Private fund raising for startup business
It is common knowledge that new or existing businesses will need an injection of capital at some point in time. Most entrepreneurs will head to their banks instead of exploring the option of private fund raising from the general public because of the legal requirements that may seem complex and burdensome.
Fundraising activity from the general public by private and public companies is regulated by the Australian Securities and Investment Commission (‘ASIC‘) and in most cases will require disclosure documents like a prospectus.
However, you can still raise funds from the general public without a prospectus. You can lawfully raise up to $2 million from private investors without disclosure documents as long as you:
- do not raise more than $2 million in any 12 month period;
- limit your fundraising to 20 investors in any 12 month period; and
- offer the investment opportunity directly to a potential investor.
You may even raise more than $2 million in 12 months by approaching private investors who are deemed ‘Sophisticated Investors’ under the Corporations Act 2001 (Cth). A Sophisticated Investor can be a person or a company who has assets of at least $2.5 million or gross income of $250,000 or more in each of the last two years.
If you are thinking of expanding your business or funding your new startup business venture with a capital injection from angel investors or the general public, speak to one our solicitors at Ramsden Lawyers for legal guidance. Non compliance with ASIC regulations may attract hefty penalties against you and your company.
By John Ramsden, Managing Partner
Co-author: Syam Subramaniam, Lawyer