LSSU251 Introduction To Business Law

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LSSU251 Introduction To Business Law

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LSSU251 Introduction To Business Law

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Course Code: LSSU251
University: University Of New England

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Country: Australia

Question:

Discuss About The Telecenters South Asian Developing Country?

 
Answer:

Introduction
Crowdfunding is a new method of collecting investment for start-ups, entrepreneurs, and small corporations. It allows small entrepreneurs to collect investment for their projects from different small investors. Various people such as family, relatives, friends and other people looking for small investment opportunities can invest their capital into crowdfunding projects. The crowdfunding has gained significant popularity in countries such as the United States and the United Kingdom. In Australia, the government has passed new regulations to enhance the role of crowdfunding.
Crowdfunding provides funding to such entrepreneurs project which cannot be funded by large financiers such as venture capitalists, angel investors and banks. This essay will provide information regarding crowdfunding to Howard Jones, to determine whether crowdfunding method is beneficial for his project. Further, the essay will compare the crowdfunding procedure of other countries with Australia and analyse the regulations prepared by the Australian government
 
Analysis of Crowdfunding
Technology has grown rapidly in past few years and new innovations are made by entrepreneurs each day. These innovations have increased the number of entrepreneurs and people who want to start their own companies. Most of such people require funding for their projects and traditional method of investment is not suitable for them[1]. Large investment organisations, such as venture capitalists, banks or investment firms, prefer to invest their capitals in potentially large business ideas or high investment projects. It is considerably difficult for entrepreneurs to generate capital for their investments without selling their idea to other corporation. Therefore, crowdfunding has gained popularity in past few years. Entrepreneurs use crowdfunding method to raise capital from small investors for their projects[2].
Crowdfunding connects investors and entrepreneurs through online websites, where investors can contribute a small amount for entrepreneur’s project. Crowdfunding is a part of the crowdsourced funding in which capital is raised by the crowd[3]. There are four different types of crowdfunding methods. The first method is reward based; in which financiers get certain incentives by investing in a particular project. The second method is charity based the project which is non-profitable and works for improving people’s lives are funded through this method. Various small charitable organisations use this platform to raise capital for charitable purposes[4].
The third method is equity-based crowdfunding; the financiers get shares of the company for their capital in the entrepreneur’s project. The fourth method is lending based crowdfunding, the capital invested by people is considered as loan and the company repays such loans with proper interest. To select any one of the above-mentioned methods, it is necessary that the entrepreneur follows few steps. The most important step is providing full details regarding the project over at the online websites[5]. Information includes incentives, objectives, time frame, product description and other details regarding the project. All such information should be easily available to the investors along with investment offer[6].
 
Crowdfunding has opened a whole new method for entrepreneurs to generate funding for their projects. The advancement of small businesses can improve the Australian economy condition. The popularity of crowdfunding has grown in Australia with the entry of two popular crowdfunding websites, Indigogo and Kickstarter. These websites enable Australian entrepreneurs to generate investment for various small projects and many charitable projects as well. Organisations such as Ninja Blocks and KoalaSafe have generated investment for their projects through crowdfunding method. Kickstarter has funded more than 22 thousand small entrepreneur’s projects through crowdfunding and raised more than $500 million in 2014[7].
An Australian game developing corporation generated an investment of $461,333 through crowdfunding in 2016 for their real-time action based game. The company is called Satellite Reign, and they use Kickstarter’s platform to generate the investment[8]. It has become easier for application or game developing corporations to generate funding for their programs. The small investors prefer the crowdfunding route due to its low risks. These investors get guaranteed rewards from the corporations and if the companies receive huge success, investors generate revenues as well. For software developing entrepreneurs in Australia, the route of crowdfunding is significantly beneficial.
The crowdfunding method is not just used by entrepreneurs for their projects, it is also used by charitable organisations and NGO’s who work for charitable causes. These organisations generate funding for charitable purposes, such as distributing medicines or raising awareness regarding the dangerous disease. For example, Melissa Smith was a 22 years old suffering from Hodgkin’s lymphoma disease. She was also diagnosed with cancer twice while she was suffering from her disease. After all such diseases, she faced another dangerous disease called Transverse, when she was 29 years old. Due to these diseases, Smith became paralyzed and no sensation or feeling was left her body. After seeing sister suffering like this, Melissa’s sister started an online campaign to raise money for her sister’s treatment[9]. The campaign came into notice of a famous website called ‘Chive’. The website decided to help Melissa by starting a crowdfunding page for him. They name the crowdfunding offer ‘Hope for a Home’ is promoted in over their website. The crowdfunding page raised a donation of $413,000 in just a year and the money was contributed by 12 thousand individuals.
The Australian government has acknowledged the role of crowdfunding which can benefit their economy and the businesses of small entrepreneurs. New regulation regarding crowdfunding has established by the Australian government in their Corporations Amendment (Crowd-sourced Funding) Act 2017. This act provided guidelines for corporations to raise investment through crowdfunding method[10]. The act amended the regulation of Corporations Act 2001 and introduced new crowdfunding principles. The role of Australian Securities and Investments Commission Act 2001 has also been changed and the process of collecting license through Australian market license has been updated. Many market operatives have received an exemption under the new act regarding crowdfunding.
The act applied to the corporations with a market capitalisation and turnover lower than $25 million. The organisations which are not related to listed companies and which are not part of any holding corporation are also covered under this act. These corporations can use crowdfunding method to generate a maximum funding of $5 million for their operation. As compared to traditional regulations, these regulations are fairly easier for corporations. The regulations required companies to attach a proposal document with their offer of crowdfunding and such document should provide the online website for crowdfunding. The online platforms who provide the facility of crowdfunding must receive a license from Australian financial services[11]. Small-scale investors can invest a capital of ten thousand dollars yearly, in crowdfunding offers of entrepreneurs and such investors must accept the risks of investment within five days.
The investment made by wholesale financiers is restricted by the crowdfunding act of Australia. The act restricts financiers from investing only a certain amount in a particular crowdfunding offer. But the act does not restrict the number of crowdfunding projects in which a wholesale financier can invest. In case of other countries, such as New Zealand, United States, and the United Kingdom, there are no restrictions on the limits of crowdfunding investment by wholesale investors[12]. The lack of restrictions provides more investment opportunities to the entrepreneurs from a single interested investor. The crowdfunding procedure in the United States is used by the entrepreneurs to generate funding for unique and different projects. These projects are different from usual products available in the market, and they are funded by people’s who are interested in such products.
When compared with other countries regulations regarding crowdfunding, Australia has comparatively strict policies for crowdfunding. They have restricted various market operatives form investing in crowdfunding projects and several restrictions are applied over entrepreneurs as well. These restrictions have been criticized by the market experts; they provided that the restrictions are against the basic principle of crowdfunding procedure. These restrictions limit the funding that can be raised by small entrepreneurs. Even with strict regulations, Australia is one of the five countries who has initiated a legislative step toward crowdfunding[13]. This step will benefit the entrepreneurs and small corporations in Australia and help to enhance Australian economy.
 
Observations
Small corporations and entrepreneurs can significantly benefit from the crowdfunding process because it allows them to generate funding easily through small investors. Crowdfunding is a modern approach to the investment process which uses online websites and modern ideas to fund a project. It has gained popularity in past few years due to increase in application and game developers who use this platform to raise capital for their programs. In the United States, the entrepreneurs use crowdfunding for generating funding for unique products. With the popularity of equity-based crowdfunding, small corporations started to raise investment through crowdfunding for their business operations[14].
A good example of crowdfunding project success is Oculus Rift, which makes virtual reality products. Oculus Rift generated a funding of $2.5 million through Kickstarter website for their virtual reality kit. The company is one of the most successful examples of raising investment through crowdfunding method. Oculus Rift was bought by Facebook for in 2014 for their virtual reality technology at a price of $2 billion[15]. There are various other examples as well regarding the success of crowdfunding process. In 2015, small corporations and entrepreneurs around the world have raised investment of $34.4 billion.
Australia government has passed new regulations regarding crowdfunding in the country which assists Australian entrepreneurs in raising capital for their investment. These regulations enable small corporations and entrepreneurs to generate capital through crowdfunding procedure but it also implied various restrictions over people who can invest in crowdfunding projects. These regulations are criticised by the market experts, and they provided that these regulations can adversely affect the crowdfunding procedure. Even with a lot of criticism, the crowdfunding procedure is much appreciated by Australian entrepreneurs[16]. It provided them new opportunities to collect funding for their unique ideas. As compared to other countries with crowdfunding regulation, Australian laws are compared as a backward class. But the step taken by Australian government will definitely benefit the country’s economy positively.
Howard Jones has the option to use traditional sources of raising capital or use crowdfunding method. The crowdfunding method can be benefited for Howard Jones as compared to other traditional sources. The idea of Howard is original and interesting which is can assist him in raising large funds for his project. Another advantage of crowdfunding process is that Howard will be in full control of his project. Large investment organisations prefer to hijack projects and implement their own guidelines, which can be frustrating for the entrepreneur. Howard can adopt equity-based or reward-based crowdfunding to raise investment for his project. The Australian government has also provided various exemptions to entrepreneurs which can be beneficial for Howard; therefore, crowdfunding is a better option for Howard than compared to other traditional sources[17].
 
Conclusion
In conclusion, crowdfunding is significantly popular among small corporations and entrepreneurs as a method for raising investment for their projects. It provides an opportunity to small entrepreneurs to raise capital for their investment through the public. Most of the investors in crowdfunding are the public who prefer to invest in small projects. Various countries have created regulations regarding crowdfunding to promote it in between entrepreneurs. Australia has also implemented new regulations but those regulations have been criticized by experts. Even with various drawbacks, crowdfunding is still a better choice for entrepreneurs than compared to traditional methods. Howard Jones should take advantage of crowdfunding procedure and raise funding through this method. It will benefit his company in the long run, and he will be in full control of its operations.
 
References
Belleflamme, Paul, Thomas Lambert, and Armin Schwienbacher. “Crowdfunding: Tapping the right crowd.” Journal of business venturing 29.5 (2014): 585-609.
Bruton, Garry, et al. “New financial alternatives in seeding entrepreneurship: Microfinance, crowdfunding, and peer?to?peer innovations.” Entrepreneurship Theory and Practice 39.1 (2015): 9-26.
Cordova, Alessandro, Johanna Dolci, and Gianfranco Gianfrate. “The determinants of crowdfunding success: Evidence from technology projects.” Procedia-Social and Behavioral Sciences 181 (2015): 115-124.
Eastwell, Michelle, Jessica Dale, and Felicity Dunstone. “Crowd-sourced equity funding is coming to Australia.” Governance Directions 69.7 (2017): 411.
English, Rebecca. “Rent-a-crowd? Crowdfunding academic research.” First Monday 19.1 (2013).
Firth, Niall. “Crowdfunding successes show value of small donations.” (2012): 22.
Fitzpatrick, Jeff, et al. Business and corporations law. LexisNexis Butterworths, 2011.
Khadem, N. “Crowdfunding in Australia a step closer.” The Sydney Morning Herald (2014).
Klaebe, Helen G., and Rebecca Laycock. “How to work the crowd: A snapshot of barriers and motivations to crowdfunding.” (2012).
Manzoor, Amir. “Crowdfunding for Non-Profits.” Handbook of Research on Emerging Business Models and Managerial Strategies in the Nonprofit Sector(2017): 152.
Royal, Carol, and G. Sampath S. Windsor. “Microfinance, crowdfunding, and sustainability: A case study of telecenters in a South Asian developing country.” Strategic Change 23.7-8 (2014): 425-438.
Stanko, Michael A., and David H. Henard. “How crowdfunding influences innovation.” MIT Sloan Management Review 57.3 (2016): 15.
Stumm, Tony. “The rebirth of crowd funding in Australia!.” Governance Directions 69.2 (2017): 96.
Valanciene, Loreta, and Sima Jegeleviciute. “Valuation of crowdfunding: benefits and drawbacks.” Economics and Management 18.1 (2013): 39-48.
Valanciene, Loreta, and Sima Jegeleviciute. “Valuation of crowdfunding: benefits and drawbacks.” Economics and Management 18.1 (2013): 39-48.
Vitale, Matthew. “Crowdfunding: Recent international developments and analysis of its compatibility with Australia’s existing regulatory framework.” (2013).
Weinstein, Ross S. “Crowdfunding in the US and Abroad: What to Expect When You’re Expecting.” Cornell Int’l LJ 46 (2013): 427.

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