24 Free Trade Agreements, Anti-Corruption, Sanctions, Export Controls, Whistleblowing Laws, Foreign Influence and Modern Slavery
One of the ways in which an Australian business or a foreign business can raise funds within Australia is by issuing securities (for example, shares or debentures) or ﬁnancial products (for example, interests in a unit trust or collective investment scheme or other managed investment scheme product).
Fundraising activity within Australia is regulated by the Corporations Act 2001 (Cth) (Corporations Act) which contains two separate fundraising regimes which prescribe disclosure and process:
- Chapter 6D of the Corporations Act applies to securities; and
- Part 7.9 of Chapter 7 of the Corporations Act applies to ﬁnancial products other than securities.
Public companies can raise funds from the general public in Australia by issuing securities by making the appropriate disclosure or under an exemption from disclosure.
Proprietary companies are limited to raising funds from their shareholders and employees, and from the general public only if the fundraising is exempt from the requirement for a disclosure document or through equity-based crowd-sourced funding.
For a description of public and proprietary companies, see the Business structures of this publication.
Since September 2017, Australia has had an equity crowd-sourced funding (CSF) regime which aims to facilitate access to capital for small to medium sized unlisted Australian companies by reducing the regulatory and disclosure requirements for making public oﬀers of shares, while seeking to ensuring adequate protections for retail investors. The CSF regime allows Australian eligible companies, those with less than A$25 million of consolidated gross assets and less than $A25 million of annual revenue, to raise up to A$5 million in a 12 month period. The CSF regime limits to A$10,000 the amount that an individual investor may invest in a single company.
Managed investment schemes (for example, unit trusts and some other collective investment schemes) can raise funds from the general public in Australia by issuing units or other interests by making the appropriate disclosure or under an exemption from disclosure. The trustee of any such scheme is required to hold an Australian Financial Services Licence issued under the Corporations Act authorising it to be a ‘responsible entity’ of such scheme.
Where interests in managed investment schemes are oﬀered to the public in Australia, the process of establishing the investment structure, the ongoing administration and management of the structure, and the oﬀer of ﬁnancial products are all regulated by the Corporations Act, in particular the requirements of the Australian Financial Services Licence regime and the obligations of such a licensee. Tax considerations are an important element in determining whether, and how, to establish such structures. The establishment of such structures and the oﬀering of such ﬁnancial products require experienced professional legal (and other) support and advice.
Securities and ﬁnancial products can be oﬀered into Australia by foreign entities either in accordance with the applicable Australian disclosure requirements or under exemptions from disclosure, for example, to wholesale or professional investors. The marketing of oﬀers of securities or ﬁnancial products into Australia will also be governed by elements of the Australian Financial Services Licence regime. Foreign entities considering making an oﬀer into Australia will require experienced professional legal (and other) support and advice.
Shares, debentures and interests in managed investment schemes can be quoted on the Australian Securities Exchange (ASX).
Since 5 October 2021 Australia has had Design and Distribution Obligations (DDO) in relation to financial products (including interests in managed investment schemes but excluding most ordinary shares) which require issuers and distributors of those financial products to ensure that retail investors are receiving financial products that are likely to be consistent with their likely objectives, financial situation and needs. This includes identifying a target market for the financial product and taking reasonable steps to ensure that the financial product is issued within the target market. Compliance with the new regime will require experienced professional legal support and advice.
8.2 Disclosure requirements
Oﬀers of securities to the general public in Australia must generally be made under a disclosure document, being a prospectus, oﬀer information statement or proﬁle statement lodged with the Australian Securities and Investments Commission (ASIC). The requirements for such documents are set out in Chapter 6D of the Corporations Act.
Oﬀers of ﬁnancial products, other than securities, to the general public in Australia must generally be made under a product disclosure statement (PDS), which may be required to be lodged with ASIC. The requirements for a PDS are set out in Part 7.9 of the Corporations Act.
Oﬀers of new ASX listed shares and ﬁnancial products to existing holders may be able to be made without a disclosure document or PDS provided that the oﬀeror publicly conﬁrms to the ASX its compliance with its continuous disclosure and ﬁnancial reporting obligations and that there is no other material information necessary for investors to make an informed investment decision in relation to the oﬀer.
The legal provisions and regulatory practice governing the form and content of disclosure documents and other aspects of the fundraising process are detailed and stringent, with speciﬁc liabilities (and in some cases, defences) for defective disclosure. These provisions require an oﬀeror to provide information to prospective investors to enable those investors to make an informed decision about whether to invest. Such oﬀers require experienced professional legal (and other) support and advice.
Oﬀers of securities do not need to be made under a disclosure document if the oﬀer is exempted from disclosure under the Corporations Act or ASIC provides relief from disclosure. The main oﬀers of securities exempted from the requirement to provide a disclosure document include:
- personal oﬀers accepted by less than 20 investors, which raise no more than A$2 million in aggregate in any rolling 12 month period;
- oﬀers where the amount paid (or topped up) results in a total investment by a person of at least A$500,000 in the class of securities;
- oﬀers to sophisticated investors (who have a certiﬁcate from a qualiﬁed accountant saying that the investor has net assets of at least A$2.5 million or gross income of at least A$250,000 per year for each of the last 2 ﬁnancial years);
- oﬀers to professional investors (such as superannuation funds, ASX listed entities, persons controlling gross assets of at least A$10 million or ASX listed entities or their related bodies corporate);
- oﬀers to senior managers or certain aﬃliates of the oﬀeror;
- oﬀers to existing security holders through a dividend reinvestment plan or bonus security plan;
- oﬀers of securities for no consideration; or
- oﬀers made under an Australian takeover bid or scheme of arrangement.
There are some similar, but less extensive, exemptions in relation to the oﬀer of some ﬁnancial products.
8.3 Listing on the Australian Securities Exchange (ASX)
The primary role of the ASX is to provide and maintain a fair, eﬃcient, well-informed and internationally competitive market to raise capital and for trading securities. These include the securities of domestic and foreign issuers, and the direct and indirect debt of public bodies.
To qualify for listing on the ASX, an entity must satisfy minimum standards of quality, size and operations and must attract suﬃcient investor interest. ASX applies either a minimum proﬁts or assets test.
Before an entity can be listed on the ASX and its securities quoted, the entity must generally have lodged with ASIC and ASX a prospectus, PDS or, with ASX’s agreement, publicly released an information memorandum containing equivalent disclosure.
A company incorporated outside Australia may be listed on ASX subject to a number of conditions being satisﬁed including:
- being registered under the Corporations Act as a foreign company carrying on business in Australia;
- agreeing to comply with the Listing Rules of the ASX (although where the foreign entity is already listed on a foreign exchange and has suﬃcient scale, it may be exempt from compliance with many of the ASX’s rules if it can meet the ASX’s Foreign Exempt Listing conditions. There is a speciﬁc category of Foreign Exempt Listing for New Zealand Stock Exchange listed entities); and
- establishing and agreeing to maintain an Australian share register, a register of depository receipts, or appropriate facilities for the registration of transfers.
For information about the regulatory functions of ASIC and the ASX, see the Corporate regulators chapter of this publication.
For more information about undertaking an initial public oﬀering of securities in Australia, see Herbert Smith Freehills’ Initial Public Oﬀerings in Australia legal guide.
Last updated: 01/01/2023