Where shares or debentures are issued, the Corporations Act comes into play to generally require a prospectus or other disclosure document (with content requirements).
There are exemptions available depending on the circumstances.
Fundraising disclosure requirements
On one hand, an exemption from the disclosure requirement is available for “small-scale offerings”. The exemption in relation to disclosure does not necessarily mean the entity will be exempted from holding an Australian Financial Services Licence (AFSL). Read more about the requirement to hold an AFSL here.
“Small-scale offerings” must:
- not breach the 20 investors ceiling test;
- not breach the $2 million ceiling test; and
- be “personal offers”.
There will be a breach of the 20 investors ceiling test (item 1 above) if the offering “results in the number of people to whom securities of the body have been issued exceeding 20 in any 12 month period”.
There will be a breach of the $2 million ceiling test (item 2 above) if the offering “results in the amount raised by the body by issuing securities exceeding $2 million in any 12 month period”.
To meet the test under the Corporations Act “personal offers” (item 3 above) the offer must:
- only be able to be accepted by the person to whom it is made; and
- be made to a person who is likely to be interested in the offer.
Offerings to “sophisticated investors” are exempt from disclosure. There are multiple options to meet the sophisticated investor test, for example – offers of at least $500,000 to each offeree. This is commonly the case for large-scale note issuances.