Section 708 Corporations Act: Capital Raising Without a Prospectus

Small-scale offering exemption (s 708(1))

The small-scale offering exemption allows companies to raise capital without a prospectus, subject to specific limitations. A company can make up to 20 personal offers within any 12-month rolling period to no more than 20 investors. These offers must be ‘personal’, meaning a connection exists between the offeror and the offeree, and cannot be advertised publicly. [ASX Listing Rules continuous disclosure] obligations still apply.

The total amount raised under this exemption cannot exceed $2 million within any 12-month rolling period. Securities issued under this exemption can be on-sold, but are subject to the 12-month on-sale restriction outlined in section 707.

Failure to comply with either the investor limit or the monetary limit results in the entire offer being treated as if a disclosure document was required retrospectively.

Sophisticated investor exemption (s 708(8))

The Corporations Act allows capital raising without a prospectus under certain conditions, including an exemption for sophisticated investors. There is no upper limit on the amount that can be raised using this exemption. To qualify as a sophisticated investor, an individual must either invest at least $500,000 in the offer, or obtain a certificate from a qualified accountant. AFSL best interests duty section 961B

The accountant’s certificate confirms the investor’s net assets are at least $2.5 million, or their gross income is at least $250,000 for each of the last two financial years. This certificate is valid for six months from the date of issue and must be obtained before the offer is made.

As at 2025, the $2.5 million and $250,000 thresholds remain unchanged. Treasury has considered indexing these thresholds, but this has not yet occurred.

Professional investor exemption (s 708(11))

The Corporations Act provides an exemption from the requirement to issue a prospectus for certain capital raisings. One such exemption applies to professional investors as defined in section 9 of the Act. This exemption allows offers of securities to professional investors regardless of the amount being offered.

Professional investors encompass a range of entities, including Australian Financial Services Licencees (AFSL best interests duty section 961B), APRA-regulated bodies such as banks, superannuation funds, and insurers, trustees of superannuation funds with assets exceeding $10 million, and listed entities. Furthermore, individuals who control assets valued at $10 million or more also qualify as professional investors. Foreign entities regulated in a manner comparable to APRA or ASIC may also be considered professional investors.

Unlike other exemptions, no accountant’s certificate is required for this exemption. The offeror is only required to have reasonable grounds to believe the offeree is a professional investor. There are no minimum or maximum amounts that a professional investor can purchase under this exemption.

Other key exemptions and traps

Several other exemptions exist under Section 708, allowing capital raising without a prospectus. Offers to senior managers and executive officers of a company, and to related bodies, are covered by the senior manager / executive officer exemption (s 708(12)). Listed entities can also utilise the existing security holder exemption (s 708AA) for rights issues, often accompanied by a cleansing notice. Furthermore, offers made through licensed financial services providers are exempt where the financial product is offered by an Australian Financial Services (AFS)-licensed dealer under s 708(10), and must comply with Design and distribution obligations RG 274.

A significant restriction following an offer under Section 708 is the on-sale restriction in section 707. This prevents investors from selling their securities within 12 months without a disclosure document, unless a cleansing notice is lodged. Failure to adhere to this restriction can have significant implications.

Directors must be particularly cautious when relying on Section 708 exemptions. A breach of the disclosure requirements can expose directors to personal liability under sections 728-730, relating to false or misleading statements.