Canada: Crowdfunding In Canada And The United States

Last Updated: December 17 2015
Article by Stewart L. Muglich

In Canada, two separate crowdfunding initiatives have been implemented:

  • The securities regulatory authorities in British Columbia, Saskatchewan, Manitoba, Québec, New Brunswick and Nova Scotia (collectively, the "startup participating jurisdictions") recently adopted substantially harmonized registration and prospectus exemptions (together, the "startup crowdfunding exemptions") that allows start‑up and early stage companies to raise capital in these jurisdictions, subject to certain conditions; and
  • The securities regulatory authorities in Manitoba, Ontario, Québec, New Brunswick and Nova Scotia (collectively, the "45108 crowdfunding participating jurisdictions") are publishing in final form a crowdfunding prospectus exemption (the "45108 crowdfunding exemption") and a registration framework for funding portals (the "funding portals") (the 45‑108 crowdfunding exemption and the funding portals collectively, the "45108 crowdfunding regime").

The 45-108 crowdfunding regime and the start-up crowdfunding exemptions are viewed by those jurisdictions (except for British Columbia, which is not a jurisdiction participating in the 45-108 crowdfunding regime) as complementary regimes, as the 45-108 crowdfunding regime is available to both reporting and non-reporting issuers and provides both higher investment limits for investors and higher limits on the amount issuers can raise.

Substance of the start‑up crowdfunding exemptions

The start‑up crowdfunding exemptions are comprised of an exemption from the prospectus requirement (the "startup prospectus exemption") and an exemption from the dealer registration requirement (the "startup registration exemption").

The start‑up prospectus exemption permits non‑reporting issuers to issue eligible securities, subject to a number of conditions. The key conditions are:

  • the head office of the issuer is located in a start-up participating jurisdiction;
  • the issuer distributes eligible securities of its own issue through an online funding portal;
  • the issuer distributes eligible securities using an offering document in the form required that is made available through the online funding portal. The offering document includes basic information about the issuer, its management and the distribution, including how the issuer intends to use the funds raised and the minimum offering amount;
  • the issuer group cannot raise aggregate funds of more than $250,000 per distribution and is restricted to not more than two start-up crowdfunding distributions in a calendar year;
  • no person invests more than $1,500 per distribution;
  • the distribution may remain open for up to a maximum of 90 days;
  • the distribution must be made through a funding portal that is either relying on the start‑up registration exemption or is operated by a registered dealer. Registered dealers that operate funding portals must meet their existing registration obligations under securities legislation and confirm to issuers that they meet or will meet certain conditions provided in the start‑up registration exemption;
  • the issuer provides each purchaser with a contractual right to withdraw their offer to purchase securities within 48 hours of the purchaser's subscription or notification to the purchaser that the offering document has been amended; and
  • none of the promoters, directors, officers and control persons (collectively, the "principals") of the issuer group is a principal of the funding portal.

The eligible securities are subject to an indefinite hold period and can only be resold under another prospectus exemption, under a prospectus or four months after the issuer becomes a reporting issuer.

The start‑up registration exemption permits funding portals to facilitate distributions under the start‑up crowdfunding exemptions, subject to a number of conditions. The key conditions are:

  • the funding portal must deliver a funding portal information form and individual information forms for each of its principals to the participating regulators at least 30 days prior to facilitating its first start‑up crowdfunding distribution;
  • the head office of the funding portal is located in Canada;
  • the majority of the funding portal's directors are Canadian residents;
  • the funding portal does not provide advice to a purchaser or otherwise recommend or represent that an eligible security is suitable, or about the merits of the investment;
  • the funding portal does not receive a commission, fee or any other amount from a purchaser of eligible securities;
  • the funding portal makes the offering document of the issuer and the risk warnings available online to purchasers and does not allow a subscription until the purchasers have confirmed that they have read and understood these documents;
  • the funding portal receives payment for an eligible security electronically through the funding portal's website;
  • the funding portal holds the purchasers' assets separate and apart from its own property, in trust for the purchasers and, in the case of cash, at a Canadian financial institution;
  • the funding portal maintains books and records at its head office to accurately record its financial affairs and client transactions, and to demonstrate the extent of the funding portal's compliance with the orders implementing the start‑up crowdfunding exemptions for a period of eight years from the date a record is created;
  • the funding portal either:

    • releases funds to the issuer after the minimum offering amount has been reached and provided that the 48 hour right of withdrawal has elapsed, or
    • returns the funds to purchasers if the minimum offering amount is not reached or if the start‑up crowdfunding distribution is withdrawn by the issuer; and
    • a participating regulator has not notified the funding portal that it cannot rely on the start‑up registration exemption because its principals or their past conduct demonstrate a lack of integrity, financial responsibility or relevant knowledge or expertise.

Substance of the 45-108 crowdfunding regime

The 45‑108 crowdfunding regime encompasses measures which are intended to provide effective protection for investors. The key provisions are:

  • issuers can only offer non-complex securities;
  • the total proceeds raised by the issuer group in reliance on the 45-108 crowdfunding regime does not exceed $1,500,000 within the rolling 12-month period;
  • investors are subject to the following investment limits:

    • an investor that does not qualify as an accredited investor:

      • $2,500 per investment, and
      • in Ontario, $10,000 in total in a calendar year,
    • an accredited investor other than a permitted client:

      • $25,000 per investment, and
      • in Ontario, $50,000 in total in a calendar year,
  • in Ontario, no investment limits for a permitted client;
  • issuers are required to prepare an offering document that contains all of the information about the issuer and its business that an investor should know before purchasing the issuer's securities;
  • investors must complete a risk acknowledgement form requiring them to positively confirm having read and understood the risk warnings and information in the crowdfunding offering document before they can enter into an agreement to purchase securities;
  • issuers are accountable for and are subject to a standard of liability on the crowdfunding offering document and other permitted materials, and investors are provided with a related right of action;
  • a prohibition on advertising and general solicitation;
  • non-reporting issuers must make available to investors (i) annual financial statements, (ii) a notice of use of proceeds, and (iii) in New Brunswick, Nova Scotia and Ontario, a notice of a discontinuation of the issuer's business, a change in the issuer's industry or a change of control of the issuer; and
  • reporting issuers must continue to comply with all of their disclosure requirements.

Under the 45-108 crowdfunding regime, funding portals are regulated such that:

  • issuers can only distribute securities through a single funding portal that is registered as an investment dealer, exempt market dealer or restricted dealer as outlined in the Rule, and must post the offering document and other permitted materials solely on that funding portal's online platform;
  • funding portals are prohibited from offering securities of a related issuer;
  • a funding portal must fulfill certain gatekeeper responsibilities prior to allowing an issuer access to its online platform, including reviewing the issuer's disclosure in the crowdfunding offering document and other permitted materials for completeness, accuracy and any misleading statements; and
  • a funding portal must review information and obtain background checks on the issuer and its directors, executive officers and promoters, and deny an issuer access to the funding portal in certain circumstances.

United States

Recently, the Securities and Exchange Commission (the "SEC") advised that it will consider whether to adopt final rules that would allow the offer and sale of securities through crowdfunding. The recommended rules would give small businesses an additional avenue to raise capital and provide investors with important protections. If adopted, this would complete the Commission's major rulemaking mandated under the JOBS Act.

Highlights of the Recommended Final Rules

The recommended rules would, among other things, enable individuals to purchase securities in crowdfunding offerings subject to certain limits, require companies to disclose certain information about their business and securities offering, and create a regulatory framework for the intermediaries facilitating crowdfunding transactions. More specifically, the recommended rules would:

  • permit a company to raise a maximum aggregate amount of $1 million through crowdfunding offerings in a 12 month period;
  • permit individual investors, over a 12 month period, to invest in the aggregate across all crowdfunding offerings up to:

    • if either their annual income or net worth is less than $100,000, than the greater of:

      • $2,000; or
      • 5 percent of the lesser of their annual income or net worth.
    • if both their annual income and net worth are equal to or more than $100,000, 10 percent of the lesser of their annual income or net worth; and
    • during the 12 month period, the aggregate amount of securities sold to an investor through all crowdfunding offerings may not exceed $100,000.

Under the recommended rules, certain companies would not be eligible to use the exemption. Ineligible companies would include non‑U.S. companies, Exchange Act reporting companies, certain investment companies, companies that are subject to disqualification under the proposed regulations for crowdfunding, companies that have failed to comply with the annual reporting requirements under the proposed regulations for crowdfunding during the two years immediately preceding the filing of the offering statement, and companies that have no specific business plan or have indicated that their business plan is to engage in a merger or acquisition with an unidentified company or companies.

Securities purchased in a crowdfunding transaction generally could not be resold for one year. Holders of these securities would not count toward the threshold that requires a company to register its securities under the Securities Exchange Act of 1934, Section 12(g), if the company is current in its annual reporting obligations, retains the services of a registered transfer agent and has less than $25 million in total assets as of the end of its most recently completed fiscal year.

In addition, all transactions relying on the new rules would be required to take place through an SEC‑registered intermediary, either a broker‑dealer or a funding portal.

Disclosure by Companies

Companies that rely on the recommended rules to conduct a crowdfunding offering must file certain information with the SEC and provide this information to investors and the intermediary facilitating the offering, including among other things, to disclose:

  • the price to the public of the securities or the method for determining the price, the target offering amount, the deadline to reach the target offering amount, and whether the company will accept investments in excess of the target offering amount;
  • a discussion of the company's financial condition;
  • financial statements of the company that, depending on the amount offered and sold during a 12 month period, are accompanied by information from the company's tax returns, reviewed by an independent public accountant, or audited by an independent auditor. A company offering more than $500,000 but not more than $1 million of securities relying on these rules for the first time would be permitted to provide reviewed rather than audited financial statements, unless financial statements of the company are available that have been audited by an independent auditor;
  • a description of the business and the use of proceeds from the offering;
  • information about officers and directors as well as owners of 20 percent or more of the company; and
  • certain related‑party transactions.

In addition, companies relying on the crowdfunding exemption would be required to file an annual report with the SEC and provide it to investors.

Crowdfunding Platforms

A funding portal would be required to register with the SEC and become a member of a national securities association (currently, FINRA). A company relying on the rules would be required to conduct its offering exclusively through one intermediary platform at a time.

The recommended rules would require intermediaries to, among other things:

  • provide investors with educational materials that explain, among other things, the process for investing on the platform, the types of securities being offered and information a company must provide to investors, resale restrictions, and investment limits;
  • take certain measures to reduce the risk of fraud, including having a reasonable basis for believing that a company complies with the propose regulations for crowdfunding and that the company has established means to keep accurate records of securities holders;
  • make information that a company is required to disclose available to the public on its platform throughout the offering period and for a minimum of 21 days before any security may be sold in the offering;
  • provide communication channels to permit discussions about offerings on the platform;
  • provide disclosure to investors about the compensation the intermediary receives;
  • accept an investment commitment from an investor only after that investor has opened an account;
  • have a reasonable basis for believing an investor complies with the investment limitations;
  • provide investors notices once they have made investment commitments and confirmations at or before completion of a transaction;
  • comply with maintenance and transmission of funds requirements; and
  • comply with completion, cancellation and reconfirmation of offerings requirements.

The rules also would prohibit intermediaries from engaging in certain activities, such as:

  • providing access to their platforms to companies that they have a reasonable basis for believing have the potential for fraud or other investor protection concerns;
  • having a financial interest in a company that is offering or selling securities on its platform unless the intermediary receives the financial interest as compensation for the services, subject to certain conditions; and
  • compensating any person for providing the intermediary with personally identifiable information of any investor or potential investor.

The proposed regulations for crowdfunding would contain certain rules that are specific to registered funding portals consistent with their more limited activities than that of a registered broker‑dealer. The rules would prohibit funding portals from, among other things: offering investment advice or making recommendations; soliciting purchases, sales or offers to buy securities; compensating promoters and other persons for solicitations or based on the sale of securities; and holding, possessing, or handling investor funds or securities.

The rules would provide a safe harbor under which funding portals could engage in certain activities consistent with these restrictions. The rules also would require funding portals to maintain certain books and records related to their transactions and business.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Stewart L. Muglich
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.