The long awaited start-up crowdfunding exemptions have now
been adopted in six Canadian provinces. As of May 14, 2015, the
substantially harmonized exemptions are available in British
Columbia, Saskatchewan, Manitoba, Québec, New Brunswick and
Nova Scotia. The objective of this initiative is to facilitate
capital raising by start-up and early stage companies, while
protecting the public interest.
The start-up crowdfunding exemptions are limited to smaller
crowdfunding efforts by non-reporting issuers. The start-up
crowdfunding regime was one of two proposals originally put forward
by certain provincial securities regulatory authorities in March
2014. The other crowdfunding proposal – which would be
available to both reporting issuers and non-reporting issuers and
provide a higher offering limit – has not yet been
implemented. Although Ontario is not adopting the start-up
crowdfunding exemptions, it is one of the jurisdictions
participating in the other crowdfunding proposal.
The start-up crowdfunding exemptions include an exemption from
the prospectus requirement for non-reporting issuers, and an
exemption from the dealer registration requirement for funding
portals. Some of the key conditions of the prospectus exemption are
the issuer’s head office must be located in a
the issuer must distribute the securities using an offering
document in prescribed form that is made available through an
online funding portal;
the funding portal used in the distribution must meet the
requirements of the start-up registration exemption or must be
operated by a registered dealer;
aggregate funds raised in reliance upon the start-up
crowdfunding exemption must not exceed $250,000 per distribution
and no more than two start-up crowdfunding distributions may be
made by the issuer in a calendar year;
no person may invest more than $1,500 per distribution;
each distribution must remain open not more than 90 days;
the issuer must provide each purchaser with a contractual right
to withdraw the purchaser’s offer to purchase securities
within 48 hours of the purchaser’s subscription or
notification to the purchaser that the offering document has been
To rely on the start-up crowdfunding registration exemption, a
funding portal must, at least 30 days before facilitating its first
start-up crowdfunding distribution, deliver to the securities
regulators a funding portal information form and individual
information forms for each of its principals (promoters, directors,
officers and control persons). A funding portal will not be
permitted to use the registration exemption if a participating
regulator finds that the portal’s principals or their past
conduct demonstrate a lack of integrity, financial responsibility
or relevant knowledge or expertise. Some of the other requirements
a funding portal must satisfy to use the registration exemption
include the following:
its head office must be located in Canada;
the majority of its directors must be Canadian residents;
it must not provide advice to any purchaser about the merits of
the investment or otherwise recommend or represent that a security
it must not receive a commission, fee or any other amount from
a purchaser of securities; and
it must make available to purchasers online the offering
document of the issuer and prescribed risk warnings, and it must
not allow a subscription to be completed until the purchaser has
confirmed that it has read and understood those documents.
The start-up crowdfunding exemptions will expire
on May 13, 2020.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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