Investors require documentation

If your company is seeking to raise capital from the public utilising Section 708 of the Corporations Act, which enables the company to raise a maximum of $2M in a 12 month-period but only from ‘personal offers’, the directors need to ensure that the legal requirements are closely followed.

There can be no marketing or advertising relating to capital raising used to relying on Section 708 of the Corporations Act.

The Corporations Act does not specify the documentation that the company should supply to a potential investor.

Sound corporate governance indicates that the following documents would be required by interested but not anxious investors who comply with the requirements of the ‘personal offer’ rules.

Business Plan: which clearly identifies the company’s vision, team, resources and history with specific details provided on what the capital to be raised will be utilised for.

Predictive Accounting Reports: comprising budgets – key drivers accounts – cash flow forecasts – projected balance sheets. These reports should be prepared on the basis that they are the ‘financial interpretation’ of the company’s business plan.

Valuation of the Company: normally based on a critical review of the budget forecast and the present value of a 12-month forecast capitalised at a realistic price/earnings ratio.

Statement of the capital to be raised: and the shares proposed to be allocated for that capital.

Statement of any other capital raised in the previous 12 months: this is to ensure that the company does not offend against the 20/12 rule (20 investors in 12 months maximum investment $2M).

Confirmation: that the proposed issue of shares will not cause the company to exceed the 50 shareholder limit that applies for private companies.

Towers Business Development assists companies in a wide range of corporate governance issues, including preparation of documents to facilitate capital raising. To find out more, contact us on 1800 232 088 or email .