The small scale 20/12/2 rule

Investing in early-stage private businesses carries a significant risk. Professional Investors and Sophisticated Investors are expected to be aware of the risks and to have the experience and capability to assess them and make informed decisions, but there is legislation (Chapter 6D of the Corporations Act 2001) to protect the less sophisticated investors.

Unless a company produces full disclosure documentation that has been lodged with ASIC, then it cannot raise more than $2m across a rolling 12-month period, and that total cannot be split amongst more than 20 investors. This is a ‘small scale’ offer and must be a personal arrangement. A personal offer is one where that person is likely to be interested in the offer (based on formal expressions of interest, or their relationship to the company) and only that person can accept it.

Companies raising via equity crowdfunding platforms prepare a prospectus and must issue annual reports but are not otherwise restricted by the small-scale offering rules.