Private Securities: What Australian Small Businesses Need To Know About Raising Capital Legally

Raising capital can be one of the most exciting-and daunting-steps in growing your Australian small business. Whether you’re launching a startup, expanding operations or need a funding boost to hit your next milestone, offering private securities can open real opportunities.

With opportunity comes responsibility. The way you offer, document and issue private securities is regulated in Australia, and getting the legal fundamentals right from day one will protect your round, your investors and your brand.

If you’re considering a raise, this guide walks through what private securities are, how the Corporations Act 2001 (Cth) regulates private offers, the practical steps to raise funds legally, the documents you’ll likely need, and the common pitfalls to avoid.

What Are Private Securities?

“Private securities” generally refers to company shares, options, convertible notes and similar instruments that are offered to a select group of investors rather than to the public. Unlike a public offering (which requires a disclosure document like a prospectus), private securities are offered under specific exemptions to a limited audience.

Common forms include:

• Shares: Equity in your company issued at a price per share.
• Convertible Notes: A loan that converts into shares later (often on a future round or milestone). If you’re exploring this route, a dedicated Convertible Note sets out the key terms.
• Options: The right to buy shares at a future time and price, often used for advisors and employees.
• SAFEs (Simple Agreements for Future Equity): A contractual right to receive shares upon a defined trigger; Sprintlaw offers a tailored SAFE Note service.

These instruments are popular with startups and fast-growing SMEs because they’re flexible and can be tailored to your stage, valuation uncertainty and investor appetite. The catch is that how you offer them-and to whom-is governed by strict rules.

How Do You Raise Capital Legally With Private Securities?

Good news: not every raise requires a prospectus. Most small businesses rely on the disclosure exemptions in the Corporations Act, especially the “small scale offering” pathway in section 708.

Understand The Small Scale Offering (Section 708) And Other Exemptions

Under the section 708 disclosure exemptions, you can make personal offers without a disclosure document if you stay within specific limits. The most commonly used is the “20/12” small scale offering exemption:

• Personal offers to no more than 20 investors in any 12-month period, and
• Total funds raised not exceeding $2 million in that period (excluding funds raised from certain categories like sophisticated/professional investors).

Separate exemptions also apply for “sophisticated” and “professional” investors, as well as for offers to existing shareholders and employees under compliant employee equity schemes. If your raise will include experienced backers, check who may qualify as a professional investor under the Corporations Act.

Plan Your Offer

Clarify how much you’re raising, why you need it, and what you’re offering (shares, notes, options or a mix). Note any milestones and investor rights (e.g. discounts, valuation caps, information rights). A tight plan helps you stay within the exemptions and communicate clearly with potential investors.

Set Up The Right Structure

You’ll generally need an Australian company to issue securities, because only a company can issue shares. If you’re not already incorporated, consider a formal company set up before you approach investors. This also helps keep investor funds separate from your personal affairs and simplifies ASIC reporting.

Keep The Offer “Private”

To keep the benefit of a private offer exemption, you must avoid general solicitation. Don’t broadly advertise the offer on social media, mass email lists or your website. Offers should be personal, targeted and compliant with the specific exemption you’re relying on.

Use Clear Offer Materials (Without Overpromising)

Even if you don’t need a prospectus, investors still need enough information to make an informed decision. Many businesses prepare an investor deck or Information Memorandum to explain the business model, risks, use of funds, and the offer terms. Keep claims accurate and evidence-based. Prohibitions on misleading or deceptive conduct apply under the Corporations Act and the Australian Securities and Investments Commission Act 2001 (Cth), and you should ensure statements to investors are not misleading by omission or impression. For context, see our guide to the elements of misleading or deceptive conduct.

Document The Deal Properly

Once an investor is ready to proceed, put the terms in a formal contract. For a direct equity purchase, a Share Subscription Agreement is standard. For convertible instruments, use a customised Convertible Note or SAFE. If you’ll have multiple owners, a Shareholders Agreement helps prevent disputes and sets clear decision-making rules.

Meet ASIC And Company Record Requirements

After issuing securities, update your company register and lodge the relevant forms with ASIC within the required timeframes. Many changes use ASIC Form 484; here’s a plain-English explainer on ASIC Form 484 and company registers.

A quick rule of thumb: plan the exemption you’ll rely on first, keep offers genuinely private, and back every offer with clean documents and timely filings.

Who Can Invest In A Private Securities Round?

Private raises typically involve one or more of these investor groups:

• Friends, Family And Known Contacts: Often part of early rounds. If you rely on the 20/12 exemption, carefully track your totals and ensure each approach is a “personal offer.”
• Sophisticated/Professional Investors: Experienced investors may participate outside the 20/12 cap if they meet Corporations Act criteria and relevant certifications. Understanding who is a professional investor can expand your raise while staying compliant.
• Employees: Equity can be a powerful retention and incentive tool, but employee share schemes must follow specific rules. You’ll often implement options or performance rights through a compliant plan and offer documents; our Employee Share Option Plan service sets out how staff can earn and exercise options over time.

Tax can be a major factor for investors and employees. Equity instruments, discounts and vesting all carry tax consequences, which vary by structure and timing. It’s important that you and your investors seek independent tax advice alongside the legal work.

What Legal Documents Will You Need?

The right paperwork minimises risk, sets expectations and keeps your cap table tidy. Common documents for a private raise include:

• Share Subscription Agreement: The contract for investors buying new shares (price, number, warranties, completion mechanics). Sprintlaw offers a tailored Share Subscription Agreement to match your round terms.
• Convertible Note Or SAFE: If raising via a convertible instrument, you’ll use either a Convertible Note or a SAFE Note. These set conversion triggers, valuation mechanics, interest (if any), and investor protections.
• Shareholders Agreement: A private contract among shareholders to govern decision-making, reserved matters, share transfers and founder commitments. A strong Shareholders Agreement reduces the risk of founder or investor disputes.
• Company Constitution: Your internal “rulebook” for issuing shares, holding meetings and voting. If you need bespoke settings (e.g. different share classes), consider a tailored Company Constitution.
• Offer Materials: An Information Memorandum or detailed investor deck summarising the business, risks and the offer terms. While not a prospectus, this should still be accurate, balanced and consistent with your contracts.
• ASIC Filings And Company Register: Record share issues and transfers promptly, and lodge changes via ASIC within deadlines; refer to the ASIC Form 484 guide for common filings.
• Confidentiality (NDA): Useful if you’re sharing sensitive information with potential backers before a term sheet is signed.

Raising debt? If notes are secured, think about registering interests on the PPSR to perfect your security and establish priority; our overview of what the PPSR is explains why this matters.

Not every round uses every document, but most raises will require several of the above. Tailoring them to your business model and investor cohort is essential.

Compliance Essentials (And Common Pitfalls To Avoid)

Keep Offers Genuinely Private

Don’t publicly advertise your offer or promote it broadly online. General solicitation can cost you the benefit of the exemption you’re relying on. Keep communications targeted and personal, and track who you’ve approached and on what terms.

Stay Within The 20/12 Limits (If You’re Using Them)

Track both the number of offerees and total funds raised. It’s easy to lose count across multiple conversations and small cheques-implement a simple tracker for your cap table and your “approaches” list so you don’t inadvertently breach the thresholds set out in section 708.

Avoid Misleading Or Deceptive Conduct

All offer materials and conversations with investors must be accurate, balanced and not misleading. Prohibitions on misleading or deceptive conduct in a financial services context sit under the Corporations Act and the ASIC Act rather than the consumer-focused ACL. This includes avoiding optimistic projections that imply certainty, omitting material risks, or presenting selective metrics without context. For a deeper look at how the law assesses conduct, see our overview of the elements of misleading or deceptive conduct.

Get The Tax Settings Right

Convertible instruments, discounts on share issues, employee options and vesting all have tax implications. These can affect both the company and your investors or employees. Make sure you and your investors obtain independent tax advice before completing the raise, and ensure your documents align with that advice.

File With ASIC On Time

Late or missed filings can cause headaches down the line (for future raises, due diligence or a sale). Keep your company register current and lodge changes promptly, using the right form (for many changes, that’s Form 484).

Employee Equity Requires Its Own Compliance

Employee share schemes (ESS) and options plans are subject to specific Corporations Act reliefs and detailed documentation. They’re a fantastic tool when set up properly. Consider implementing an Employee Share Option Plan with clear plan rules, grant letters and vesting schedules that match your growth plan-and get tax advice at the design stage.

AML/CTF Considerations (Usually Not Applicable To Issuers)

Most early-stage companies issuing private securities are not “reporting entities” for Anti‑Money Laundering/Counter‑Terrorism Financing (AML/CTF) purposes, unless they also provide designated financial services. If you’re unsure, speak with your accountant or lawyer to confirm whether AML/CTF obligations apply to your particular activities.

Other Legal Areas To Keep On Your Radar

• Privacy: If you collect personal information from investors (e.g. KYC details), you may need a Privacy Policy and compliant data handling practices.
• Intellectual Property: Investors often ask about IP ownership and protection. Make sure core IP is owned by the company (not founders personally), and consider trade marks for your brand.
• Employment And Workplace: If you’re raising to hire, ensure agreements and policies are up to date before onboarding new staff.

A little preparation goes a long way. Many compliance issues arise from informal promises, missing paperwork or a lack of record-keeping rather than intentional misconduct.

Special Pathways: Crowdfunding, ESS And Later Rounds

Depending on stage and strategy, you may explore alternatives or complements to a private round.

• Crowd-Sourced Funding (CSF): Equity crowdfunding is regulated under a separate framework with its own caps, disclosure and platform requirements. It’s a great way to combine capital with community if you’re CSF‑ready.
• Employee Equity: Beyond salary, equity can help you compete for talent. If you plan to broaden staff participation, design a formal plan (such as an Employee Share Option Plan) and align it with your hiring roadmap and future raises.
• Follow‑On Rounds: As you scale, your structure, constitution and investor rights may need updates. You might introduce different classes of shares or tailor your Shareholders Agreement for new money and governance.

Each pathway has its own compliance steps and documentation. If you’re weighing options, a quick chat with a lawyer can help map the best route for your goals and timeframe.

Key Takeaways

• Private securities let you raise capital from a select group without a prospectus, provided you rely on a valid exemption such as the “20/12” pathway in section 708.
• Plan your raise, keep offers genuinely private, and document every investment with clean, tailored contracts (Share Subscription, Convertible Note/SAFE and a robust Shareholders Agreement where there are multiple owners).
• Statements to investors must not be misleading or deceptive under the Corporations Act and ASIC Act; ensure your deck and conversations are accurate and balanced.
• Update ASIC and your company register promptly after each issue-refer to the ASIC Form 484 process to stay compliant.
• Employee equity and convertible instruments carry specific legal and tax consequences-get legal and tax advice early to avoid surprises.
• Most startups are not AML/CTF reporting entities, but confirm your status if you provide designated financial services.

If you would like a consultation on raising capital legally via private securities for your Australian small business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.