The recent enactment of the Financial Markets Conduct Act may
provide great assistance for small companies wishing to raise
start-up capital. This is because the new Act excludes "small
offers" from the costly requirement to prepare a product
disclosure statement (previously called a prospectus) and/or
generally comply with the requirements of the Act.
A "small offer" is defined as being a personal offer
of either equity (shares) or debt securities seeking to raise up to
$2m from not more than 20 persons in any rolling 12 month
For an offer to be a "personal offer" there must be
some form of personal connection between the offeror and the person
wishing to invest, or, the person investing must have an annual
gross income of at least $200,000 for the previous two years.
Given that many fledgling companies require significant start-up
capital during a time when the banks may be reluctant to lend (due
to insufficient hard assets and trading history), this new capital
raising avenue has the potential to seriously facilitate
Further, the new Act has introduced new concepts of "crowd
funding" and "peer–to–peer lending"
which are facilities to match companies who wish to raise funds
with many investors seeking to invest small amounts. Such
facilities are managed by a licenced intermediary who vets the
offering before it is put into the public domain without the need
for a product disclosure document. Again, this should provide a
much cheaper way for small companies to raise capital without
having to fully comply with the requirements of the new Act.
The new capital raising regimes set out above do have some rules
and requirements around each of them so if you wish to look to
raise capital for your emerging business then please contact us to
discuss your options.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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