Six Canadian jurisdictions (B.C., Saskatchewan, Manitoba, Quebec, New Brunswick or Nova Scotia) have adopted a law allowing online investing from non-accredited investors. The so called “Crowdfunding Prospectus Exemption” consists mainly of two elements: a prospectus exemption permitting an issuer to distribute securities without a prospectus, and a registration exemption exempting a funding portal from having to register as a dealer.
- They have to disclose information about the fundraising company, its management and the distribution.
- They cannot more than CAD $250,000 per offering and are limited to a maximum of two campaigns in a calendar year.
- The offer can remain open up to a maximum of 90 days.
- The issuer must be a non-reporting issuer (and cannot be an investment fund) and have its head office in one of the six Jurisdictions mentioned above.
Although the adopted exemption is certainly an achievement for the Canadian online investing scene, some critics pointed out an implication that may make this law less attractive to SMEs: by relying on the Prospectus Exemption, a company can be disqualified from using the private issuer exemption in future financings, if it onboards 50 investors during the fundraising process. In fact, under the private issuer exemption, a business can raise money (without a cap on investment amount) from close friends, family, close business associates and accredited investors, as long as they not exceed 50 persons. We will see if authorities will make any changes to improve the regulation in the months to follow.
Dittrich, J. (2015). What startups need to know about B.C.'s new crowdfunding laws, BCBuisness
Wilson, C. (2015). Canadian Regulators Adopt New Crowdfunding Exemptions For Startups And Early Stage Businesses. Mondaq.
About the author - Irene Tordera
Born and raised in Milan, Italy, Irene is an International Business graduate, with a strong interest for innovative ideas that can simplify our lives.
During her studies, she co-founded an online community for sportspeople and worked in marketing positions at Ogilvy & Mather Advertising and at the European Business Angel Network, in Brussels. She is a passionate blogger about crowdfunding and the startup ecosystem.