Australia: Conducting Business in Australia: Securities and Raising Capital

Last Updated: 31 December 2012
Article by Anthony Addison, Jamie Nettleton, Michael Ryan and David Selig
This article is part of a series: Click Conducting Business in Australia: Employment and Industrial Relations for the previous article.

Capital raisings and dealings in securities must be conducted in accordance with the Corporations Act. Listed entities are also subject to the ASX Listing Rules, which impose further requirements on their management and conduct.

Disclosure to Investors

Generally, offers of securities, whether by way of a new issue of securities or a sale of existing securities, require regulated disclosure to investors unless an exemption applies. Securities can include shares, options, debentures, bonds, derivatives and interests in managed investment schemes.

Disclosure to investors when capital is raised is commonly in the form of a disclosure document such as a prospectus or, in the case of a managed investment scheme, a product disclosure statement. While the requirements vary (depending on the nature of the investment offered), in broad terms, a disclosure document must contain all material information required to make an informed assessment of the investment offered. A disclosure document must not contain any information that is likely to mislead or deceive investors or omit any material information. Serious civil and criminal penalties apply for failing to adhere to the disclosure requirements under the Corporations Act.

Given the time and cost involved in preparing disclosure documents, where an exception to the disclosure requirements is available, entities will often avail themselves of that exception. A common exception is where an entity offers securities to "sophisticated investors". For these purposes, a "sophisticated investor" is a person who has net assets of at least the prescribed amount (currently A$2.5 million) or a gross income for each of the last two financial years of at least the prescribed amount (currently A$250,000) – in each case, as certified by a qualified accountant - or a person who is making an investment of at least A$500,000.

Continuous Disclosure and Prohibition against Insider Trading

Listed entities – and certain large unlisted public companies – are required to comply with continuous disclosure obligations. This requires the immediate disclosure of any information concerning the company that a reasonable person would expect to have a material effect on the price or value of its securities.

Individuals who have possession of price-sensitive information relating to a listed company that is not publicly available are prohibited from trading, or enabling any other person to trade, in the shares or other securities of that company. The Corporations Act imposes heavy penalties on persons found to have engaged, indirectly or indirectly, in 'insider trading'.


The Corporations Act imposes restrictions on the acquisition of voting power in certain entities (companies or managed investment schemes). In broad terms, subject to certain exceptions, an entity must not increase its voting power in a listed company or in an unlisted company that has more than 50 members:

  • from 20% or less to more than 20%; or
  • from a starting point that is above 20% and below 90%.

These restrictions also apply to acquisitions of interests in listed managed investment schemes.

Exceptions to this restriction include where an entity increases its voting power in a company by no more than 3% every six months (although recent statements from the Australian Government indicate that this 3% "creep rule" is currently under review), where the acquisition is approved by the target's shareholders or where an entity makes a takeover bid for the company.

An entity (whether foreign or local) that has an interest (whether through its own holding or the holdings of its associates) in 5% or more of the voting shares in an Australian listed entity is required to lodge a substantial shareholder (or security holder) notice with the listed entity and the ASX. Further notices are required whenever this 'relevant interest' in the shares of the listed entity increases or decreases by 1% or more. A person may have a relevant interest in shares held by a third party, depending on the level of control it has over the disposal of, and voting rights attached to, those shares.

Since the global financial crisis, there has been increased focus on disclosure of dealings in securities in listed companies, especially short selling. For instance, regulations exist for the reporting of short selling transactions to market operators (e.g. the ASX).

Financial Assistance

Where a company proposes to give financial assistance to investors – existing or prospective – for the purpose of acquiring shares in the company or its holding companies, the company will generally be required to obtain the prior approval of its shareholders (and, if applicable, the shareholders of its holding companies) as prescribed under the Corporations Act, unless it is able to meet certain limited exemptions.

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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This article is part of a series: Click Conducting Business in Australia: Employment and Industrial Relations for the previous article.
This article is part of a series: Click Conducting Business in Australia: Foreign Investment for the next article.
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