Australian Equity and Capital Raising Glossary

Each definition below is taken from the matching CatenaHQ guide, which is written from the Act, the regulations and the ATO and ASIC pages listed at the bottom of that guide.

This is general information, not advice. CatenaHQ is software. Nothing on this page is legal, financial, tax or investment advice, and it does not take account of your circumstances. Speak to a lawyer, accountant or other qualified adviser about your own position.

Terms

Business judgment rule

A rule in section 180(2) of the Corporations Act that sets four conditions for a director's business judgment: it is made in good faith for a proper purpose, the director has no material personal interest, they inform themselves to the extent they reasonably believe appropriate, and they rationally believe it is in the company's best interests. The Act says it operates only in relation to duties under section 180.

Cap table

A model of who owns what in a company and what a funding round does to it. In an Australian company the cap table is the model and the share register is the legal record, so the two should be one set of data.

Convertible note

A loan that converts to equity on a trigger, usually the next qualifying round. It typically carries interest, a maturity date and a repayment obligation if it never converts.

Dilution

The fall in an existing shareholder's percentage ownership when new shares are issued, including shares that come from exercised options or converted notes and SAFEs. It changes the percentage, not the number of shares the person holds.

ESIC (early stage innovation company)

A company that qualifies for the early stage innovation company tax incentive. An investor in new shares gets a 20% non-refundable carry-forward tax offset on the amount paid, and a capital gain on shares held at least 12 months and less than 10 years may be disregarded. The company must pass an early stage test (expenses under $1 million, assessable income under $200,000, incorporated within three years, unlisted) and an innovation test.

ESOP (employee share option plan)

A plan that gives employees shares or options in the company. In Australia, two separate regimes govern an employee share scheme: Division 1A of Part 7.12 of the Corporations Act on the offer, in force from 1 October 2022, and Division 83A of the Income Tax Assessment Act 1997 on the tax.

Form 484

The ASIC form for changing company details, including share issues and share transfers. ASIC says the company must tell it of every share issue within 28 days after the issue.

Replaceable rules

The default set of internal rules for a company in the Corporations Act (section 135), which ASIC describes as the default option for proprietary companies. A company that uses all of them does not need a constitution.

SAFE (simple agreement for future equity)

A contractual right to receive shares on a future event, with no interest, no maturity date and no repayment obligation. In Australia, issuing one is an offer of securities that needs a section 708 exception.

The register of members that every Australian company must keep under section 168 of the Corporations Act, with its contents set out in section 169. Any person may ask for a copy in a searchable spreadsheet format, and the company must provide it within 7 days.

Shareholders agreement

A contract between a company's shareholders, separate from its constitution. ASIC's pages mention one only as something a company may have, and we found no ASIC statement that requires one.

Sophisticated investor

An investor an Australian company can make an offer to without a prospectus under section 708(8) of the Corporations Act. The routes include $500,000 or more payable on acceptance, or a qualified accountant's certificate dated within six months of the offer showing net assets of at least $2.5 million or gross income of at least $250,000 in each of the last two financial years.

Glossary