Innovation Journey Needs Planning - Part 2

CROWD SOURCED FUNDING ASSISTS ORGANISED COMPANIES

Crowd Sourced Funding Equity Raising is a great way to raise funds for a company, if the Directors and Leadership Team have developed a vision that can be articulated within the Business Plan and Budgets, Cash Flow Forecasts and Projected Balance Sheets.

To be eligible, a private company or an unlisted public company must have a turnover of less than $25 million, a total gross assets of less than $25 million and the company cannot be listed on a stock exchange.

The Australian government’s legislation makes provision for the appointment of Crowd Sourced Funding Intermediaries by the Australian Securities & Investments Commission (ASIC). The Intermediaries are businesses that have Australian Financial Services Licenses and have a dual responsibility: to act as the “gatekeeper” for ASIC and as a promoter for the company that has appointed them as their Intermediary.

The company can raise up to $5 million from the public via the Intermediary’s website, by issuing ordinary shares in the company.

This enables a company that has been approved as being a “Crowd Sourced Funding Equity Raising Company” to have more than the normal fifty shareholders limit for a private company.

The Directors and Leadership Team need to have acquired knowledge of how Crowd Sourced Funding Equity Raising operates.  This is best supplied by a consultant who has familiarity with the Crowd Sourced Funding Equity Raising rules and regulations.

Crowd Sourced Funding Equity Raising is definitely a beneficial way for companies to raise funds for the “Innovation Journey”.

Towers Business Development is very familiar with the Crowd Sourced Funding Equity Raising process and can assist companies in the preparation of the required documentation and mentoring of Directors and Leadership team members on the processes involved.

EARLY STAGE INNOVATION COMPANY – SUITABLE FOR AN INNOVATIVE COMPANY

There is a special company category for Innovative Businesses who have undertaken Research and Development projects, have already registered a patent or raised initial capital in excess of $50,000 for an innovative project.

Companies that aspire to raise capital and meet the requirements are classified as an “Early Stage Innovation Company”. Acquiring this status would normally only be made possible by having assistance from an accounting consultant.

One of the benefits of having this status is, as part of the “Early Stage Innovation Company Status Process”, investors can obtain taxation benefits from acquiring shares in the company.

Companies will need assistance from an accountant, to ensure that they have complied with the requirements to be classified as an Early Stage Innovation Company. Naturally, they will need to be able to submit that information to potential investors (if requested) because, if the company fails, the status registration the investor will not obtain the taxation benefits.

The investor will receive a tax offset calculated at 20% of their investment in the company, up to a maximum offset of $200,000 for a sophisticated investor and $10,000 for a retail investor. In addition, investors will not be required to pay Capital Gains Tax on the shares that were issued, as part of the “status registration”, if those shares are held for longer than twelve months and less than
ten years.

Investors will be looking for the documentation that supports the determination of the Early Stage Innovation Company Status, as well as a Business Plan, Budget, Cash Flow Forecast and Projected Balance Sheet. These documents should clearly outline the company’s vision and expected progress over the next few years.

Specific requirements that the company must meet to satisfy the “status requirements” will be outlined below.

Towers Business Development can assist with the preparation of the required documentation for Early Stage Innovation Company processes.

STATUS REQUIREMENTS FOR EARLY STAGE INNOVATION COMPANY

This will status with attractions to encourage investors is available for companies that are involved in innovative activities.

To qualify for this special classification, a company normally needs to have been incorporated within the last three years and have expenditure of less than $1 million and income of less than $200,000, both in the income year before the current year.

Some companies incorporated within six years and others registered in the Australian Business Register within the last three years can also be eligible.

When a company has passed the basic eligibility tests, the company then has to pass one of two remaining tests.

The first test is known as the “gateway test” and the company must earn at least 100 points from an evaluation of innovative activities such as:

• Research and Development – 75 points
• Accelerating Commercialisation Grant – 75 points
• Completed or undertaking an “Accelerator Program” – 50 points
• At least $50,000 paid for an Equity Interest in the company by non-associates – 50 points
• Ownership of a “Patent or Plant Breeder’s Right” – 50 points
• Ownership of an “Innovation Patent” or “Registered Design” – 25 points

The “gateway test” is on a self-assessment basis with the company required to prepare a substantiation file.

If 100 points not achieved, you can then undertake the “principles test” and identify the following:

• Is the company genuinely focused on developing for commercialisation one or more new, or significantly improved products, processes, services, marketing or organisational methods?
• Does the company have a high growth potential?
• Does the company have a potential to be able to successfully scale that business?
• Is the company’s address broader than local market?
• Does the company have a potential to have a competitive advantage?

To achieve the status under the Principles Test, an application has to be prepared and submitted to the Australian Taxation Office, who will assess and advise whether the company qualifies as an “Early Stage Innovation Company”.

Towers Business Development is familiar with this process and can assist companies in the preparation of the required documentation.