Legal
Issue No. 52 - April/May 2010
Building an Information Memorandum
by Peter Buberis
For any business built upon innovations, even a business with well developed technologies, there comes a time to take the next step, whether by bolting on new technology, finding funds to develop ideas further find news ways to market.
In other words, more capital and resources are often needed to make the most of innovation. Putting debt funding and conventional loans to one side, the best option may be a trade off of equity for these additional benefits.
Broadly, this process becomes a sales pitch to win interest from a third party, leading to a legal relationship and access to funds, technology or whatever that third party has to offer.
Commercially, this is often done through an information memorandum (or investment memorandum) which is presented to one or more third parties to gauge interest.
While this is a sales document, it is one which must be prepared very carefully. Significant legal consequences may flow from any failure to meet the law and the IM may provide confidential information which has to be protected. Therefore, developing the IM and maximizing its effectiveness as a sales tool has to be planned and implemented using professional advice.
To create such a document, you need the help of competent professionals, especially lawyers and accountants. Yes, there will be cost, but you will be buying professional skills to provide a sound document.
You are buying a methodology and, to some extent, insurance - a right to recourse if those skills are not properly delivered.
Legal Restraint
Under Australian law, if you want to raise equity, there are rules to follow. The Corporations Act specifically addresses fundraising and not complying with regulations carries serious consequences.
There are standards for providing information in documents. The Trade Practices Act prohibits misleading and deceptive statements and there are civil consequences relating to securities and fundraising under the ...
