Understanding Section 708 of the Corporations Act: Guide for Businesses

As your Australian business grows, there may come a time when you want to raise capital or bring in investors. The big question we hear is: how can you issue shares or take investment without the time and cost of preparing a full prospectus?

That’s where Section 708 of the Corporations Act 2001 (Cth) can help. It sets out when you can offer and issue securities (such as shares or notes) without disclosure (i.e. without a prospectus or other formal disclosure document). Used correctly, s 708 can make early fundraising faster, simpler and more affordable.

In this guide, we’ll explain what Section 708 actually covers, when you can rely on it, and the practical steps to take so your raise stays compliant. We’ll also flag common pitfalls and the key documents to have in place before you accept funds.

What Is Section 708 (And When Does It Apply)?

Under Australia’s fundraising rules (Chapter 6D of the Corporations Act), offers of securities generally require disclosure to investors-usually via a prospectus-unless an exemption applies.

Section 708 lists the main disclosure exemptions. If your offer fits one of these pathways, you can proceed without a prospectus, provided you meet the conditions for that exemption and comply with the rest of the law (for example, directors’ duties, anti‑hawking and misleading or deceptive conduct rules still apply).

A quick but important clarification: for the small-scale “20/12” pathway (explained below), the caps relate to issues or sales and amounts raised as a result of those exempt personal offers over a rolling 12‑month period. It’s not a cap on the number of people you can merely offer to, and the $2 million cap is about funds raised from those issues or sales-ordinary loans (which aren’t securities) don’t count towards that particular cap.

Section 708 can be used by companies undertaking offers that would otherwise require disclosure. It’s commonly used by private companies, and can also be relevant for other issuers in specific scenarios. The right pathway depends on who you’re offering to and how the offer is made.

The Main Section 708 Pathways You Can Use

There are several common ways businesses rely on s 708 to avoid prospectus disclosure. Here are the key ones in plain English.

1) Small‑Scale Personal Offers: The “20/12 And $2m” Rule

This is often the first stop for early‑stage raises. You can make personal offers that result in:

• Issues or sales to no more than 20 persons in any rolling 12‑month period; and
• No more than $2 million raised in that same 12‑month period (from those small‑scale issues or sales).

To be a personal offer, it must be made to someone who is likely to be interested in the offer, and the offer must be made in a way that is genuinely targeted-not by a public advertisement or general solicitation. In practice, this usually means existing relationships or warm introductions, rather than broadcasting your raise on social media.

Stay disciplined with your tracking. If you exceed the issues/sales headcount or the $2m raised cap over the relevant 12‑month window, you’ll step outside the exemption and into disclosure territory.

2) Sophisticated Or Professional Investors

Disclosure is not required for offers to certain experienced investors because the law assumes they can weigh the risks without a prospectus.

• Sophisticated investors typically have at least $2.5 million in net assets or at least $250,000 gross income in each of the last two financial years, supported by an accountant’s certificate. For more on who qualifies, see sophisticated investors.
• Professional investors include AFSL licensees, listed entities, certain funds and trustees, and persons who control at least $10 million in assets. You can read about the categories in our guide to the definition of a professional investor.

If you are relying on these pathways, collect and retain the right evidence (for example, a current accountant’s certificate for sophisticated investors) and maintain a clear record of who received what offer and when.

3) Offers To Existing Security Holders

Offers made to existing shareholders (for example, a pro‑rata rights issue in a private company) can be made without disclosure under s 708 in certain cases. The details matter here-for instance, how the offer is structured and communicated-so make sure your board approvals, offer documents and timing are carefully managed and consistent with your Company Constitution.

4) Offers To Senior Managers And Related Bodies Corporate

The law also provides disclosure relief for certain offers to senior managers, and for offers to or by related bodies corporate. These are narrow pathways with specific conditions, so double‑check your facts before using them.

5) Employee Share Offers (Use The ESS Regime)

While you might see employee offers discussed alongside s 708, most employee equity offers now sit under the dedicated employee share scheme (ESS) regime, which has its own disclosure relief, caps and notification requirements. In short, if you plan to offer options or shares to staff, you’ll generally rely on the ESS framework rather than s 708. Get tailored advice to select the right settings and documents for your scheme.

How To Raise Funds Reliably Under Section 708

Raising capital under s 708 is not just about picking a pathway-it’s about being precise in your execution. Here’s a practical roadmap.

Step 1: Map Your Raise

Work out how much you want to raise, what security you’ll offer (ordinary shares, preference shares, convertible notes), and from whom. If your investors are a close network, the small‑scale exemption may fit. If you’re talking to experienced angels or funds, you may rely on the sophisticated/professional investor relief.

Step 2: Confirm Your Exemption And Evidence

• For small‑scale personal offers, confirm your last 12‑month history of issues/sales under this exemption and how much you’ve raised in that period. Keep a rolling log.
• For sophisticated investors, obtain a current accountant’s certificate. For professional investors, retain documents that show they fall within the definition.
• Avoid public advertising if you rely on personal offer relief. Keep your communications targeted and private.

Step 3: Prepare Clear Offer And Investment Documents

Even without a prospectus, you still need robust documents that set expectations and protect your company. At a minimum, prepare a clear offer letter and the investment instrument (for example, a Share Subscription Agreement, a Convertible Note or a SAFE), along with board approvals and cap table updates.

If your company has multiple owners-or will have them after the raise-put a fit‑for‑purpose Shareholders Agreement in place before funds are accepted. This document governs decision‑making, transfers, exits and investor rights, and it is critical for avoiding disputes later.

Step 4: Approvals, Execution And ASIC Filings

Ensure your board has approved the raise and the terms of the offer. Execute documents correctly (you may rely on the company signing rules under s 127-see our guide to signing under section 127). After completion, issue the securities, update your registers, and lodge any required ASIC forms within the relevant deadlines.

Step 5: Keep Meticulous Records

Maintain a contemporaneous file of all offer materials, investor certificates, board minutes, issue documentation and money flows. This record is essential for demonstrating you stayed within the chosen exemption (especially the 20/12 and $2m thresholds for small‑scale personal offers).

Common Pitfalls And How To Avoid Them

Most problems arise not from intent, but from small slips in process. Here are the traps we see-and how to steer clear.

• Confusing offers with issues/sales. The 20/12 headcount relates to the number of people to whom securities were issued or sold under the small‑scale pathway in the prior 12 months, not the number of people you spoke to. Track the right metric.
• Counting the wrong dollars. The $2m figure relates to amounts raised from those small‑scale issues/sales. Ordinary loans are not “securities” for this cap. If in doubt, pause and get advice before closing the next cheque.
• General advertising. Personal offers must be targeted. Broadcasting an opportunity on your website, socials or a mass email list risks losing the exemption.
• Mixing regimes for staff equity. Employee offers are generally handled under the ESS regime, not s 708. If you’re offering options or shares to employees or contractors, use the ESS framework.
• Missing board and company housekeeping. Don’t accept funds before the board has formally approved the offer and your company records are ready. Align the raise with your Company Constitution and update registers and ASIC filings promptly.
• Under‑documenting risk. Even when disclosure isn’t required, provide balanced, plain‑English information about the company, the securities and key risks so investors understand what they’re buying.

If you’re uncertain about any boundary-such as whether a potential investor qualifies as sophisticated or whether a campaign could be seen as public-put the brakes on and get advice before proceeding. A short delay now is far cheaper than a fix later.

Documents To Have In Place When You Raise Capital

You may not need a prospectus, but you still need clean, consistent paperwork. At minimum, consider the following documents and approvals before you accept funds:

• Board resolutions and approvals: Approving the raise, the offer terms and the issue of securities. Minute these decisions and keep them on file.
• Offer letter or term sheet: Summarises the key commercial terms so everyone is aligned before signing final documents.
• Investment instrument: Use a tailored Share Subscription Agreement, Convertible Note or SAFE that matches your raise strategy.
• Shareholders Agreement: Governs voting, information rights, transfers, drag/tag rights and dispute processes for all owners-see Shareholders Agreement.
• Company constitution alignment: Ensure your Company Constitution allows the type of securities and rights you plan to issue (e.g., preference shares) or adopt amendments if required.
• Disclosure and risk summary (light‑touch): Provide concise, balanced information about the business, use of funds and key risks-even if not legally required, it’s good governance and builds trust.
• Execution and registers: Ensure valid execution (for example, using the s 127 method where appropriate) and update the member register and share certificates post‑completion.

These documents reduce misunderstandings, protect your company and investors, and make follow‑on raises smoother.

Note: Section 708 deals with disclosure. It doesn’t address tax. The tax consequences of issuing shares or notes (for both your company and your investors) can be significant. Sprintlaw doesn’t provide tax advice-speak with your accountant or tax adviser early so your legal documents and tax treatment align.

Key Takeaways

• Section 708 sets out when you can raise capital without a prospectus-commonly via small‑scale personal offers (20 issues/sales in 12 months and $2m raised cap) or offers to sophisticated/professional investors.
• For the 20/12 pathway, the limits apply to issues or sales and the amount raised, not to the number of people you merely approach; loans don’t count towards the $2m cap.
• Avoid public advertising if you’re relying on personal offers. Keep your approach targeted, and retain evidence for sophisticated/professional investors.
• Most employee equity now sits under the ESS regime rather than s 708, with separate rules and notifications-don’t mix the two.
• Even without a prospectus, use clear investment documents (such as a Share Subscription Agreement or Convertible Note) and put a Shareholders Agreement in place before you accept funds.
• Plan approvals, execution and filings carefully: board resolutions, valid signing, updated registers and timely ASIC lodgements are essential.
• Tax matters are separate-get accounting advice early so your raise structure and documents match the intended tax outcomes.

If you’d like a consultation on raising capital under Section 708 of the Corporations Act, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.