Who Can a Company Raise Capital From Without a Prospectus?

Raising capital without a disclosure document is possible only where a specific exemption applies, and each exemption has its own limits. Understanding Chapter 6D, the main s 708 exemptions and crowd-sourced funding helps a startup choose the right path without assuming every person is eligible to invest.

This page expands the existing guidance to explain when a prospectus is not required and what obligations remain.

Chapter 6D and the main exemptions

Offers of securities generally need a disclosure document under Chapter 6D of the Corporations Act 2001 (Cth) unless an exemption applies, mainly in s 708.

Small scale personal offers under s 708(1) are limited to no more than 20 investors and no more than $2 million raised in any rolling 12 month period.

Sophisticated investors (s 708(8)) include investors making large investments, or those certified by a qualified accountant as meeting the relevant net asset or gross income thresholds. Professional investors (s 708(11)) include AFS licensees and entities with large gross assets or funds under control. Even where an exemption is available, the offer must still not be misleading or deceptive, and advertising of offers is restricted.

Crowd-sourced funding under Part 6D.3A allows eligible companies to raise from the public through a licensed intermediary using a CSF offer document. That regime has its own eligibility, limits and disclosure document, and it is not the same as a private s 708 offer.

Comparison table for the main options

Practical mapping

When planning a raise, map each investor to an exemption and keep the count across the rolling 12 month period.

• Friends and early supporters: count toward the 20 investor and $2 million limits under s 708(1). Track every offer, not just completed investments.
• Sophisticated investors: those who meet the accountant certification or large investment tests under s 708(8) sit outside the small scale limits, but the certification must be current and the thresholds must be checked.
• Professional investors: AFS licensees and entities with large gross assets or funds under control under s 708(11) are also outside the small scale limits.
• Public crowd-sourced funding: if you want to offer to the public, use a licensed intermediary and a CSF offer document under Part 6D.3A, not a private email to a list.

Example

A Gold Coast app founder wants $600,000 from 8 friends, 2 of whom are high net worth. The 8 friends would be counted toward the 20 investor and $2 million limits under s 708(1). The 2 high net worth friends may fall within the sophisticated investor exemption under s 708(8) if they meet the current thresholds and provide an accountant’s certificate, or as professional investors under s 708(11) if they meet that definition. Without reliance on those exemptions, the 20 and $2 million caps remain the ceiling. Any offer, even if exempt, must not be misleading and advertising must stay within the permitted limits.

Quick check before you rely on a register

• Is it a legal register? If the service is a private website that charges a fee to store a file, it is not a legal register and does not create rights.
• Do you need evidence for court? Keep dated drafts and assignments; they are the evidence that matters in Australia.
• Do you plan to enforce overseas? Check US registration early if the US market matters, and check IP Australia for trade marks, designs and patents.

Keeping your records accessible

Store the evidence and agreements where they can be found quickly. A single project folder with dated files, signed assignments and the current licence or terms will save time when you need to answer a claim, an investor question or a due diligence request.

Keep these records for at least as long as the work is in use, and ensure they are accessible to the person who will answer a claim or an investor query.

See Also

• Queensland startup legal guide
• Shareholders agreement essentials
• Choosing a business structure for a tech startup

This page provides general legal information only; it is not personal legal advice. Everyone’s situation is different, so please seek independent legal advice for your own circumstances.