Most Read Contributor in New Zealand, September 2016
Acquire more than 50 shareholders through the new "small
offer" or crowd funding exclusions under the Financial Markets
Conduct Act (FMCA) and you may become subject to the
Takeovers Code and to the "big end of town" requirements
of the Financial Reporting Act.
The Takeovers Panel today issued a
statement encouraging potential issuers to seek specific legal
advice on this risk, and how to avoid it and other unintended
Chapman Tripp has significant expertise in these issues,
including advantages of using a limited partnership rather than a
company structure for start-up businesses. The FMCA...
...creates a number of
exclusions, the purpose of which is to encourage innovation by
enabling small and medium sized companies to raise money from the
public without having to go to the expense of meeting the normal
Small offers must seek to raise no more than $2 million in a
year and must be limited to 20 investors, each of whom is connected
personally or professionally to the issuer, either through previous
association or through an expression of interest (angel
Crowd funding imposes no limit on how much an investor may
invest but limits the amount an issuer may raise through this
format to $2 million a year.
These limits apply only to the particular offer. They do not
restrict issuers from using other exclusions available under the
FMCA, and the crowd funding cap applies only to retail investors
– not to sophisticated or wholesale investors.
The Takeovers Code...
...applies to companies with 50 or more voting shareholders and
50 or more share parcels. But the Panel states explicitly in its Guidance Note on Small Code Companies and Compliance
with the Takeovers Code that it is:
"...not averse to the shareholders deciding to
restructure their holdings so that they do not fall under the
definition of Code company, provided that the restructuring is
undertaken in a manner that complies with the Code".
The Financial Reporting Act...
...treats anyone who makes a regulated offer of securities as an
"FMC Reporting Entity" and requires all FMC reporting
entities to prepare full annual financial statements in accordance
Phase 1 Regulationsmade under the FMC Act deem entities that
have more than 50 shareholders as a consequence of the "small
offers" exclusion to be FMC Reporting Entities, although
merely making a crowd funding offer will not attract that status
– at least for now.
Smaller companies, with assets of less than $60 million or
revenues of less than $30 million a year and which are not FMC
reporting entities, may be relieved of the obligation and the
expense of preparing financial statements, where shareholders agree
to opt out.
Clearly the compliance cost savings which the crowd funding and
small offer options are designed to deliver could be entirely
eroded by the obligations imposed on Code companies under the
Takeovers Code and on reporting entities under the Financial
Issuers thinking of using these capital raising platforms should
first seek legal advice on how best to structure their company and
the offer. Licensed intermediaries offering crowd funding services
should also encourage people to seek this advice.
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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