The British Columbia Securities Commission (BCSC) has issued a notice dated March 20, 2014 requesting comments on whether the BCSC should consider adopting an exemption which would allow equity financings of small amounts raised from many individuals (as a form of Crowdfunding) through online portals (Portals) to be exempt from the prospectus requirements. The notice was released concurrently with proposed start-up Crowdfunding rules in certain other Canadian jurisdictions (see related posts by our colleagues from the Toronto and Montreal offices of Fasken Martineau DuMoulin LLP) and follows the implementation of a similar prospectus exemption for Crowdfunding in Saskatchewan.
If adopted, the Start-Up Crowdfunding exemption would join the already existing British Columbia exemptions, which include the private issuer; family, friends and business associates; accredited investor; and offering memorandum exemptions (Existing Exemptions).
In order to use the Start-Up Crowdfunding exemption, among various other requirements, an issuer must:
- not be a reporting issuer or an investment fund;
- not raise more than $1,500 from any one investor or exceed gross proceeds of more than $150,000 per offering;
- not make more than two offerings per year;
- complete the offering through a Portal; and
- provide a streamlined offering document to investors through the Portal.
The Start-Up Crowdfunding exemption would permit a Portal to operate without being registered under securities legislation provided that the Portal:
- does not provide investment advice;
- ensures that investors read and understand the issuer’s offering document and the risk warnings required under the exemption;
- holds funds in trust for the investors until the minimum amount required for closing the financing is met; and
- provides advance notice of its intention to use the Crowdfunding exemption.
Comments on the Start-Up Crowdfunding exemption proposal will be accepted by the BCSC until June 18, 2014 and the topics on which the BCSC has specifically asked for comments include whether:
- a funding gap exists that prevents small and early stage issuers from raising adequate capital through the Existing Exemptions;
- the Portal requirements are appropriate;
- the investment limits are appropriate; and
- there are any improvements that could be made to the already existing offering memorandum exemption.