On Monday, May 16, 2016, the U.S. Securities and Exchange Commission's,
Regulation Crowdfunding came into
effect. Regulation Crowdfunding provides an exemption from certain
registration requirements under U.S. securities law for certain
crowdfunding transactions. Issuers qualified to rely on the
Regulation Crowdfunding exemption can raise up to $1 million in a
12-month period under such exemption. Individual investments in all
crowdfunding issuers in a 12-month period are limited to:
the greater of $2,000 or 5 per cent
of annual income or net worth, if the annual income or net worth of
the investor is less than $100,000; or
10 per cent of the lesser of annual
income or net worth (not to exceed an amount sold of $100,000), if
annual income or net worth of the investor is $100,000 or
Investors are limited to a maximum aggregate investment of
$100,000 in all crowdfunding offerings in a 12-month period.
Four years ago, when signing the bill permitting crowdfunding
regulation into law, President Obama stated that, "for the
first time, ordinary Americans will be able to go online and invest
in entrepreneurs that they believe in."
Regulation Crowdfunding essentially allows anyone to dip their
toe into the venture capital world, according to Stacy Cowley of
the New York Times. Previously, under U.S.
securities laws only "accredited investors" (those with
an annual income of at least $200,000 or a net worth of at least $1
million) were permitted to take equity stakes in most private
companies. The introduction of Regulation Crowdfunding presents a
new way for startups and other early-stage companies in the U.S. to
raise capital, as well as providing startups and other early-stage
companies access to a huge number of potential investors.
In Ontario, the Ontario Securities Commission recently
introduced crowdfunding regulation through Multilateral Instrument 45-108 –
Crowdfunding. Crowdfunding regulation for both Ontario and
the U.S., respectively, requires that crowdfunding raises by
issuers are conducted through certain online funding portals
registered with the applicable securities regulator. Both
jurisdictions also require issuers seeking to raise capital under
the respective crowding funding exemption to provide certain
information to potential investors, including information regarding
the issuer's directors, offices and major stakeholders, related
party transactions, planned use of the funds raised and risk
While the Ontario and U.S. crowdfunding regulations have
similarities, there are important differences, including the
Issuers relying on the Ontario
crowdfunding exemption can raise up to C$1.5 million in a 12-month
period; while issuers relying on Regulation Crowdfunding can raise
up to US$1 million within the same time period.
Issuers that are reporting companies
under applicable U.S. securities law are not eligible to rely on
Regulation Crowdfunding; while qualified private and public issuers
can both rely on the Ontario crowdfunding exemption to raise
Both issuers and investors benefit from the introduction of
crowdfunding regulation. As Tanya Prive of Forbes Magazine outlines, advantages
include greater access to capital, the hedging of risk and an
ability to have a greater public audience become aware of the
business or product. Issuers seeking to obtain capital through
crowdfunding in either Ontario or the U.S. should compare the costs
associated with such funding to more traditional methods. In
addition, issuers should be mindful of the costs and corporate
governance issues that can arise as a result of having a large
number of investors.
For more information about Equity Crowdfunding in Ontario, view
our "Equity Crowdfunding is Arriving in Ontario"
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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