On March 20, the Ontario
Securities Commission (OSC) along with its counterparts in
Quebec, New Brunswick, Nova Scotia, Manitoba, and Saskatchewan,
unveiled the proposed rules to deal with crowdfunding (among other
things) as a source of capital for start-ups and SMEs. The comment
period ends on June 18. In a sense, the OSC is playing catch-up, in
that the US and UK regulators seem to be one or two years ahead of
the OSC in permitting and regulating crowdfunding.
Most advocates for crowdfunding seem generally pleased with the
proposals, which would allow issuers to raise up to $1.5 million in
a twelve month period, without having to undergo the expense of
producing a prospectus. Some investors' rights groups are less
pleased, but it appears the OSC has at least attempted to strike a
balance between these competing interests. This is no surprise, as
the proposals are the result of more than a year of
consultation with stakeholders.
An issuer can only offer its securities through a
registered funding portal, and this intermediary must also be
registered. The issuer may only offer securities through one
portal at a time. Investors are further protected to some degree as
they are unable to invest more than $2,500 in one investment and no
more than $10,000 in one calendar year. There is also a 48 hour
cooling-off period. Additionally, the issuer, its directors, and
the portal cannot finance the purchase by an investor. Management
must also certify the offering.
Both reporting and non-reporting issuers can avail themselves of
the crowdfunding exemption. Blind pools, investment funds and real
estate issuers cannot. The proposed $1.5 million limit on what can
be raised is in line with the OSC's focus on financing for
start-ups and SMEs.
Most exempt market industry participants feel the proposals, at
the very least, are a step in the right direction by the OSC. And
it does appear that the investor protections in place are at least
adequate. The OSC struck the appropriate balance. It will be
interesting to see what, if any, changes result from the comment
period. As it stands now, the crowdfunding exemption should indeed
help kick start Ontario's exempt market.
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