If your start-up is considering corporate fundraising, there are certain capital raising rules you need to abide by, such as regulated disclosure statements.
These can be costly and time-consuming to create, which is far from ideal for start-ups on a shoestring budget. Read on to discover how your start-up can raise capital while staying compliant.
What legal issues are involved in fundraising?
When investors put large sums of money into your business, there’s a level of risk they take on. Because of this, the Corporations Act 2001 (i.e., ‘the Act’) requires businesses to meet disclosure requirements – which helps investors assess risks and returns and make an informed investment decision.
As such, disclosure documents must:
- be clear, concise and effectively worded
- not be misleading or deceptive
- set out the terms and conditions
- meet certain formatting requirements, and
- be lodged with the Australian Securities & Investments Commission (ASIC).
If you don’t do a disclosure document or do it incorrectly, this can get you in legal hot water, including hefty penalties. That’s why it’s crucial to seek legal guidance from a lawyer you can trust, to make sure you stay compliant.
The 20/12 rule: A key exemption for disclosure requirements:
Chapter 6D of the Corporations Act 2001 (PDF), outlines how companies can raise capital in Australia without a formal disclosure document. A key exemption is the 20/12 rule – also known as a small-scale offering – which is when:
- money raised doesn’t exceed $2 million dollars
- there are no more than 20 investors, and
- funds are raised inside a 12-month period.
To be eligible for the 20/12 exception, the offers need to be personal in nature. For example, the investor has had previous contact or connections with the company or can demonstrate they’re interested in such offers.
Raise capital while staying compliant
Navigating business growth comes with plenty of financial and legal challenges. At Lakis & Knight, we can guide start-ups on how to raise capital and stay compliant.
We can help you determine what your disclosure requirements are. For legal support you need – when you need it, contact us to book your 1-hour, no obligation discovery consultation.
