Do small companies need a ‘disclosure document’ to raise capital?
Business Advisory Services Update
NO, this is a MYTH!
Section 708 of the Corporations Act gives a special exemption from having to produce a ‘Disclosure Document” for companies undertaking ‘Small Scale Offerings’. This is commonly known as the ‘20/12 Rule’.
Companies are able to make up to 20 issues or sales in 12 months, with the maximum amount to be raised by issuing securities in the 12-month period, not to exceed $2M, from a maximum of 20 people.
The offer must be a ‘personal offer’ and as such, it has to be made to a person who is likely to be interested in the offer having regard to:
- Previous contact between the person making the offer and that person.
- Some professional or other connection between the person making the offer and that person.
- Statements or actions by that person that indicate that they are interested in offers of that kind.
- Directors should note that marketing or advertising of this type of share offer is prohibited.
The person receiving the ‘personal offer’ could be a customer, supplier, employee or someone who has viewed the company’s website, has made contact and asked for additional information.
Raising capital under Section 708 is a popular way for small companies to start the capital raising process. Furthermore, this is the type of initial capital raising that most companies have undertaken prior to attempting to raise capital as an Early-Stage Innovation Company and/or as a Crowd Sourced Funding Equity Raising Company.
Small companies undertaking the ‘Innovation Journey’ rely on this type of capital raising to get started with the funding of R&D, commercialisation of the prototype and possibly to raise the company’s matching funds to be able to accept government grants.
ESS BIZTOOLS had developed ‘Section 708 Capital Raising Product Package’ to assist accountants/bookkeepers to ‘DELIVER ADVISORY SERVICES’ to SME clients in relation to capital raising processes.
