Reading time: 3 minutes

In an earlier article, we looked at how to finance your business through loans, grants and convertible notes. We now continue to look at other available methods including equity finance and the commonly heard phrase, crowdfunding. What exactly do they involve and what their advantages? 

Equity Finance

Issuing shares in your company is a well-established method to finance your business without going into debt. You can issue different types of shares. For example, ordinary shares or preference shares.

You need to follow the exemptions that enable companies to issue shares without a disclosure document. As a small business, you can only issue shares to the following:

  • Up to 20 investors raising up to $2 million in 12 months (personal offers), or
  • Sophisticated or professional investors, or
  • People associated with your business including senior management.

You may ask why you would issue shares to finance your business? Well, there are no ongoing payments, so a higher percentage of revenue can be spent on the business. For example, to invest in marketing or hire more staff.

You also share your business’ risk with your investors. This means, however, that you also share the business’ value and ownership with your shareholders. Shareholders might want more control and oversight of your business than you prefer. We can help you negotiate this in the Shareholders Agreement.

Crowdfunding

Crowdfunding allows members of the public to contribute money to a product or service that may not yet have launched. For example, buying a unique product in advance anticipating that you will receive the item once the business raises sufficient funds to finalise the product or service. Crowdfunding is often done through platforms like Kickstarter and RocketHub.

Crowdfunding is a great way for your business to gain broader exposure. It allows members of the public to support you in your business goals. You may receive more funds, or receive funds more quickly, than through traditional sources. Currently in Australia, it is difficult for small businesses to crowdfund because of the legal restrictions on offering shares. The Government is currently reviewing different ways to offer shares to a broader audience, and to assist businesses to use crowdfunding to issue or sell shares.

Conclusion

Through these articles, we have outlined the common methods businesses can choose to raise finance. LegalVision’s experienced business lawyers can help you decide which finance option best suits you and your circumstances, as well as step you through the negotiations and required documents.

Questions? Get in touch on 1300 544 755.

Webinars

New Kid on the Blockchain: Understanding the Proposed Laws for Crypto, NFT and Blockchain Projects

Wednesday 25 May | 10:00 - 10:45am

Online
If you operate in the crypto space, ensure you understand the Federal Government’s proposed licensing and regulation changes. Register today for our free webinar.
Register Now

How to Expand Your Business Into a Franchise

Thursday 26 May | 11:00 - 11:45am

Online
Drive rapid growth in your business by turning it into a franchise. To learn how, join our free webinar. Register today.
Register Now

Day in Court: What Happens When Your Business Goes to Court

Thursday 2 June | 11:00 - 11:45am

Online
If your business is going to court, then you need to understand the process. Our free webinar will explain.
Register Now

How to Manage a Construction Dispute

Thursday 9 June | 11:00 - 11:45am

Online
Protect your construction firm from disputes. To understand how, join our free webinar.
Register Now

Startup Financing: Venture Debt 101

Thursday 23 June | 11:00 - 11:45am

Online
Learn how venture debt can help take your startup to the next level. Register for our free webinar today.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards