Call for easier capital raising for small business

For immediate use
Monday 13 August 2001

Call for easier capital raising for small business

The Commercial & Business Law Committee of the New Zealand Law Society is calling for law changes to make it easier and cheaper for small businesses to raise capital through employee stock options.

In a proposal to the Securities Commission titled ‘Small Businesses Raising Capital”, the Committee said the Securities Act often acts as an impediment to this type of investment.

“In many cases a lengthy prospectus and investment statement process is required which many developing business simply cannot afford,” Committee Convener Simon McArley said.

While these impediments may be designed to protect public investors, the Committee believes that they could be relaxed without reducing the protection afforded to investors. The Committee proposes small business be exempt from this requirement providing there is sufficient evidence that employees have received independent financial, legal and tax advice.

Simon McArley said in overseas jurisdictions employee stock options have been a major source of funding for IT and knowledge-based industries.

This form of funding reduces a business’ wage bill and capitalises the business by provision of labour. Employees can accept a lower fixed salary, against the possibility of a substantial benefit if the business succeeds.

Simon McArley said: “It has been suggested that many highly skilled New Zealanders have taken up jobs overseas because of the benefits offered by this type of investment.”

The Committee has discussed the proposal with the Minister of Commerce (Hon Paul Swain) and other interested industry groups, and has been encouraged to raise the matter formally with the Securities Commission.

“This is a relatively simple and quick means by which the Securities Commission could assist those developing the knowledge economy to kick start their business growth. The solution does not require new legislation or additional regulations, but can be achieved by a simple exemption notice procedure.

“We hope the Commission will give favourable consideration to granting such an exemption,” Simon McArley said.

ENDS

Contact: Simon McArley, Convener, Commercial and Business Law Committee

Tel: (04) 498 0854 (work)

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