A Sydney seed founder is closing a $1.8 million round. The lead is a family office cutting $600,000 on a signed subscription agreement. There are eleven angels averaging $50,000, three friends-and-family cheques at $20,000, and a late-arriving US angel who saw a founder tweet and wants $75,000. The founder’s cap table spreadsheet says eighteen new investors. The founder’s lawyer is on holiday. The founder’s accountant sends an accountant certificate for the lead — dated fourteen months ago. On a Tuesday morning the deputy lawyer at the firm opens the file and finds three problems at once: the certificate is stale, the tweet is a “publication” that has probably destroyed the personal-offer character of every cheque, and the round will breach the twenty-investor ceiling before the US angel signs.
That is the anatomy of the average seed-round s 708 problem. The statute is not complicated in the abstract. It is complicated in the way founders actually run rounds — over Slack, over LinkedIn, in three-week bursts, with certificates that were assembled for a different deal and paperwork papered a fortnight after the money hit the account.
Why Section 708 Matters at All
Chapter 6D of the Corporations Act 2001 (Cth) requires an Australian company to lodge a disclosure document — usually a prospectus — for every offer of securities unless an exemption applies. A prospectus is expensive, slow and comes with directors’ liability under s 728. Section 708 is the exemption menu. Every seed and Series A round in Australia relies on it, and getting the pathway right at the outset is the difference between a clean cap table and an offer that is technically void as against the offeree.
Four pathways carry almost all of the traffic for startups.
The Small-Scale Personal Offer — the “20/12/$2m” Rule
Under s 708(1), a personal offer of securities does not need disclosure if in any rolling 12-month period the company does not exceed either 20 investors or $2 million raised. Both ceilings apply simultaneously — burning through 15 investors for a full $2 million closes the exemption for the next twelve months even if you have five slots left.
The dangerous limb is personal offer. Under s 708(2), an offer is personal only if it can be accepted only by the person to whom it is made and the offeree is “likely to be interested” based on previous contact, a professional or other connection, or statements or actions indicating interest. A tweet, an open LinkedIn post, a founder Substack, a broadcast WhatsApp or a “we’re raising” note pinned in a public Slack destroys that character. The offer becomes a public offer that requires a disclosure document under Chapter 6D and, separately, is prohibited advertising under s 734. The 20 investors who signed against s 708(1) are then technically offerees of an unregistered public offer.
The Sophisticated Investor — Section 708(8)
Two independent limbs, both live at seed and Series A.
- The $500,000 limb (s 708(8)(a)). The minimum amount payable on acceptance of the offer is at least $500,000, either in cash or in cash plus a subscription-monies-owing structure aggregating to $500,000. This is the pathway most Australian family offices and larger cheques use because it needs no certificate.
- The accountant certificate limb (s 708(8)(c) and reg 6D.2.03). A qualified accountant (a member of CA ANZ, CPA Australia or the IPA at the declared level, per ASIC Corporations (Qualified Accountant) Instrument 2016/786) certifies the offeree 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.
The trap founders fall into is on freshness. Reg 6D.2.03(2) says a certificate is valid for up to two years. Section 708(8) requires it to be given no more than six months before the offer. The six-month rule wins. A certificate that is a year old is stale for a fresh offer, and the offeree is not a sophisticated investor for that round regardless of what a term sheet last year said.
The Sophisticated Investor via a Licensee — Section 708(10)
This is the “experienced investor” limb. It has three cumulative requirements: the offer is made through an AFS licensee, the licensee is satisfied on reasonable grounds that the offeree has previous investing experience adequate to assess the offer, and the licensee gives the offeree a written statement of reasons which the offeree signs a written acknowledgment against — before the offer is made. There is no financial threshold. In practice, seed rounds use this pathway through a licensed intermediary or the founder’s own limited AFSL when the offeree is knowledgeable but does not meet the $2.5 million / $250,000 tests.
The Professional Investor — Section 708(11)
This pathway cross-refers to the s 9 definition of professional investor and is objective. It includes AFSL holders, APRA-regulated bodies, trustees of superannuation, ADI or PST arrangements with net assets of at least $10 million, listed entities and their related bodies corporate, and persons who “control at least $10 million” including on behalf of others. No certificate, no experience test, no minimum ticket size. If the offeree fits an s 9 category, s 708(11) applies automatically — and this is why VC funds, family offices structured through licensed trustees and corporate strategics can invest at any cheque size without further formality.
The Senior Manager Exception — Section 708(12)
Offers to a senior manager of the company or a related body corporate — plus that person’s spouse, parent, child, sibling or a body corporate controlled by any of them — do not need disclosure. “Senior manager” carries its s 9 meaning: someone who makes or participates in decisions affecting a substantial part of the business, or who can significantly affect the body’s financial standing. Useful for internal top-up rounds, founder-family cheques and CFO participation without engaging the 20/12 counter.
The Parallel Chapter 7 Test Founders Forget
Section 708 is the Chapter 6D disclosure-document exemption. If the security is a share, a debenture or a convertible note, s 708 is the whole answer. If the “security” is actually a managed investment scheme interest — a unit in a syndicate, an SPV, a rolling investment vehicle — Chapter 7 applies in parallel and asks a different question: is the offeree a retail or wholesale client under s 761G / s 761GA?
The thresholds look identical — $500,000 product value, $250,000 income or $2.5 million net assets on a qualified accountant certificate under reg 7.1.28, and the same professional-investor list. But the tests sit in different chapters and reliance under one does not carry across the other. Offers of MIS units need both analyses, documented under the correct provision, and the s 708(10) written statement will not double as a s 761GA statement.
Design and Distribution: What Is (and Is Not) Carved Out
Part 7.8A (the DDO regime) requires a Target Market Determination for retail offers under s 994B. Two carve-outs matter for startups. First, s 994B(1)(a) expressly excludes fully paid ordinary shares — so a straight ordinary-share raise is largely outside DDO regardless of whether disclosure applies. Second, “retail product distribution conduct” is defined by reference to retail clients only — a clean wholesale s 708 or s 761G offer generates no DDO obligation. But the enforcement risk is real once retail creeps in: ASIC v Australian Unity Funds Management Ltd (Moshinsky J, 2026) delivered a $7.125 million penalty for failure to take reasonable steps under s 994E, on top of the earlier Firstmac ($8m) and American Express ($8m) DDO decisions.
The Reform That Hasn’t Happened
The $2 million, $500,000, $250,000, $2.5 million and $10 million thresholds have not been indexed since 2001-02. In real terms, roughly 60% of Australian households now sit above the $2.5 million net-asset test when the family home is included. The 2024 Parliamentary Joint Committee inquiry into wholesale investor tests recommended periodic reviews and an objective knowledge criterion but stopped short of endorsing an immediate threshold uplift, and no amendment to s 708 or s 761G has been enacted as at mid-2026. Founders should not price this reform into current rounds — but should assume that offer documents drafted today will be renewed against changed thresholds within the life of the current SAFE portfolio.
The Bottom Line
Section 708 is not a single gate. It is a five-lane menu of exemptions, and each lane carries different paperwork, different freshness rules and different consequences when breached. The founders who close clean rounds treat s 708 as an operational discipline, not a legal-review question — they classify every cheque against a single pathway before the term sheet is signed, refresh every accountant certificate inside six months of the offer, keep AFSL-intermediated offerees inside a documented s 708(10) folder, avoid public solicitation entirely, and separate the s 708 analysis from the parallel s 761G analysis on any structure that is not a plain share issue. The ones who don’t discover, on the Tuesday before closing, that a fourteen-month-old certificate and a founder tweet have between them turned a friendly seed round into an offer that needed a prospectus.
Viridian Lawyers advises Australian founders, family offices, angel syndicates and lead investors on capital-raising structures, s 708 and s 761G reliance, accountant certificate mechanics, AFSL-intermediated experienced-investor offers and DDO compliance for retail-touching products. If you are papering a seed or Series A round, standing up a rolling SAFE vehicle, or reviewing an existing cap table for s 708 exposure, get in touch.
