Canada: The Latest On Crowdfunding Exemptions In Nova Scotia And New Brunswick

Several Canadian securities regulators, including those in Nova Scotia and New Brunswick, have been busy formulating a structure to make it possible to purchase and sell securities through crowdfunding. Crowdfunding has become a popular way to raise start-up funds through websites like Kickstarter, which allow large numbers of individuals to contribute relatively small amounts to development and production costs for particular projects in exchange for rewards or products after the project comes to fruition.

Crowdfunding Exemptions

Securities laws do not permit the distribution of securities without a prospectus unless there is an exemption available. Common exemptions include those available to employees, family, and close friends of the issuer, the accredited investor exemption available to high net worth individuals, and the option to produce a simplified offering memorandum in lieu of a prospectus in certain circumstances.

A new exemption for crowdfunding became law in Nova Scotia, New Brunswick, Ontario, Quebec, and Manitoba on January 25, 2016, when Multilateral Instrument 45-108 came into effect. MI 45-108 allows potential issuers to crowdfund investment by listing equity, convertible and non-convertible debt securities, limited partnership units, and flow-through shares in an online portal, raising capital through small distributions to many investors.

In May of 2015, the first crowdfunding exemption, the Start-up Crowdfunding Exemption pursuant to Multilateral CSA Notice 45-316, became available in certain provinces including those now enacting MI 45-108. Available only to businesses that are not reporting issuers, this exemption limits the amount of capital that can be raised per round of funding to $150,000, with two rounds permitted per year ($300,000 annually). Any one investor is limited to a maximum investment of $1,500 per round ($3,000 annually).

MI 45-108 introduces a second crowdfunding exemption. Open to all issuers, the annual limit on capital raised is higher: $1,500,000 per year. Investment limits are also raised to $2,500 per investor per round. If the investor in question is an accredited investor in Nova Scotia or New Brunswick, this limit is raised to $25,000 per round.

Restrictions and Obligations

Of course, with the heightened ability to raise capital come increased restrictions and obligations. Notably:

1. The online portal through which investment is solicited must be registered with and approved by the relevant provincial securities regulator. The requirements for a funding portal are discussed in more detail below.

2. The issuer's promotional materials may only be made available through the portal. Social media and other advertisement may be used to direct potential investors to the portal, but reposting the materials directly on the business website or social media feed is not permitted.

3. Ongoing disclosure requirements are imposed after the distribution closes. On an annual basis, the business must disclose financial statements and a report on the use of any proceeds of the distribution. It must give immediate notice to investors of any discontinuation of business, change in industry, or change of control.

Implications of Having Many Shareholders

In addition to the legislative restrictions, there are practical considerations that may dissuade some businesses from making use of the equity crowdfunding exemptions. The low individual contribution limits mean that dozens to hundreds of investors will be required to raise the maximum amounts. Assuming that equity securities are distributed, this means that the business now has dozens to hundreds of shareholders, which is a complicated, costly, and time-consuming situation to manage for any private corporation, and is especially so for a start-up or small company. When a corporation's shareholder number exceeds fifty, it is a cause for concern because of the potential for additional compliance requirements under corporate and securities laws.

Regulation

Crowdfunding portals are subject to regulation as well. They are intended to serve a gatekeeper function, and must review issuers' crowdfunding offering materials to ensure that they are complete and accurate. They are also obligated to conduct background checks on the directors, officers, and promoters of any corporation seeking to distribute securities through the portal. To ensure that these responsibilities are taken seriously, the portal must be registered with the relevant provincial securities regulators as either an investment dealer, exempt market dealer, or restricted dealer. Prospective issuers should also conduct due diligence on their portal of choice, as many of the portals will also be new businesses.

Conclusion

The latest crowdfunding exemptions are an interesting attempt by securities regulators to respond to the demand that crowdfunding participants be able to receive equity in the companies they support. However, the realities of both CSA Notice 45-316 and MI 45-108 will require thoughtful planning on the part of any business seeking to raise capital in this manner.

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 Mondaq.com.

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

Authors
Similar Articles
Relevancy Powered by MondaqAI
Norton Rose Fulbright Canada LLP
Stikeman Elliott LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Norton Rose Fulbright Canada LLP
Stikeman Elliott LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions