Startup Law (AU) glossary
Australian startups operate under the Corporations Act 2001 (Cth), with overlays from the ATO (ESIC, ESS), ASIC (disclosure, crowdfunding), and the Foreign Investment Review Board. This glossary covers 40 terms that appear across the startup lifecycle — from founder deeds to priced rounds.
This is a glossary of 40 terms that appear in Australian startup practice — from incorporation and founder arrangements through to priced equity rounds and exits. Each definition notes the governing Corporations Act or ATO provision where relevant.
Definitions
Accelerator
A cohort-based program providing capital, mentoring, and services in exchange for equity. Structured under a subscription agreement.
Anti-dilution
A protection that adjusts an investor's conversion or ownership if the company issues shares at a lower price in a future round.
ASIC small proprietary limits
Thresholds that determine whether a proprietary company is large or small — relevant to audit and reporting obligations.
Associate
A defined term in the Corporations Act used in related-party and takeover contexts — relevant to founder-investor arrangements.
Bad leaver
A shareholder who leaves in circumstances triggering unfavourable compulsory sale terms (typically for cause).
Board composition clause
A term setting investor board appointment rights, investor director observers, and quorum rules.
Cap table
The capitalisation table showing all issued shares, options, and convertibles on a fully diluted basis.
Convertible note
A debt instrument that converts into equity on a qualifying event, with a discount and/or valuation cap.
Crowd-sourced funding (CSF)
A regulated retail equity raise for eligible proprietary and public companies under Part 6D.3A.
Deemed disposal
A CGT concept triggered by certain events (e.g. cessation of residency) affecting founders with international relocation.
Down round
A financing round at a valuation lower than the prior round — triggers anti-dilution protections.
Drag-along
A right allowing majority shareholders to force minority to sell in a qualifying exit.
Due diligence
The investor's review of legal, financial, and commercial matters before investment. Driven by a due diligence request list.
ESIC
Early Stage Innovation Company — a tax status giving investors a 20% offset (capped) and CGT concessions. Strict eligibility tests.
Exit event
A defined event triggering investor and founder rights — typically a trade sale, IPO, or change of control.
Foreign investment (FIRB)
The Foreign Investment Review Board regime affecting foreign equity investment into Australian startups above thresholds.
Founder vesting
A schedule under which founder shares are subject to forfeiture or buyback if the founder leaves early.
Fully diluted
A calculation assuming all options, warrants, and convertibles have been exercised or converted.
Good leaver
A shareholder who leaves in non-fault circumstances, receiving fair value for unvested or forfeited shares.
Information rights
An investor's contractual right to receive financial statements, board packs, and other information.
Lead investor
The investor setting key commercial terms and typically taking a board seat. Signs the term sheet first.
Liquidation preference
A preferred shareholder's right to receive a specified amount before ordinary shareholders on an exit.
No-shop
A term sheet clause preventing the company from soliciting competing offers during the investor's due diligence period.
Option pool
A reserved pool of unissued shares for future employee grants — usually topped up pre-investment on the pre-money valuation.
Participating preference
A preferred share that receives its liquidation preference plus a share of remaining proceeds.
Pre-money valuation
The valuation of the company immediately before an investment — used to calculate investor percentage.
Proprietary company
The private company form under the Corporations Act. Limited to 50 non-employee shareholders.
Reserved matters
Matters requiring investor or investor director consent — typical minority investor protections.
SAFE
Simple Agreement for Future Equity — a convertible instrument (originating in the US) adapted for Australian use, converting on a qualifying round.
Sophisticated investor
An investor meeting wealth or experience tests allowing issues without disclosure. Relevant to Ch 6D exemptions and ESIC.
Startup concession (ESS)
A tax concession allowing qualifying startups to issue options or shares at a discount without up-front tax.
Subscription agreement
The agreement under which an investor subscribes for new shares, containing warranties and completion mechanics.
Tag-along
A right allowing minority shareholders to join a sale by majority on the same terms.
Taxing point (ESS)
The point at which an ESS interest is taxed under Div 83A — deferred under the startup concession.
Term sheet
The preliminary (mostly non-binding) summary of investment terms, setting commercial direction for long-form documents.
Valuation cap
The maximum valuation at which a convertible note or SAFE will convert, protecting early investors from upside compression.
Warranties
Contractual statements by the company and/or founders about the business — the basis for breach claims.
Research these terms in context
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These definitions are general explanations for educational purposes — not legal advice. Startup law touches complex regulatory and tax territory. Always verify against current Corporations Act provisions and ATO rulings.
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