On May 14, 2015, the securities regulatory authorities of
British Columbia, Saskatchewan, Manitoba, Quebec, New Brunswick and
Nova Scotia adopted, through local blanket decisions, substantially
harmonized start-up crowdfunding prospectus and registration
exemptions (the "Start-Up Exemption").
The Start-Up Exemption is aimed at non-reporting issuers which are
at a very early stage of development. It should be noted that the
more elaborate "Crowdfunding Prospectus Exemption"
proposed in March 2014 and aimed at more developed issuers has not
been adopted at this time and is still under consideration by
various Canadian securities regulators.
The Start-Up Exemption will allow an issuer to raise up to
$250,000 twice during a given calendar year through the issuance of
equity (common shares and non-convertible preference shares),
securities convertible into equity, non-convertible debt securities
linked to a fixed or floating interest rate and units of limited
partnership. The Start-Up Exemption will not be opened to
investment funds. Existing securityholders of the issuer will not
be able to use the Start-Up Exemption to offload their positions in
Investment under the Start-Up Exemption will be opened to
anyone, but investors will be limited to no more than $1,500 per
each placement made by an issuer under the exemption.
An issuer participating in a crowdfunding under the Start-Up
Exemption will, among other things, need to complete the financing
through a crowdfunding portal. The issuer must also make available
on the portal an offering document which contains basic information
about the issuer, its business, its management, the intended use of
proceeds, any occurrence of previous financing made by the issuer
using the Start-Up Exemption, the fees and commissions charged by
the portal to the issuer, risk factors, any information the issuer
intends to provide investors after the closing of the financing,
and the frequency of such information. The offering document will
also need to indicate the minimum amount of the offering.
An offering made through the Start-Up Exemption can remain open
for up to 90 days. The Start-Up Exemption adopts an
"all-or-nothing" model. If after the expiry of the 90-day
period the minimum amount was not raised, all proceeds money will
have to be returned to each prospective investor.
The resale of securities issued under the Start-Up Exemption
will be subject to section 2.5 of National Instrument 45-102
– Resale of Securities, which means the securities
will have an indefinite hold period unless resold under a
prospectus, or prospectus exemption, or the issuer subsequently
becomes a reporting issuer in at least one Canadian jurisdiction
and holds that status for at least four months.
The new Start-Up Exemption contains a couple of revisions from
the March 2014 draft proposals. Firstly, funds collected from
investors by the funding portal do not need to be kept by a third
party. The funding portal must hold the investors' assets
separate and apart from its own property in trust for the investors
and in the case of cash, at a Canadian institution. This means that
portal operators will keep and safeguard the money intended for
investing pending the achievement by the issuer of the minimum
offering. Secondly, investors will now benefit from a contractual
right to withdraw an offer to purchase within 48 hours of (i) the
investor's subscription or (ii) the funding portal notifying
the investor that the offering document has been amended.
A funding portal operator under the Start-Up Exemption will not
need to be registered as a dealer under Canadian securities laws,
but will, among other things, need to have its head office located
in a jurisdiction of Canada and have a majority of its directors be
residents of Canada.
The Start-Up Exemption orders are in place for the next five
years and will expire on May 13, 2020.
With this new funding possibility, which is not yet possible in
the United States, Canadian start-ups will be able to say goodbye
to the old "accredited investors", family members,
friends and business associates and hello to the crowd.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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