The round is coming together. You have agreed headline numbers with two angels, a venture fund has asked for the materials, and your accountant has just asked whether you will be preparing an information memorandum. If you have not thought the answer through, you are in good company: most founders first hear the term when a raise is already underway. The decision is not really about the document at all. It is about what the law requires before you can legally offer your shares, and how much information a reasonable investor needs before committing money.
The real question: does your offer need disclosure at all?
Under Part 6D.2 of the Corporations Act 2001 (Cth), an offer of securities for issue needs disclosure to investors unless a specific exemption applies. Section 706 states the rule directly: the offer needs disclosure under the Part unless s 708 or s 708AA says otherwise. The default document for an offer that needs disclosure is a prospectus lodged with ASIC. But most small and medium businesses raising capital privately never touch a prospectus. They rely on one of the exemptions in s 708 of the Act, and the information memorandum is the document they use to present the opportunity to exempt investors in an organised, balanced way.
So there are really three paths, and they are not interchangeable:
- A prospectus: for offers that need disclosure to investors, generally because they are advertised or made to people who do not fit an exemption.
- An information memorandum: for a private offer that relies on an exemption, where the document gives eligible investors a fair picture of the business and the terms.
- No formal document: for the smallest, most closely held raises, where a short investor brief, a term sheet and direct conversations are enough.
The mistake people make is treating the information memorandum as the compliance step. It is not. The exemption is what makes the offer lawful, and the IM is the vehicle for giving investors a fair picture of the business. That distinction matters, because a document that reads like a prospectus but is handed out like a private memo can create problems of its own.
Five factors that should drive the decision
Who the money is coming from
The first question is whether you are raising from people who know you, or from external investors dealing with you at arm's length. For a raise from parents, close friends or longstanding business contacts, a short investor brief plus a term sheet is often enough, and the existing connection between you and the investor is itself part of the legal analysis, because the small-scale exemption only covers offers made to people with whom you have prior contact or some other connection. Once you are dealing with angels, venture funds, family offices or institutional lenders, the dynamic changes. These investors compare your opportunity against others, run due diligence, and expect a document that answers their questions in one place:
- Known, closely held group: short investor brief, term sheet, direct Q&A. An IM is optional.
- External, arm's-length investors: an IM is close to essential, both to present the opportunity consistently and to manage risk.
How many investors and how much you are raising: the 20/12/$2m line
Under s 708(1) of the Corporations Act, personal offers of a body's securities do not need disclosure if two ceilings are respected in any 12-month period: no more than 20 investors, and no more than $2 million raised. A personal offer under s 708(2) is one that can only be accepted by the person it is made to, and that is made to someone likely to be interested because of previous contact, a professional or other connection, or the person's own statements or actions indicating interest. General advertising is off the table: s 734(1) prohibits advertising or publishing statements that refer to offers relying on this exemption, and the prohibition is a strict liability offence.
Two consequences follow. First, the ceilings are a hard planning constraint, and an IM that reaches people beyond the intended recipients can look like a general invitation even when the underlying offers were personal. Second, s 727(4) makes it an offence to issue or transfer securities without disclosure once the 20-investor or $2 million ceiling has been exceeded. If your raise is heading past either number, the small-scale exemption stops being available and you need a different pathway or a disclosure document before you keep going.
Whether each investor can be offered securities without a prospectus
If your investors do not fit the small-scale exemption, the question becomes whether each of them is individually exempt. The main pathways in s 708 are:
- Sophisticated investors: an offer is exempt under s 708(8) if the minimum amount payable for the securities on acceptance of the offer is at least $500,000, or if a certificate from a qualified accountant, issued no more than six months before the offer, shows the investor has net assets of at least $2.5 million or gross income of at least $250,000 in each of the last two financial years, as specified in the Corporations Regulations.
- Professional investors: offers to professional investors as defined in s 9 of the Act, and to anyone who has or controls gross assets of at least $10 million, are exempt under s 708(11).
- Senior managers and close family: offers to a senior manager of the company or a related body, or their spouse, parent, child, brother or sister, are exempt under s 708(12).
- Existing shareholders: this exemption is narrower than people assume. s 708(13) only covers fully-paid shares issued to existing holders under a dividend reinvestment plan or bonus share plan. It does not give a general licence to go back to your cap table.
Because these pathways turn on the identity and financial position of each investor, an IM meant only for exempt investors needs eligibility language that says so, and your distribution records need to show who received it and why they qualified.
What a reasonable investor will expect from you
Even where no document is legally required, the quality of the information you give investors affects both the outcome of the raise and your exposure. External investors will want to see the business model, the team, the market, the financials, the terms of the offer, the cap table and the material risks, with forecast assumptions explained. In practice that means an IM should cover the company background and structure, the products or services, the market and competitive position, historical results and forward projections with the assumptions behind them, the securities on offer and the rights attaching to them, and the material risks. That contents list is also roughly the list of questions an investor's lawyer will ask during due diligence, so getting it right once saves a round of back and forth. An information memorandum is the standard way to put all of that in one place so every investor sees the same picture. The alternative, answering the same questions by email for each investor, creates inconsistency and increases the chance that something said informally is later relied on. In a growth round or a bridge round where investors compare offers side by side, a coherent document is part of running a professional process.
The risk sitting inside the document itself
An information memorandum is a disclosure document in substance even when it is not a prospectus, and it attracts the ordinary misleading conduct rules. Section 1041H of the Corporations Act prohibits misleading or deceptive conduct in relation to a financial product or financial service, and carries civil liability under s 1041I. The Australian Securities and Investments Commission Act 2001 (Cth) does the same for conduct in trade or commerce in relation to financial services under s 12DA. Overstating performance, hiding a material risk, or dressing up assumptions as facts in the IM can create exposure that a term sheet never would.
There is also a privacy dimension. If you collect investor details or run a data room, and the Privacy Act 1988 (Cth) applies to your business, which it generally does once annual turnover is more than $3 million, you need to handle that personal information consistently with the Australian Privacy Principles and have a privacy policy that covers it. The point is that the IM is not neutral marketing. It is the record of what you told investors, and it should be written as if it will be read back to you in a dispute.
How an Artificer Legal lawyer would help you make the call
An information memorandum is usually the last thing a founder should think about and the first thing they reach for. A practitioner works backwards from the offer:
- Confirm the pathway: which exemption each investor relies on, and whether the structure of the raise, the number of investors and the amounts involved actually fit it. If the round straddles the 20/12/$2m ceilings or mixes exempt and non-exempt investors, the pathway may need to change before a word of the IM is drafted.
- Stress-test the content: check the document against s 1041H and the ASIC Act, making sure forecasts are labelled as assumptions, risks are disclosed in plain English, and nothing reads as promotional puffery.
- Set up the paperwork: draft the eligibility and offer-restriction notices, the non-disclosure agreement and the distribution records, so the document only reaches people who can lawfully be offered the securities.
- Align the deal documents: confirm the constitution supports the securities being issued, that the term sheet matches the subscription agreement, and that the cap table is accurate before the IM goes out.
The drafting of the IM itself then becomes a straightforward exercise, because the legal structure has already been settled.
The exemption is the compliance step, not the document
Founders usually ask when they need an information memorandum. The more useful question is which exemption their offer relies on, because that decides both whether they need a document at all and what it must contain. The IM does not make the raise legal. The exemption does, and the IM is the record of the fair, balanced disclosure that keeps it that way. If you take one thing from this article, take the order of operations: settle the pathway first, then draft, then distribute to eligible investors only, and keep the records.
None of this means every raise needs a full information memorandum. A small, personal round among people who know you can run on a term sheet and direct conversation. The moment the money is coming from external investors, multiple investors, or investors whose exemption turns on paperwork, a properly prepared IM becomes the difference between a raise that looks professional and one that creates avoidable legal risk. The cost of getting it wrong, whether through an offence under s 727(4), exposure under the misleading conduct provisions, or an investor who was never eligible to be offered the securities, is far higher than the cost of preparing the document properly in the first place.