S708 Capital Raise: A Practical Guide to Raising Capital Without a Prospectus

Section 708 of the Corporations Act 2001 is the regulatory foundation for private capital raising in Australia. It defines the circumstances under which a company can offer securities without preparing and lodging a disclosure document such as a prospectus.

For founders and fund managers, understanding s708 is not optional. It is the legal framework that determines who you can raise from, how much you can raise, and what documentation you need to maintain. This guide provides a practical overview of each exemption, the compliance requirements, and the common pitfalls that can derail a raise.

Small-Scale Offerings: Section 708(1)

This exemption permits a company to issue securities to up to 20 investors and raise up to $2 million within any rolling 12-month period, without a disclosure document. Each offer must be a personal offer, meaning it can only be accepted by the specific person to whom it is made. The person must have a pre-existing association with the company or have previously indicated interest.

The 20-investor cap and $2 million ceiling are tracked on a rolling 12-month basis. Importantly, issues made under other exemptions (such as the sophisticated investor exemption) are not counted toward these limits. Companies should maintain a detailed log of all issues made under this exemption.

Sophisticated Investors: Section 708(8)

No disclosure is required for offers made to investors who hold an accountant’s certificate confirming net assets of at least $2.5 million or gross income of at least $250,000 per year for each of the two most recent financial years. The certificate must have been issued within the preceding two years.

Companies must collect and retain a copy of the certificate before or at the time the offer is made. This exemption also extends to companies or trusts controlled by a person who meets the threshold.

Minimum Investment: Section 708(8) Alternative

An investor committing $500,000 or more to a single offer is automatically treated as a wholesale investor for that transaction, regardless of their asset or income position. The $500,000 must be genuine consideration and cannot include amounts lent by the offeror.

Professional Investors: Section 708(11)

Offers to professional investors do not require disclosure. Professional investors include AFSL holders, APRA-regulated bodies, superannuation fund trustees with net assets above $10 million, entities controlling gross assets of at least $10 million, and certain foreign equivalents. Documentation verifying professional investor status should be obtained and retained.

Experienced Investors: Section 708(10)

This exemption applies when an offer is made through a financial services licensee who is satisfied that the investor has sufficient prior experience in securities investing to evaluate the opportunity. The licensee must provide written reasons for this assessment, and the investor must sign a written acknowledgment that no disclosure document has been provided.

Senior Managers: Section 708(12)

Securities may be offered to senior managers of the company, their spouses, parents, children, siblings, and entities controlled by these persons, without disclosure.

Relying on an s708 exemption does not mean the raise is unregulated. Several obligations remain in place regardless of which exemption is used.

Anti-hawking provisions under Section 992A prohibit unsolicited offers of securities in the course of, or because of, an unsolicited real-time contact. Cold calling potential investors to offer securities is generally prohibited unless the contact is with a person with whom you have an existing relationship.

Misleading and deceptive conduct provisions under the Corporations Act and the Australian Consumer Law apply to all communications with investors, whether or not a disclosure document is required.

Directors’ duties continue to apply. Directors must act in the best interests of the company and ensure that all representations made during a capital raise are accurate and not misleading.

Record-keeping is critical. Maintain comprehensive records of every offer made, the exemption relied upon, and the supporting documentation. ASIC can request these records at any time.

Exceeding the 20-investor or $2 million ceiling under the small-scale exemption without recognising it. Companies must track all issues on a rolling basis and include transfers that may count toward the limits.

Using expired accountant’s certificates. Certificates must be dated within the preceding two years. A certificate from three years ago is invalid, and any offer relying on it is non-compliant.

Public advertising of offers that rely on personal offer exemptions. If your offer must be a personal offer, it cannot be advertised on social media, in newsletters to un audiences, or through public channels.

Failing to obtain the required written acknowledgment from experienced investors under the s708(10) pathway. Without the signed acknowledgment, the exemption does not apply.

Start by identifying which exemption or combination of exemptions applies to your raise. Many companies use multiple exemptions across their investor base, for example, relying on the sophisticated investor exemption for some investors and the professional investor exemption for others.

Prepare your compliance framework before outreach begins: accountant’s certificate templates, investor acknowledgment forms, a rolling log of issues and amounts raised, and clear internal procedures for verifying investor status.

Engage legal counsel to review your offer structure and documentation. The exemptions are powerful, but the consequences of non-compliance are serious, including potential liability to investors and ASIC enforcement action.