If you’re a startup or small business, it’s likely that you’ve heard of crowd-sourced funding (CSF). It’s a great way to raise money in the initial stages of your business journey, and helps you hit the ground running. 

However, CSF can also affect the way you conduct business activities later down the track. In other words, you’re being tied to these investors so naturally, you’d need their approval for a number of decisions you make. 

What Is Crowd-Sourced Funding?

CSF is a way for startups to raise small amounts of capital from a large number of investors. It’s a popular option because you have quite a few options and therefore a large degree of flexibility in the investors you pick. Like the name suggests, you’re collecting from a ‘crowd’ of investors. 

This also means that these investors get some ownership or equity in the company. As such, you have obligations to them as shareholders. A CSF Company Constitution is a great way to relieve some of the headaches that are attached to this responsibility (we’ll cover this shortly). 

Laws Around CSF

If you’re involved in CSF, it’s also important that you’re aware of the laws around it (ASIC has covered this in detail). 

The main pieces of legislation to familiarise yourself with are:

What Does A Company Constitution Cover?

Generally, a company constitution will set out the main rules for members to follow. It should set out the rights and duties of members, directors, the company secretary and other relevant members. 

Each member needs to agree to the terms as they will be bound to them. 

Usually, a constitution will come into effect once a special resolution has been passed. 

Why Do I Need A Company Constitution For CSF?

Like we mentioned, using CSF means your business will be tied to those investors since they become shareholders. This means you owe certain obligations to them. 

For example, you might need their signature approval before making any changes to your shareholders agreement, or you may become reliant on collecting accession deeds from each investor. 

Having the right Company Constitution can eliminate these headaches and help boost your efficiency by setting out certain rules around your business decisions. 

Next Steps

Sprintlaw is happy to help you draft a CSF Company Constitution that is tailored to your business’ requirements. We work closely with you to ensure it protects you and your business relationships. 

Our package also includes phone consultations with one of our expert lawyers who can advise you on the relevant legal issues, and a complimentary amendment to the final draft we provide you. 

If you would like a consultation on your options going forward, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.

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