ESIC on Incorporation?

2017-11-21 13:04:37


If ESIC concessions were designed to assist independent follow-on investment in companies, can an investment upon incorporation qualify for the concession?

Its a question we've been asked a few times now and thanks to some kind research and contributions from the ATO and others we are getting to the nub of it.

Chances are the answer will be NO, YOU WERE NOT AN ESIC at the time of investment (probably)!

The law isn't precisely saying this, however it does operate to close out founders and affiliates from the loop. Call this unfair, but be clear, the exclusion of founders was by design.

So what happens if your venture was trading as a sole trader/pship and you incorporated upon receipt of funding???

In this instance, the money was new, and that money could be independent, so its the same as any other ESIC investment right? Wrong.

In terms of the company, you need to ask two tricky questions;

- Was the company, immediately after receipt of the funds 'genuinely focused on developing the innovation'
- Are the investors affiliates (or acting in concert with the founder)

We think that neither test is impossible to pass, however both are particularly problematic for founders, for example; were you acting in concert or in accordance with the wishes of investors when you incorporated? Yes? So why are you not affiliated?

It gets worse, as often that formation capital would be handy to add 50 points towards subsequent points based innovation (i.e. the 100 points test).

Our advice, get an ATO ruling! These issues will turn on your personal facts, up and until such time as a general determination issues to help clarify the matter. Even then, its going to be a tricky area.

Go well,



Published By: Tom