Crowd Source Equity Funding Research Assignment (Essay Sample)

Crowd Sourced Equity Funding
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Introduction
The world has become very dynamic today due to the exponential, continuous and tremendous growth of the internet and the numerous social media platforms that are available today. This has provided numerous opportunities to the many companies and business enterprises in seeking, raising and collecting funds for their firms through these online platforms such as blogs and websites. This is what has led to the establishment and growth of the Credit Sourced Equity Funding (CSEF), a concept that seeks to raise capital and equity for business enterprises through online platforms. This concept has been embraced in many countries today. However, in Australia Proprietary companies are finding it hard and difficult to have access to these funds due to the laws that govern the establishment and running of the companies.
Hence this report covers an in-depth and critical analysis of what Crowd Sourced Equity Funding is, barriers to Crowd Sourced Equity Funding for proprietary companies in Australia, whether the Crowd Sourced Equity Funding should be extended to these companies and what model the Proprietary companies should adopt to have the CSEF funding.
An analysis of what is meant by Crowd Sourced Equity Funding
Crowd sourced funding can basically be defined as the practise of asking and soliciting small amounts of monetary contributions from members of the general public at large (Muguire,2014). However with technological advancements, crowd source funding has taken huge and significant transformations where the internet has played a major role in these transitions. In an organizational context, Crowd Sourced Equity Funding is a concept of collecting and raising capital and equity for corporate purposes through offering debts and equity (Maguire,2014) . However with the modern technology, the concept has been incorporating the use of the social media and the internet to raise the funds hence it can basically be defined as a new form of collecting corporate and organizational equity or capital while using the internet as its major platform. Equity on the other hand can be defined as the shares that shareholders of an organization contribute towards the organization’s capital funding (Maguire, 2014).
Crowd Sourced Equity Funding (CSEF) has incorporated the use of the internet so as to be able to reach to all potential investors since the internet is global and through the internet the world has become globalized making business transactions very easy to carry out. This eventually increases the number of shareholders to a corporate organization, especially the small investors since CSEF has paid more emphasis to the potential and numerous small investors by basically selling off small capital units to the small potential investors. In this case the online websites act as the platforms and intermediaries through which these corporate organizations sell out their capital interests and equities.
CSEF primarily focuses and lays more emphasis on the start-up companies that are trying to raise and collect capital for the establishment of their businesses. Many countries in the world today are adopting and embracing this concept as a better alternative way of raising funds due to the fact that the concept has been seen to improve the potential to risk of assessing capital and many investors who many not be aware of an investment opportunity can easily be reached out to. This hence increases the amounts of funds and capital that a company collects. CSEF has also been argued out to increasing and enhancing economic growth since it provides additional funds that other lending institutions such as the banks and other financial institutions do not basically meet due to the strict and tight credit lending regulations that they provide (Australian Government, 2014).
The CSEF concept basically involves three participants where from its definitions the three parties include; the small and medium based companies who are the issuers, the online investors may be interested since the internet is a global platform. This would eventually lead to many potential investors being turned down due to this limit on the maximum number of shareholders.
Another barrier to the use of CSEF by the proprietary companies in Australia is the prohibition to have public offers for the companies’ equity. The is due to the fact that proprietary companies, under the Australian law are not allowed to offer shares to the general members of the public or otherwise undertake capital and equity fundraising and soliciting activities that would eventually lead an organization to publicly disclose its documents. This also poses as a difficulty since CSEF involves seeking for funds from the members of the public.
Another barrier is the concept of offers to very sophisticated, experienced, and professional or over-seas investors (Australian Government, 2014). Credit Sourced Equity Funding lacks this aspect since it seeks to offer and solicit funds and equity from small potential investors to help start-up companies with difficulties in raising capital get started. This is because Credit Sourced Equity Funding lacks the required and necessary element of offers to sophisticated and very professional investors (Australian Government, 2015).
Yet another aspect that poses as a barrier to proprietary companies having access to CSEF funds would be the fact that the already existing barriers would be alleviated by the need to comply to more laws and regulations due to the practise of interposing an already managed and established scheme between the company and its numerous investors(Australian Government, 2014). The increased compliance requirements will be difficult for the proprietary companies since they are used to fewer and lesser laws and regulations to comply to compared to the public companies. This eventually and ultimately means more time will be spent in establishing a proprietary company as well as taking up more time in the establishment process.
Another hindrance to proprietary companies having access to the Credit Sourced Equity Funding is the fact that CSEF involves small equity contributions from many numerous investors. However this cannot be adequately accommodated within the Australian legal framework unless the laws and policies are reviewed.
A high failure rate for the implementation of the Credit Sourced Equity Funding framework and high levels of risks such as frauds are also a huge barrier to proprietary companies as the investors may lose confidence in investing in the companies if such a misfortune occurs. Hence as a result of fears of implementing the framework and then investors are robbed off their money by the internet scammers, the proprietary companies shy away from embracing this framework.
An analysis of whether Credit Sourced Equity Funding should be extended to proprietary companies in Australia and what model these companies should hence adopt
Credit Sourced Equity Funding has been argued to have very many great and significant contributions and benefits to start-up companies, small enterprises as well as all business companies in general that may be struggling to raise their capital (Maguire,2014). Hence as a result the insights and ideas of this concept and framework can as well be extended to the proprietary companies in Australia so that they can also enjoy the benefits that come tagged along with the adoption and implementation of the Crowd Sourced Equity Funding. The Australian law makers should review the rules, conditions and policies that govern the establishment and running of proprietary companies in Australia to allow them have access to the Credit Sourced Equity Funding.
Australia is currently faced with challenges of ways of encouraging and sustaining innovations amongst their citizens and companies so as to be able to establish and sustain a competitive advantage in the world markets as well as obtain organizational growth and success. In this case, proprietary companies and small start-up businesses and enterprises with excellent innovation ideas are a worthy roadmap in achieving this objective and hence the companies should be supported by extending the Credit Sourced Equity Funding to them to increase on their capital pool. CSEF comes in handy in providing capital and funds to such enterprises and eventually driving the economy of Australia to great and huge success filling in the capital gap that these innovators may be experiencing.
Small businesses significantly contribute to the growth and development of the Australian economy and given the limit of the number of shareholders in a proprietary company in the Australian, the proprietary companies fall under the category of small and medium sized business enterprises. Hence the various barriers discussed above that hinder these companies from accessing funds through CSEF should be made more flexible or abolished. The Australian law makers should review the companies’ laws and policies to allow proprietary companies access the Credit sourced Equity Funding. This is founded on the citizen’s feedback and perspectives that many companies would love to retain their status as proprietary companies as well as the benefits of having to comply with fewer rules and regulations and to maintain flexibility for future funding rounds as well as being subject to lower reporting and governance as compared to public corporations (Australian Government, 2015).
Adopting and extending CSEF to proprietary companies would make investors want to be identified with the companies and other small start-up companies making it easy for the proprietary companies to meet and surpass the funding required for their equity and capital since a huge pool of potential investors is created. This makes it possible for the proprietary companies to collect a huge sum o...