How can my Company Raise Capital from Investors without a Prospectus?

company capital raising without prospectus

Both Public and Private Companies seeking to raise money from investors need to comply strictly with the capital raising rules set out in the Corporations Act 2001. Failure to comply can result in fines or even imprisonment in severe cases.

Questions about how to raise capital from investors are particularly relevant for:

  • Start-ups companies who need investors to fund the launch of a business or implementation of a Business Plan,
  • Companies that have done the hard work and established a business, and now need investors to fund further growth or expansion, or
  • Companies that have been approached by an investor wanting to invest in the company.

Capital Raising by Private Companies

Private Companies (i.e. proprietary limited companies that have no more than 50 non-employee shareholders) can raise capital by the issue or sale of shares to:

  • existing Shareholders and employees of the Company,
  • a subsidiary of the Company, or
  • the general public if the fundraising is exempt from the disclosure requirements under the Corporations Act.

This article outlines the exemptions to the disclosure requirements under the Corporations Act, and in essence, the criteria that a Private Company must meet if it wishes to raise capital from sources outside of the Company.


The Corporations Act imposes strict rules upon Public Companies seeking to raise capital from investors, specifically around disclosure requirements and when a prospectus is needed.

Section 708 sets out the limited exemptions for a Public Company to raise capital without the need to comply with the detailed and costly disclosure requirements. A Private Company must satisfy one of these exemptions for it to raise capital from members of the public.

Often referred to as the 708 exemptions, the three (3) most common exemptions are:

  • Small Scale Offerings;
  • offerings to Sophisticated Investors; and
  • offerings to Professional Investors.

Certain thresholds and rules must be met for each category, and it is important that each proposed investment is considered on its own merits.

Small Scale Offerings

The Small Scale Offering exemption will be met if the offer:

  • is a personal offer (see below for further detail); and
  • does not result in Shares or other securities being issued to more than 20 persons in any 12 month period; and
  • does not result in more than $2 million being raised by the issue of Shares or other securities in that 12 months.

For an offer to be a “personal offer”, it needs to be an offer that:

  • can only be accepted by the person to whom it was made; and
  • is made to a person who is likely to be interested in the offer having regard to previous contact, some professional or other connection or is to a person who has otherwise indicated that they might be interested in an offer.

A good rule of thumb is that your offer should be targeted and should only be made to people who are presumed not to need detailed financial disclosure because of their financial capacity and experience or association with your company.

Sophisticated Investors

The Sophisticated Investor exemption will be met if the investor:

  • pays at least $500,000 for the Shares or other securities; or
  • is certified by a qualified Accountant no more than six (6) months before the offer is made to have:
  • net assets of at least $2.5 million; or
  • a gross income for the previous two (2) financial years of at least $250,000 per year.

A company or trust controlled by a person who meets the above latter requirements is also considered a Sophisticated Investor.

There is no upper limit (like $2 million limit for Small Scale Offerings) for any investment by Sophisticated Investors.

Professional Investors

The Professional Investor exemption will be met if the offer is to an investor who meets one of the nine (9) definitions of Professional Investor under the Act, which includes a person who:

  • has an Australian Financial Services Licence; or
  • has or controls gross assets of at least $10 million.

Note: companies can also combine disclosure exemptions. For example, Professional Investors and Sophisticated Investors will not count towards the 20-investor threshold limit under the Small Scale Offering exemption.

Business and company law

Legal Obligations

The onus is on the offeror to keep clear records around any capital raising and exemptions relied upon.

Good practice starts from the outset, and we recommend:

  • having the specific nature (Small Scale, Sophisticated or Professional) of the Investor recorded in any Application or Share Subscription Agreement that is to be entered into by your company and the Investor;
  • including a statement from the Investor in the Application or Share Subscription Agreement confirming the status under which they have subscribed for shares (which allows your company to fall back on in case off any possible future breach/claim);
  • in the case of Small Scale Offerings, putting limits around possible sales/transfers of shares so that the 20 shareholders and 12-month rules are never breached;
  • keeping and maintaining a Share Register that clearly identifies the type of each shareholder in your company (Small Scale, Sophisticated Or Professional); and
  • having all shareholders enter into, or accede to, a Shareholders Agreement so that everyone has a common understanding on how their investment in the company is to be governed.

How We Can Help

We can walk you through a proposed capital raising step-by-step, including reviewing whether a potential investor meets any of the above exemptions. We can also prepare all relevant documents, including a Share Subscription Agreement and Shareholders Agreement (and/or Deed of Accession) with custom inclusions for you.

It may seem like a complex area of law but our job at Roberts Legal is to make the complex, simple. So get us onboard early to avoid any possible complications down the line and ensure your capital raising efforts are successful, we offer a Free Case Evaluation for all new enquiries.