If you can work on your confidence according to these (and other) rules, then so much the better! (c) the systems are so similar that a prospectus can reasonably be associated with offers in both systems and they are structured separately, as it results in the offers being “excluded” from registration because the 20/12 rule is respected by each system. In general, the Corporations Act manages these risks by limiting the exemptions available to those types of investors who, because of their qualifications, financial situation or participation in the business, are well able to assess the potential risks associated with securities. If a company tries to divide its capital raising into segments or projects, even if these individual projects separately do not exceed the 20/12 cap, it is likely that ASIC will consider them interconnected. In this case, ASIC may provide that company with a written statement that transactions must be aggregated for the purposes of the disclosure requirements. In this case, security issues that have been considered distinct from each other may constitute a violation of the rule of law 20/12. A small offer is a way to raise capital without the need for disclosure. Often referred to as the 20.02.12 rule, raising money is considered a small offer as long as the amount does not exceed $2 million and is not raised by more than 20 investors over a 12-month period. To be exempt from disclosure requirements, the offer must be a “small” offer – that is, an offer that does not violate the 20/12 rule – and be a “personal offer”. Subsection 708(2) states that an offer of securities is a “personal” offer in which such an offer can only be accepted by the person to whom it is addressed and that person is likely to be interested in the offer, based on the person`s expressions of interest or the relationship between the offeror and that person. Note that this rule also applies to transfers of securities, not just issuances. “Retail investors are not prevented from investing in startups, there is the 20/12 rule!” If this is not the case, each participant should be considered a “big investor” and the 20/12 rule does not apply (and you may also need to get an AFSL to support your mutual fund).
Under section 741, the Australian Securities and Investments Commission (ASIC) has the power to exempt a person from the application of section 708 or to expressly order that the rule actually apply to a person or class of persons. AsIC`s section 740 powers have hardly been taken into account. However, an analogy can be drawn with other provisions of the law, such as Article 601ED, which provides for an anti-avoidance regime with regard to the registration of managed investments and is also based on the 20/12 rule. The guidelines published by ASIC provide insight into how it is determined when two or more organizations are “closely related”. The systems are considered closely related if: News » Tips » Australia`s “20/12 rule” stifles angel investment and any chance that younger generations will support start-ups (b) The activities of each company, while different, can be seen as a coherent system of issuing securities that can be seen as an attempt to circumvent the 20/12 rule and thus avoid disclosure requirements. The sad truth about our federal financial system is that the system simply does not work on a large scale. The rules push retail investors to make fewer, larger and riskier investments themselves, rather than allowing them to reduce risk by working with others. It wasn`t an oversight, they intentionally designed it that way. This may sound crazy, but the result is that retail investors may be able to invest just below the 20/12 rule (if they invest the minimum control size of the startup), but it can be very difficult for them to manage the risk by bundling their investments with others.
Raising capital to grow your business is a common goal. Normally, fundraising would require an information document, but there are some exceptions to this rule, such as small private offers. For this reason, the 20/12 rule is largely useless to bring smart money to startups in the start-up and startup phase and to build a solid support system for them. A small offering – colloquially referred to as the “20/12 rule” – allows companies to raise up to $20 million in capital from up to 20 people over a rolling 12-month period without issuing a disclosure document. For more information regarding the above exceptions or fundraising in general, please contact: Michael Kenny, Partner +61 402 486 959 Steven Wambeek, Partner +613 9252 2599 Need advice on small offers and other ways to grow your business? Call us today I recently spoke to someone who told me he would like to start a union to help young people invest in startups. Companies wishing to raise capital in Australia through a securities offering should familiarize themselves with the prospectus requirements and exemptions from these requirements in Chapter 6D of the Companies Act 2001 (Cth) (the Companies Act) before conducting fundraising activities. Companies are not allowed to advertise small offers. However, you can make a face-to-face offer to buy securities of your company from as many parties as you want, provided there are no more than 20 investors over a 12-month period. Personal offers can only be made to parties with whom your company had a previous connection and who might be interested in the offer. They are usually existing business partners, relatives or friends, and they do not require disclosure based on their financial capacity, experience or existing relationship with you.
Some basic requirements apply to Tier 1 and Tier 2 offers, including corporate eligibility requirements, bad actor disqualification provisions, disclosure, and other issues. Tier 2 offerings have additional requirements, including restrictions on the amount of money an unaccredited investor can invest in a Tier 2 offering, requirements for audited financial statements, and ongoing reporting. Issuers participating in Tier 2 offerings are not required to register or qualify their offerings with state securities regulators. If you need advice on the 20/12 rule or the anti-avoidance provisions as they apply to your situation, please contact us for a non-binding and confidential conversation. In accordance with the provisions of the Companies Act 2001 and related regulations, the Australian Securities and Investments Commission (ASIC) regulates how companies may raise capital in Australia. Laws are complex and it is important that you seek legal advice to determine if you meet the criteria to be exempt from disclosure. In some circumstances, you may not be required to meet the requirement to provide a disclosure document when fundraising. It is important that you seek legal advice as to whether this might apply to you.
A general summary of these circumstances can be found here. For more information, see Regulatory Guide 254 Offering Securities as Part of a Backgrounder (RG 254). It is worth noting that the Corporations Act allows for a combination of exceptions. This means that a company can ignore offers made based on other exceptions when assessing whether the 20-person or $2 million cap has been reached. To fall under this exception, offers must be of a personal nature, since it is an offer that can only be accepted by the person to whom it is addressed and that is addressed to a person likely to be interested in the offer, taking into account: In summary, a disclosure document is not required, if: The main exceptions to the requirements for the preparation of a disclosure document for an offer of private securities are set out below. These exceptions are often used to facilitate early-stage capital raising and institutional investment. In addition to the exceptions listed in this section, there are a number of other specific exemptions from prospectus requirements under the Corporations Act. Although there are a number of categories of professional investors, this exemption is often used when issuing securities to professional trustees or Australian financial services licensees. Assuming you want to invest in at least 10 startups to diversify your returns (and increase your chances of a large exit), you may need to pool at least $250,000 ($25,000 from 10 investors).
Stacks Law Firm has specialized business lawyers who make sure you understand your legal obligations when raising capital. We will be your business partner to ensure that you have the right structures in place to grow your business without conflicting with the law. The Corporations Act recognizes that certain persons referred to as “senior officers” have a level of knowledge of the business, financial condition and risk profile because of their position within the Corporation that is sufficient to make an informed assessment of whether the securities offered should be subscribed for without the Corporation having to provide further information.