Businesses which take the leap into running businesses in heavily regulated industries are well advised to make sure they have the right legal documents and advice to ensure they are not falling foul of any rules or regulations. The childcare, gambling, tobacco and bar/pub industries are all examples of heavily regulated industries. Advertising investment opportunities are also heavily regulated, and if you want to run a Business Introduction Service (BIS), it’s a good idea to get advice from a trusted professional advisor.
What is a Business Introductory Service?
A Business Introductory Service is a service which introduces startups and other companies seeking investment to investors who might want to invest in them. The Corporations Act 2001 (Cth) (Corporations Act) regulates investment in Australia. If you want to advertise investment in your company without a regulated disclosure document (such as an information memorandum), then you can only advertise to sophisticated investors, professional investors and people who fall within the ‘family and friends’ exemption in the Corporations Act.
Start-ups who find investors through a BIS do not have to offer their securities to investors who fall within these narrow definitions. Class Order 02/273 sets out the rules for operating a BIS, and if these are followed, a start-up can access more investors than they may have been able to without the help of the BIS.
Business Introductory Service Terms and Conditions
Depending on how you want the Business Introductory Service to operate, you need Terms and Conditions governing how BIS participants can ‘play nice’. A BIS can be run online, such as through a platform which advertises companies to investors, who can fill in a form for more information. Blue Chilli and AASOB operate this way. Or, you can run a BIS through meetings, such as Sydney Angels, which runs in a similar way to a meeting-style BIS.
Terms which govern an online marketplace need specific clauses relating to Class Order 02/273, plus more standard clauses governing the operation of a marketplace. You should include clauses which make it clear that the marketplace:
- or advertising material is not a substitute for a disclosure document;
- is subject to Class Order 02/273;
- or publication does not contain an application form for securities; and
- is not endorsed by the Australian Securities and Investments Commission.
General Website Content
As added protection, it’s also a good idea to place prominent statements on your website regarding running a Business Introductory Service. You should make it clear that the BIS is only meant to be an introductory service and is not involved with the issuing, selling and/or purchasing of securities and that related transactions cannot be completed by via the website. For example, an investor cannot enter her or his credit card details into the site and expect to receive $10,000 worth of shares. These kinds of transactions must be completed outside the BIS.
Running a Business Introductory Service is a great way to service an under-serviced industry. Startups need funds and because of the way the law operates and can find it difficult to access networks of people who would like to invest in them. Without a Business Introductory Service, startups must only offer shares to sophisticated or professional investors, or investors who fall into other narrowly defined categories.
A BIS allows startups a different way to access investors but be mindful that a BIS is still regulated by the Corporations Act and Class Order 02/274. When running an online BIS, it’s important to have terms governing the relationship between market players – e.g. the start-ups and the investors. Questions? Call us on 1300 544 755.