THE QUICK ANSWER
‘Fund,’ ‘syndicate’, ‘club investment’ and various other terms all refer to same concept defined in the Corporations
Act 2001 as a ‘managed investment scheme’. They are typically structured as unit trusts.
An alternative is to set up a company. A company is a costly and restrictive vehicle through which to raise private capital and all its shareholders must be listed on a public register. A unit trust operates under simpler compliance requirements. It is much easier to manage, implement changes, and distribute funds and the registry of investors is private.
There are several key issues that make it undesirable to use a company structure to raise private capital. Each stems from the way companies are regulated through the Corporations Act 2001.
Among these are the associated, and often onerous and costly, administrative and reporting obligations that are monitored by ASIC. There are limits to the number of investors/shareholders you can have, and the requirement to notify ASIC of each new investor and their shareholding – which will then be listed on a public database. Return of capital to investors is a lengthy, complex and cumbersome process that typically requires you to obtain majority shareholder approval by way of a special resolution, notify ASIC and advertise in the press. There are restrictions on activities, such as adding, removing or varying classes of shares and the rights attached to them, which, at a minimum, will require careful examination of the Corporations Act 2001 and the relevant reporting requirements and compliance with any mandated time frame for implementation.
In contrast, unit trusts are not regulated in this way and changes, such as those listed above, can be made with relative ease.
In addition, income and capital gains made by a company are taxed at the company level whereas with a unit trust, the income and capital gains will generally flow through the trust and be taxed in the hands of the unit holders.
A unit trust that pools private capital raised from investors will likely be a Managed Investment Scheme and may only require compliance with the licensing and fundraising requirements of the Corporations Act 2001.
