise your chances of success.

If you need assistance with your CSF and ongoing compliance with ASIC regulations call us on 1300 654 590 or email us.

The information contained in this post is current at the date of editing – 10 April 2025.