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What is this ESIC® stuff all about

What is this ESIC® stuff all about

What is this ESIC® stuff all about? Can Founders Invest Capital Themselves?

So, we are now getting down to some detail and I’m glad for the question. Founders are potentially eligible as an ESIC® investor; however, there are some rules, as you would expect around this stuff.

An ESIC® investor, so a person contributing new capital into a company, can’t own more than 30% of that company to qualify for these ESIC® benefits. So if you contributed capital and you owned less than 30%, as a founder, that is well and truly considered an eligible investment.

You have raised a very interesting question and that is, what is this ESIC® stuff about?

ESIC® is a dynamic status. It’s measured at a point in time and that point in time is when you issue shares. So if you guys are thinking about issuing share, you need to be ESIC® at each time you issue shares, so it’s not a static status in that sense. It’s all in your circumstance, you would have to be ESIC® on 30 June, your company that you’re investing in, and on 1 July. And they could be totally different outcomes. You could be one and not the other, not the one, and then the other. So it’s very much dependent on these circumstances on whether you’re ESIC® or not.

We have a founder who started at 50% and there was a capital raise and they diluted to 25% in this case study. Let’s go back to, cause I know there are a few people who have arrived recently. To be an ESIC® eligible investment, no shareholder can own greater than 30% including their affiliates. The question was, if we have a founder who starts at 50% and gets diluted to 25% as an example, in a capital raise and there is a further capital raise, can that investor or the founder pay for new shares in that ESIC® to take them up to the 30% and qualify for some of these ESIC® benefits and the answer is, yes.

It looks like this. If they get to 30%, the 1st 25% will not be an ESIC® investment, it will not have the tax benefits attached to it but that additional 5%, assuming that it’s an ESIC® at the time we do it, can qualify for those tax breaks, CGT benefits, and the tax rebate. So what that means is that you would have in your portfolio as a founder two stages of shares. You would have non-ESIC®, which are full tax whack, and you would have ESIC® which have the tax enhanced provider and a certificate from us saying it’s an ESIC® qualifying certificate share.

Client approaches accountant for assistance in setting up new business and access to $seed capital.

Accountant refers client to ESIC Hub and Predictor on www.esichub.com to self-assess ESIC status

ESIC Hub conducts due diligence on client and reports back to accountant at meeting.

ESIC pathway to capital raising agreed and implementation begins. Sarah raises enough capital for the 2-year development runway. A happy client.

You and Us working together

ESIC® Hub is Australia’s first and only online platform dedicated to serving the needs of the early-stage community.  We offer you an effective pathway to efficiently allocate resources by utilising our deep technical knowledge and expertise to ensure client-centric outcomes are achieved.

We offer accounting professionals a choice of service models, all with a client-centric outcome to complement your trusted relationship and service offering to your clients.   We can arrange for an introduction or a presentation where we go through the tax laws surrounding ESICs to give you a better understanding of how these new laws can benefit your early-stage innovator clients.

At ESIC® Hub, we are excited to see how we can complement your advisory work to clients. We have an adviser sign-up questionnaire on our website that allows you to communicate with us and keep up-to-date with the ESIC® legislation and developments.

We look forward to working with you.

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T: 61 2 8073 9191

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P:   PO Box 905 WOOLLAHRA NSW 1350

Useful Links

The ESIC® predictor can be found on our website on both the ‘What are ESICsand ‘Early Stage Companypages.

You can also access our contribution here to The Tax Institute journal.

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