Section 708 of the Corporations Act: A Practical Guide for Fund Managers

Rosh Java
Apr 29
7 min read

What is Section 708 of the Corporations Act?

Section 708 of the Corporations Act 2001 (Cth) sets out the circumstances in which an offer of securities or managed investment scheme interests in Australia does not require a regulated disclosure document such as a prospectus. It is the foundational regulatory provision that allows Australian fund managers to raise capital from sophisticated, professional, and wholesale investors without going through the full retail disclosure process.

Section 708 is the reason most Australian unlisted property funds, boutique private credit funds, family office vehicles, and similar wholesale capital raises can be structured around an Information Memorandum rather than a prospectus.

Without Section 708, every capital raise would require a full prospectus lodged with ASIC, which would make wholesale fundraising significantly slower, more expensive, and more administratively burdensome.

This guide explains what Section 708 covers, how the most commonly used exemptions work, what the compliance requirements are for each exemption, and what fund managers need to know to rely on Section 708 safely when producing investor documents.

Important note: This article is general information about Section 708 of the Corporations Act. It is not legal advice and should not be relied upon as such. Australian fund managers should consult their own legal and compliance counsel before structuring any capital raise that relies on the Section 708 exemptions.

Why does Section 708 exist?

The general rule under Chapter 6D of the Corporations Act is that any offer of securities to investors in Australia must be accompanied by a regulated disclosure document. Usually a prospectus, occasionally a profile statement or offer information statement, depending on the specific circumstances. The disclosure document must contain prescribed information, must be lodged with the Australian Securities and Investments Commission (ASIC), and is subject to strict liability provisions if it contains misleading statements or omits material information.

This regime exists to protect retail investors who may not have the experience or resources to evaluate investment opportunities on their own. The disclosure requirements ensure that retail investors receive standardised information about the investment they are considering and have legal recourse if the information turns out to be misleading.

Section 708 recognises that not every investor needs the same level of regulatory protection.

Investors who can demonstrate sufficient wealth, income, experience, or institutional sophistication are presumed to be capable of evaluating investment opportunities without the protection of a regulated disclosure document. The Section 708 exemptions allow offers to these investors to proceed without a prospectus, which makes wholesale capital raising commercially viable in a way it would not be otherwise.

What are the main Section 708 exemptions?

Section 708 contains a number of exemptions from the disclosure requirements.

The three most commonly used by Australian fund managers raising wholesale capital are the sophisticated investor exemption, the professional investor exemption, and the small-scale offer exemption.

The sophisticated investor exemption: Section 708(8)

Under Section 708(8), an offer of securities does not require a disclosure document if the offeree meets one of two tests.

The first test is the minimum investment test.

An offer does not require disclosure if the minimum amount payable for the securities on acceptance of the offer is at least AUD $500,000. This test is straightforward. If the investor is committing $500,000 or more to a single offer, the disclosure exemption applies.

The second test is the certified investor test.

An offer does not require disclosure if a qualified accountant has issued a certificate confirming that the offeree has net assets of at least AUD $2.5 million, or has a gross income of at least AUD $250,000 per year for the preceding two financial years. The certificate must be no more than two years old at the time the offer is made.

A 'qualified accountant' for the purposes of Section 708(8) is a person who meets specific qualification requirements set out in Section 88B of the Act. In practice, this is typically a member of a recognised professional accounting body in Australia.

Practical implication: If a fund manager wants to rely on the sophisticated investor exemption, they need to either set the minimum investment at $500,000 or higher, or collect a qualified accountant's certificate from each investor before accepting their application. Many Australian wholesale funds use a combination of both, a high minimum investment plus the certificate requirement for investors close to the threshold.

The professional investor exemption: Section 708(11)

Under Section 708(11), an offer of securities does not require a disclosure document if it is made to a 'professional investor' as defined in Section 9 of the Corporations Act. The definition of professional investor is narrower and more institutional than the sophisticated investor definition.

Professional investors include holders of an Australian Financial Services Licence, persons who control gross assets of at least AUD $10 million (including assets held by an associate or under a trust the person manages), trustees of superannuation funds, approved deposit funds, pooled superannuation trusts, or public sector superannuation schemes with net assets of at least AUD $10 million, listed entities and their related bodies, and certain other institutional categories.

The professional investor exemption is the most commonly used pathway for Australian fund managers raising institutional capital from superannuation funds, family offices, and other large institutional investors. Because the threshold is higher than the sophisticated investor test, the compliance verification process is typically simpler — most professional investors can demonstrate their status through documentation that the fund manager can verify directly.

The small-scale offer exemption: Section 708(1)

Under Section 708(1), an offer of securities does not require disclosure if the offer is a personal offer that does not breach two ceilings. The first ceiling is the 20-investor cap. The offer cannot result in more than 20 investors receiving securities from the same body in any 12-month period. The second is the $2 million cap. The offer cannot result in more than AUD $2 million being raised by the body in that period.

A 'personal offer' for these purposes is one that may only be accepted by the person to whom it is made and is made to a person who is likely to be interested in the offer, having regard to previous contact, professional connection, or expressed interest. Crucially, offers made under the small-scale exemption cannot be advertised.

The small-scale offer exemption is narrower than the sophisticated and professional investor exemptions and is typically used for early-stage capital raises or for very limited investor pools rather than for established fund managers running ongoing wholesale capital raises.

What does a fund manager need to do to rely on Section 708?

Relying on Section 708 is not automatic. The fund manager must take specific steps to ensure that each offer falls within the relevant exemption and that the documentation supports the exemption.

Verify investor eligibility before accepting applications. For sophisticated investor offers, this means either confirming that the minimum investment threshold is met or collecting and reviewing a qualified accountant's certificate that is no more than two years old. For professional investor offers, this means verifying the investor's status through documentation such as an AFSL number, audited financial statements, or trustee confirmations.
Maintain a clear record of which exemption applies to each offer. The fund manager should be able to demonstrate, after the fact, which Section 708 exemption was relied upon for each investor and what evidence supported that reliance.
Include a wholesale investor declaration in the IM and the application form. The declaration should require each investor to confirm their status and acknowledge the exemption being relied upon. This is both a compliance step and a structural protection for the fund manager.
Avoid advertising offers made under the small-scale exemption. The Section 708(1) exemption is invalidated if the offer is advertised, so fund managers relying on this exemption need to be careful about how they market the opportunity.
Ensure the IM disclosure is accurate, complete, and not misleading. While the IM is not subject to the prescribed content requirements that apply to prospectuses, the general duty of care and the misleading and deceptive conduct provisions still apply. Fund managers can be held liable for misleading disclosures in IMs even though the documents are not lodged with ASIC.

What happens if a fund manager gets Section 708 wrong?

Relying on Section 708 incorrectly can have serious consequences.

If the exemption does not actually apply. For example, if the fund manager accepts capital from an investor who does not meet the sophisticated investor threshold and does not have a valid qualified accountant's certificate, the offer becomes a non-exempt offer, which means it required a prospectus that was not provided.

Under Section 727(4) of the Corporations Act, it is an offence to issue or transfer securities without disclosure to investors once the relevant ceilings have been exceeded. Penalties can include civil penalties, criminal sanctions, and orders requiring the fund manager to refund the capital raised. ASIC has the power to take enforcement action, and investors who have suffered loss as a result of inadequate disclosure may have civil claims against the fund manager.

The practical consequence is that fund managers who rely on Section 708 exemptions need to be rigorous about the compliance verification process, the documentation, and the language of the IM itself. The cost of getting it wrong is significantly greater than the cost of doing it properly the first time.

How does Section 708 interact with other Australian regulatory regimes?

Section 708 is part of Chapter 6D of the Corporations Act, which governs disclosure for offers of securities. There are parallel disclosure regimes for other financial products. Part 7.9 of the Act governs disclosure for managed investment schemes, superannuation, and other financial products that are not securities, and uses the concept of 'wholesale client' rather than 'sophisticated investor'.

The wholesale client and sophisticated investor categories overlap significantly but are not identical. A person can be a sophisticated investor under Section 708 but a retail client under Part 7.9, or vice versa. Fund managers raising capital under structures that involve both regimes, such as managed investment schemes that issue securities, need to comply with both sets of requirements, which adds complexity to the compliance verification process.

ASIC has issued regulatory guidance on the wholesale and sophisticated investor tests, including Regulatory Guide 173 and the Australian Government's broader guidance on financial services disclosure. Fund managers operating in this area should be familiar with the relevant ASIC guidance and should consult legal counsel for any structures that involve both Chapter 6D and Part 7.9 disclosure requirements.

Where to learn more

For fund managers producing Information Memoranda under Section 708, Ästhetik Studio has published a free reference guide that covers the structural and production aspects of IM development in detail. The Information Memorandum Guide is written specifically for Australian fund managers producing wholesale-investor documents under Section 708 and is available at asthetik.studio/guide.

Ästhetik Studio also offers a focused twenty-minute Comms Review for fund managers preparing to produce their next IM. The call covers the specific publication you are producing, structural issues likely to surface in the next cycle, and an honest view on whether the Investor Publication Intensive is the right engagement for your firm.

Book at asthetik.studio/book-a-review.

This article is general information about Section 708 of the Corporations Act 2001 and should not be relied upon as legal advice. Fund managers should consult qualified Australian legal and compliance counsel before structuring any capital raise that relies on the Section 708 exemptions.