Crowdfunding Exemption Expands Across Several Canadian Provinces
Posted by David Kandestin, Associate.
Popular crowdfunding websites like Kickstarter and Indiegogo have introduced internet-goers to countless fundraising campaigns. These sites raise money for specific projects that do not generally involve the issuance of securities. Equity crowdfunding, however, has emerged as a viable capital raising tool, particularly for start-ups and small businesses.
On May 14, 2015, the securities regulators of British Columbia, Saskatchewan, Manitoba, Québec, New Brunswick and Nova Scotia implemented registration and prospectus exemptions to bring equity crowdfunding to Canadian issuers.
The exemption applies to issuers who meet certain conditions. For example, an issuer can only raise up to $250,000 per distribution, with a maximum of two crowdfunding distributions per calendar year. Investments are capped at $1,500 per person per distribution. Further, the issuer must provide each purchaser with a contractual right to withdraw their offer to purchase within 48 hours.
The funding portal – the online facility through which persons can invest in the issuer – is also subject to various conditions. Notably, the funding portal must have a head office located in Canada, and ensure that purchasers have read and understood the offering document of the issuer and related risk warnings. The funding portal cannot receive a commission or fee from any purchaser or provide advice about the merits of the investment.
The exemption harmonizes rules across the participating provinces, enabling businesses to crowdfund in several Canadian jurisdictions under one regime.
For more information, Multilateral CSA Notice 45-316 provides further detail on the conditions attached to this new exemption.