With the popularity of crowdfunding sites like Kickstarter,
Indiegogo and Rockethub in recent years, crowdfunding has become an
increasingly attractive way for startups and smaller private
companies to raise capital. Generally, crowdfunding is broken down
into two main models. The first is known as donation or reward
based funding (such as Kickstarter) where a large number of
individuals contribute small sums of money to finance a specific
project in exchange for a reward or some other recognition by the
issuer. The second and more recent model is investment or equity
based crowdfunding, where businesses seeking capital sell ownership
stakes to large groups of investors online in the form of equity or
debt. Until recently most Provinces in Canada only permitted equity
crowdfunding in reliance on a limited prospectus exemption such as
the accredited investor exemption or the offering memorandum
exemption. In response to increasing interest in equity
crowdfunding, securities regulators in British Columbia,
Saskatchewan, Manitoba, Québec, New Brunswick and Nova
Scotia (the "Participating Jurisdictions") have each
recently adopted crowdfunding registration and prospectus
exemptions aimed at non-public startups and early stage
The new crowdfunding exemption (the "Crowdfunding
Prospectus Exemption") consists of two elements: a prospectus
exemption permitting an issuer to distribute securities without a
prospectus, and a registration exemption exempting a funding portal
from having to register as a dealer. Start-ups and early stage
issuers intending to rely on the new exemptions must use a funding
portal that is either relying on the Crowdfunding Prospectus
Exemption or is operated by a registered dealer. A funding portal
lists investment opportunities and facilitates the payment of the
purchase price from the investor to the issuer. The main conditions
that apply to the use of the Crowdfunding Prospectus Exemption
include the following:
Issuers must produce an offering document in the prescribed
form, which contains basic information about the issuer, its
management and the distribution.
Issuers cannot raise aggregate funds of more than $250,000 per
distribution and are limited to a maximum of two such distributions
in a calendar year.
No investor will be allowed to invest more than $1,500 per
The distribution may remain open up to a maximum of 90
The issuer must be a non-reporting issuer (and cannot be an
investment fund) and have its head office in a Participating
Each investor must have a contractual right to withdraw a
subscription by delivering notice to the funding portal within 48
hours of their subscription.
None of the principals (a promoter, director, officer or
control person) of the issuer may be a principal of the funding
Eligible securities are subject to an indefinite hold period
and can only be resold under another prospectus exemption, pursuant
to a prospectus or four months after the issuer becomes a reporting
The funding portal cannot provide advice to an investor, cannot
recommend a security and cannot receive a commission or fee from an
The conditions associated with the new exemptions are outlined
in Multilateral CSA Notice 45-316 Start-up Crowdfunding
Registration and Prospectus Exemption. The exemptions
can't be used by reporting issuers, however, certain regulators
of the Participating Jurisdictions, as well as Ontario, are
continuing to work on proposed Multilateral Instrument 45-108
– Crowdfunding, which would allow reporting issuers to
access crowdfunding portals to raise capital.
Further details on the new Crowdfunding Prospectus Exemption are
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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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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