Many growing businesses reach a point where friends, family and early customers ask to invest. Founders post about a funding round on LinkedIn, share a pitch deck in a WhatsApp group, or ask an accountant to circulate an investment summary to clients. It feels informal. In law, it may be an offer of securities to the public.
The Companies Act 71 of 2008 strictly regulates offers to the public. Getting it wrong can expose the company and its directors to civil claims from investors, regulatory action and, in serious cases, criminal liability. Getting it right is usually a matter of planning the raise so that it falls within one of the recognised exemptions, or preparing a proper prospectus.
This article explains what counts as an offer to the public, when an offer is exempt, and what a company must do if it wants to raise money more widely.
What is an “offer to the public”?
Chapter 4 of the Companies Act governs public offerings of company securities. “Securities” includes shares and debentures, and convertible instruments that can become shares.
An “offer to the public” is defined in section 95 of the Act. It broadly includes an offer of securities made to any section of the public, however that section is selected. It does not matter whether the people approached are your clients, members of a particular group, or simply people who follow your business online. The test is about who receives the offer, not how many people actually invest.
The definition expressly excludes offers made in the circumstances listed in section 96. These are the exemptions that most private fundraising relies on.
Private companies cannot offer to the public
A private company is, by definition, one whose memorandum of incorporation (MOI) prohibits it from offering its securities to the public and restricts the transferability of its securities (section 8(2)(b) of the Act). Most South African businesses are private companies.
This means a private company that wants to raise funds must stay within a section 96 exemption. If it wants to make a genuine public offer, it would first need to convert to a public company and comply with the prospectus requirements.
The main exemptions in section 96
Section 96 lists offers that are not offers to the public. The ones most relevant to growing businesses are, in broad terms:
- Professional and institutional investors: offers made only to persons whose ordinary business, or part of it, is dealing in securities, and to certain regulated institutions such as banks, insurers and retirement funds.
- Large single investments: offers where each investor acts as principal and the total acquisition cost for that investor is at least the prescribed minimum, currently R1 million under the Companies Regulations, 2011.
- Existing security holders: certain offers made only to the company’s existing shareholders or security holders, such as qualifying rights offers.
- Employee share schemes: offers made under an employee share scheme that complies with the requirements of section 97.
- Small offers: offers below a prescribed total value made within a limited period, subject to conditions set out in the Act and Regulations.
Each exemption has detailed conditions. The prescribed values and periods should be checked against the current Act and Regulations at the time of the raise, and the offer documents should be structured so that the exemption relied on is clear.
If the offer is public: the prospectus
Section 99 sets out the general restrictions on offers to the public. Broadly, a person may not make a primary offer to the public of an unlisted company’s securities unless the offer is accompanied by a registered prospectus that satisfies the Act and the Regulations. Secondary offers and offers of listed securities follow their own rules, including the requirements of the relevant exchange.
A prospectus is a detailed disclosure document. It must cover matters such as the company’s business, its directors, its financial position, the purpose of the offer, the risks and the terms of the securities. It must be filed with the Companies and Intellectual Property Commission (CIPC) before it is issued.
The consequences of getting it wrong
The Act places responsibility for the accuracy of a prospectus on the people behind it. Section 104 makes directors, promoters and certain others liable to compensate investors who suffer loss because of an untrue statement in a prospectus, subject to limited defences. Section 106 sets out who is regarded as responsible for those statements.
The Act also creates offences for false or misleading statements and for contraventions of the offering rules. An unlawful offer can also lead to disputes with investors who later want their money back, and it can complicate a later funding round or sale because investors and buyers will ask how earlier shares were issued.
Other laws may apply too. If money is pooled and managed for investors rather than invested in the company itself, the arrangement may fall under the Collective Investment Schemes Control Act 45 of 2002 or other financial sector legislation regulated by the Financial Sector Conduct Authority (FSCA). The FSCA regularly warns the public about unregistered investment schemes, and businesses should take care that their fundraising does not resemble one.
Practical steps before you raise money
- Decide who you will approach. List the investors you intend to offer shares to and check which exemption applies to each.
- Check your MOI. Confirm that the board has authority to issue the shares and that any pre-emptive rights of existing shareholders are respected or waived.
- Control your communications. Do not advertise the raise on social media or send investment material to broad mailing lists unless you are sure an exemption applies.
- Use proper offer documents. A subscription agreement or private placement memorandum should state the basis of the exemption and include appropriate investor warranties.
- Be accurate. Even in an exempt offer, misleading statements can give rise to claims under the common law. Keep financial information and projections honest and supported.
- Complete the paperwork. Pass the required board and shareholder resolutions, issue share certificates, update the securities register and file any CIPC notices.
- Get advice before you go wider. If you want to approach more retail investors or use a crowdfunding platform, take advice first.
How O’Reilly Law can help
We advise companies on capital raising, from friends-and-family rounds to angel, venture capital and institutional investment. We structure offers to fall within the section 96 exemptions, draft subscription agreements, shareholders’ agreements and MOIs, prepare board and shareholder resolutions, and advise on the prospectus requirements where a wider offer is planned.
Contact us before you start your next funding round.
Related reading: Debt or equity? Choosing how to fund your growing business · SAFE agreements explained
This article is general information and not legal advice. Correct as at November 2026.