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 period.
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 growth.
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.