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Raising capital under the FMCA 'small offer' exemption

With extended lockdowns likely being a thing of the past with the “traffic light” system in place, small businesses might now want to consider how they can sustainably fund themselves going forward to fund working capital or to take advantage of new opportunities.

Bank funding, if it is available to a business, is one obvious and relatively simple solution, but it is becoming harder to obtain with tighter lending restrictions. Bank funding also carries the unappealing prospect providing personal guarantees and mortgages over personal assets of the directors and shareholders.


There are, however, other reasonably straightforward options available to raise debt or equity.


The Financial Markets Contracts Act (FMCA) and its attendant regulations (Regulations) set out the requirements for the issue of debt or equity securities. The FMCA essentially requires a product disclosure statement (PDS) for the issue of debt securities or equity securities. A PDS is a highly prescriptive document with lengthy, technical and cumbersome requirements, and is therefore normally impractical for use by SME’s wanting to raise funds.


However, a number of exclusions/exemptions from the requirement to issue a PDS are contained in Schedule 1 of the FMCA. The most relevant of these exceptions for SME’s who want to avoid preparing a PDS are the exceptions for:

· Wholesale Investors and Eligible Investors

· Close business associates

· Employee share schemes

· Small offers

· Crowd funding


This article focuses on the “small offers” exception, which, in our experience, is the most likely and appealing offer exception available to SME's.


Clause 12 of Schedule 1 of the FMCA permits small offers to raise $2,000,000 from up to 20 investors in every 12 month period. The fundamental principle underlying this exemption is that investors must have a sufficient personal connection to the issuer. The offer must be a “personal offer” which means that it is made to and may only be accepted by a person who is likely to be interested in the offer having regard to previous contact, professional or other connection, or statements or action by that person which indicates they would be interested in offers of the relevant kind.


A personal offer can also be made to and accepted by a person with no connection to the issuer who has a gross annual income of $200,000.00 for that person’s two most recently completed accounting periods.


The FMCA and the Regulations impose restrictions on advertising a small offer and also require any offer documentation used in a small offer to contain a warning statement in the prescribed form.


The issuer of securities under a small offer must also notify the Financial Markets Authority of the fact that a small offer has been made at the end of the financial period in which the small offer was made.


The small offer exclusion is not appropriate in all situations, but it can be successfully used in the right circumstances. We have experience in assisting clients raise funds under the small offer exception, and the other exceptions and exemptions listed above. We are happy to work with you or your clients who are looking to raise money or simply to discuss the possibility with you.


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