In a welcome development for Alberta-based startups and small
businesses, the Alberta Securities Commission (the
"ASC") has adopted a new rule –
Prospectus Exemption for Start-up Businesses (ASC Rule
45-517, adopted July 19, 2016). The rule is designed to streamline
small, local investment rounds for startups and high-growth
companies, while still providing appropriate investor
Although this exemption is currently only relevant to
Alberta-based issuers and investors, it may be a bellwether of
future efforts in other jurisdictions, as the nation's
securities regulators continue to investigate ways to increase the
agility of capital-raising efforts by early-stage startups and
Distributions made under Rule 45-517 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, meaning the rule is not limited to
web-based fundraising platforms.
Only Alberta-based issuers are eligible to rely on Rule 45-517.
Further, the issuer may not be a reporting issuer in any Canadian
jurisdiction. Investors subscribing to distributions made under the
rule must also be Alberta-based.
In addition to these geographical limitations, distributions
made under this exemption are also limited in size. The maximum
amount that can be raised per distribution is $250,000, with a
total of two distributions available 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 the maximum subscription
amount is $5,000).
From a policy perspective, 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 is that distributions under
the startup exemption may preclude 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 fulfils a certain niche
capital raising from the local community and is best suited for
early bootstrapping efforts outside of friends and family.
Larger-scale solutions for Alberta companies will be provided if
and when the ASC adopts Multilateral Instrument 45-108 –
Crowdfunding ("MI 45-108"), the
crowdfunding exemption currently available in Ontario and other
Regardless, Rule 45-517 is a welcome announcement for Alberta
startups, continuing a national trend towards increasing
flexibility for capital raising by small and high-growth companies
and allowing a broader pool of Canadians to invest in early-stage
1 MI 45-108 was recently published for comment in
Alberta. The comment period closed August 25, 2016.
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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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