What the sophisticated and professional investor exceptions actually require, and what goes wrong with them.
Most Australian companies raising their first few million never produce a prospectus. They rely on the exceptions in section 708 of the Corporations Act 2001 (Cth), which set out the offers that do not need a disclosure document. Used properly, s708 is the difference between a raise that takes weeks and one that takes months and a six-figure legal bill.
Used carelessly, it is the reason a raise has to be unwound. The exceptions are specific, the paperwork has a shelf life, and the obligation to get it right sits with the company making the offer — not with the investor, and not with the accountant who signed the certificate.
This is general information, not advice. CatenaHQ is software. Nothing on this page is legal, financial or investment advice, and it does not take account of your circumstances. The thresholds and wording below are current as at October 2026; the Act and its regulations change. Get your own advice on your own raise.
Founders tend to say "we're doing a 708 raise" as though s708 were one thing. It is a list of separate exceptions with different requirements. Most private raises use one or more of these four.
The "20/12" rule. Personal offers that result in securities being issued to no more than 20 people and raising no more than $2 million, both measured in any rolling 12-month period.
It counts people who are issued securities, not offers made. A personal offer can only be accepted by the person it was made to, and that person must be likely to be interested in it because of a prior connection or something they have said or done. A cold list is not a personal offer.
Three separate ways in. A minimum of $500,000 payable on acceptance; or that amount combined with what the person has already paid for securities of the same class; or a qualified accountant's certificate showing the person meets the asset or income test.
The certificate route is the one most raises use, and the one most often got wrong.
Offers to a person within the professional investor definition in s9 — which captures licensees, banks, insurers, responsible entities and the like — or to a person who has or controls gross assets of at least $10 million, including assets held by an associate or under a trust they manage.
No accountant's certificate is needed for the $10 million limb, but you still need a reasonable basis for believing it.
An offer made through a financial services licensee, where the licensee is satisfied on reasonable grounds that the investor has enough previous investing experience to assess the offer, the value, the risks and the adequacy of the information.
It has two paperwork steps people forget: the licensee must give written reasons, and the investor must sign a written acknowledgment that no disclosure document was given.
Under s708(8)(c) a qualified accountant must certify that the investor meets one of two tests. The figures are set by regulation 6D.2.03 of the Corporations Regulations 2001:
In short: net assets of at least $2.5 million, or gross income of at least $250,000 for each of the last two financial years, certified by a qualified accountant within the previous six months.
Two years, not one, and gross income rather than taxable income. A single strong year does not qualify anyone.
The certificate must be dated no more than six months before the offer is made. This is the detail that catches people. A certificate is not a status the investor keeps — it is a document with a six-month life, and a raise that runs long will see certificates expire mid-process. If you re-open a round, or an investor who committed in March settles in November, the certificate you hold may no longer support the offer.
A related trap sits in s708(9): if the money an investor pays came from a loan made by the company or one of its associates, that amount does not count toward the $500,000 thresholds in s708(8)(a) and (b). Vendor-financing your way to a sophisticated investor does not work.
Section 708(8)(d) extends the exception to a company or trust controlled by someone who meets the certificate test, which is how most investments through a family trust or a bucket company are made. The certificate is still about the controller.
These two get used interchangeably and they are not interchangeable. The sophisticated investor exception in s708 sits in Chapter 6D and is about whether an offer of securities needs a disclosure document. The wholesale client test sits in Chapter 7 and is about whether a financial service is being provided to a retail or wholesale client — which drives Financial Services Guides, Statements of Advice and the external dispute resolution obligations.
They use similar-sounding numbers and both involve an accountant's certificate, which is precisely why they get conflated. Different Chapters, different purposes, different certificates, different shelf lives. A certificate obtained for one is not automatically good for the other, and if your raise involves someone providing a financial service as well as the company making an offer, you are in both regimes at once.
The 20-person ceiling counts people issued securities in a rolling 12 months — across every raise, not per round. Two rounds of 12 in one year breaches it.
Six months from the certificate date to the offer. Long raises, re-opened rounds and delayed settlements are where this bites.
If you cannot show, per investor, which limb of s708 you relied on and what you held at the time, you cannot demonstrate the exception applied. This surfaces in due diligence on the next round, not at the time.
s708(2) requires a prior connection or something the person has said or done. A scraped list of investors is not that, and the small-scale exception does not cover it.
The $2 million ceiling belongs to the small-scale exception. The $500,000 minimum belongs to s708(8)(a). They are unrelated, and an offer relying on s708(8) is not capped at $2 million.
The register, the certificates and the reason each investor qualified need to stay together and stay findable. In three years an acquirer's lawyer will ask, and "it's in an email somewhere" is an answer that costs money.
CatenaHQ runs s708 verification as part of the raise rather than beside it. You send an investor a verification request, they complete it, and the certificate, the limb relied on and the date are held against that investor on the register. When the certificate approaches six months the record shows it, and the allotment paperwork draws on the same data rather than a separate spreadsheet.
That is the part that matters later: not the verification itself, but being able to show two years afterwards exactly who was verified, on what basis, and when.
Recording that verification against each investor, rather than leaving it in an inbox, is what the investor relations module is for.
All of the CatenaHQ guides are written the same way: from the Act and the regulations, with the section numbers shown. If you are raising on a convertible note or a SAFE, the same exceptions apply to that offer — see convertible notes and SAFEs.
The Corporations Act offer rules and the Division 83A start-up tax concession are two separate regimes — and ceasing employment stopped being a taxing point on 1 July 2022.