In an exciting development for Alberta-based startups and small
businesses, the Alberta Securities Commission has adopted a new
rule – Prospectus Exemptions for Start-up Businesses
(ASC Rule 45-517). The rule is
designed to streamline small, local investment rounds for startups
and high-growth companies, while still providing appropriate levels
of investor protection. The issuer cannot be a reporting issuer in
any Canadian jurisdiction, and must have its head office in
Alberta. Investors must also be Alberta-based.
Distributions made under this rule do not require an
accompanying prospectus. Instead, in order to rely on this
exemption, the issuer must prepare an offering document that
provides information about its business, its management, and the
nature and purpose of the offering. However, there is no
requirement to disclose financial statements or provide continuous
disclosure to investors. Distributions may be made via registered
online funding portals, registered dealers, or through the
issuer's own efforts, which means the rule is not limited to
just online fundraising.
Since the exemption is targeted at smaller companies engaging in
smaller rounds of fundraising, there are limits on the amount that
can be raised under these exempt distributions. The maximum amount
that can be raised in each distribution is $250,000, with a maximum
of two distributions per year under this exemption and a lifetime
cap for the issuer's corporate family of $1 million. Further,
each distribution can raise a maximum of $1,500 in subscriptions
per investor, unless the investor receives advice from a registered
dealer (in which case their maximum subscription amount is
Some commentators, including the National Crowdfunding Association of
Canada, consider these maximums to be too low for the
needs of high-growth Alberta companies. Another potential downside
of this exemption is that distributions under the startup exemption
may preclude issuers from future reliance on the private issuer
exemption. Finally, although the exemption theoretically allows for
multi-jurisdictional offerings, this will not be possible in
practice until other Canadian securities regulators adopt it. As a
result, the exemption is best suited for early bootstrapping rounds
within the issuer's local community.
In an attempt to provide larger-scale solutions for high-growth
Alberta companies, the Alberta Securities Commission has also
announced a 30-day comment period on the
possibility of adopting Multilateral Instrument 45-108 (the
Crowdfunding Exemption available in Ontario and other participating
jurisdictions, as previously covered on
It remains to be seen whether other jurisdictions will mirror
Alberta's approach. Regardless, this is a welcome announcement
for Alberta startups, and continues a national trend towards
increasing flexibility for capital-raising by small and high-growth
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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