For SMEs there are a number of ways that capital can be raised to fund business operations.
Sole Traders and Partnerships can raise funding by applying for loans from banks, other financial institutions and individuals who are prepared to lend money. Normally the lender will require security for the loan. Security is normally real estate over which the lender is able to take a mortgage. Loans normally include a requirement for personal guarantees and for monthly repayments of principal and interest.
The problem that some business operators have, is the ability to produce a suitable asset that can be mortgaged.
If the business is offering credit terms to its customers there is potential for the business to be able to raise “debtors factoring” based on the security of the business’s debtors ledger which would be offered as security normally accompanied by personal guarantees from the business operators.
Directors of Propriety Limited companies have a number of avenues available to them to secure funding for their businesses.
The directors could elect to borrow funds from a bank or other financial institution, in which case they will normally need to produce real estate assets as security, then the directors and shareholders will normally be required to sign personal guarantees in favour of the lender and the company will need to make monthly repayments of principal and interest.
Company directors also have the opportunity to borrow funds on the company’s debtors’ ledger, unless the bank already has a floating charge over debtors. Directors need to have a clear understanding of the security that has already been granted to a bank or other lender, before spending resources on planning to raise funds in a particular manner.
Companies have a number of opportunities to raise share capital to assist with the funding of their business operations.
These capital raising opportunities are:
The requirements on each of these capital raising opportunities are:
A private company can raise up to $2,000,000, in a 12 month period, from a maximum of 20 investors without having to issue a Prospectus.
You cannot advertise to raise capital in this manner.
Private companies have a ceiling on the maximum number of shareholders, which is 50, therefore directors need to be aware of this in planning capital raising.
Whilst there is no legal requirement for the documentation that has to be produced for potential investors, it is prudent for the directors to ensure that the following documentation is available:
This process can be very quick. The only report that is required to be submitted to Australian Securities & Investments Commission is a return of allotment of shares which has to be lodged within 28 days of the capital raising being concluded and share certificates need to be issued to the new shareholders.
This company category was created by the government amending the Income Tax Act to facilitate special income tax benefits being created that legitimate investors in a company that meets the Early Stage Innovation Company Status can utilise.
These special taxation benefits are:
A company, eligible for this classification, needs to be under 3 years of age, although in some cases, it could be aged up to 6 years, with a turnover of under $200,000 in the last 12 months and expenditure under $1,000,000 in the last 12 months.
There are two additional tests and the company must pass one of them – these are known as the:
The Corporations Act has been amended to facilitate private companies and unlisted public companies being able to raise up to $5,000,000 in a 12 month period from the public, subject to the company complying with the special rules that have been introduced.
Eligible companies must have group international turnover of less than $25,000,000 and the value of the group’s gross assets must be less than $25,000,000.
The company can be any age and be involved in any type of business.
The government has created a special advisory service known as a Crowd Sourced Funding Intermediary. The Australian Securities & Investments Commission has licensed 16 of these Intermediaries who act as “representatives for Australian Securities & Investments Commission” to ensure that the documentation has been appropriately completed and then are able to act as brokers to assist in the capital raising process.
Companies have to produce a Crowd Sourced Funding Offer Document which has to be reviewed by the Crowd Source Funding Intermediary.
In each of these capital raising opportunities, companies will need to produce, as a bare minimum:
Towers Business Development has considerable experience in the capital raising process and in corporate governance generally. Peter Towers, the company’s Managing Director, was the Company Secretary/Chief financial Officer of a listed public company and has worked with many companies to assist them with their corporate governance and capital raising aspirations.
Towers Business Development Services
Towers Business Development does not give taxation advice but offers consulting services for small/medium sized enterprises and accountancy businesses, including:
Want to know more about the services that Towers Business Development can supply to assist your business in its business growth? You are invited to visit the Towers Business Development website; or contact Peter Towers:
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