Capital Raising in Australia

a)     Public companies can raise funds from the general public by issuing securities, and

b)   Private companies can raise funds from existing shareholders and employees of the company or a subsidiary company, and from the general public if the fundraising does not require a disclosure document. A disclosure document is not required when an offer is a personal offer, and if offers or invitations have been made to fewer than 20 persons in the previous 12 months, and the new offer will not result in more than $2 million being raised in that 12 months (ss708(1)–(7) Corporations Act 2001 (Cth)). When a fundriser relies on this exemption it must not advertise the offer. Furthermore, the offers are made to specified people who are presumed not to need disclosure because of their financial capacity, experience, associationwith the issuer or wholesale status (ss 708(8)–(12)), the offers are made to current holders of the securities (ss 708(13)–(14A)), no money or other form of payment is payable for the securities (ss 708(15)–(16)); and other (s709 (17, 17A, 18 and 19). ASIC has issued Regulatory Guide 254 Offering securities under a disclosure document (RG 254) as a guidance about the above matters.

Disclosure Documents to Potential Investors when Raising Funds

A public company offering securities such as shares or debentures for sale it must provide a disclosure document to potential investors: a regulated fundraising document for the issue of securities. A disclosure documents maybe a prospectus, an offer information statement, a profile statement or a two-part simple corporate bonds prospectus.

All companies entitled to fundraise can use a prospectus. A prospectus is the most common type of disclosure document and has the broadest information requirements. On the other hand, an offer information statement has lower disclosure requirements and can only be used for fundraising up to $10 million in aggregate, including any earlier fundrising under an offer information statement.  With this document it is necessary to include with it a copy of an audited financial report with a balance date within the last six months. Furthermore, ASICC may approve that a company rising capital use a profile statement - a document setting out limited key information about the company and the offer.Amendments introduced by the Corporations Amendment (Simple Corporate Bonds and Other Measures) Act 2014 introduced a specific disclosure regime which applies to offers of 'simple corporate bonds', which are to be offered under a two-part simple corporate bonds prospectus: a base prospectus with a life of three years, which must include general information about the issuer and an offer-specific prospectus for each offer, which must include details of the offer and may update information contained in the base prospectus.

Before advertising raising funds, a company must lodge a disclosure document with ASIC and advertising, after that, must include a statement that offers will be made in or accompanied by a copy of the disclosure document, and anyone wishing to buy securities will need to complete the application form in the disclosure document. Companies raising capital are not allowed to cold call members of the public to sell securities, although an Australian financial services licensee may do so in certain circumstances.   

Listing of ASX

The initial listing of a company on ASX is governed by the requirements the Corporations Act 2001 (Cth) and the ASX listing rules.   The ASX listing rules are a binding agreement between the company and ASX attesting that the company meets the initial listing requirements, which include a minimum number of shareholders at the time of listing, and company size. In addition, the company agrees to comply with the ongoing listing requirements, which include obligations relating to continuous disclosure and periodic reporting.

Practical Considerations

Research shows that historically, the smaller the company, the less likely it was able to meet its subscription target. Therefore, smaller companies may consider traditional alternatives such as bank finance, venture capital and private equity, or developingalternatives, such as crowdfunding, business incubators, tech start up accelerators and other.

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