In recent years, crowdfunding has proven an exceptionally popular and efficient means by which individuals and companies make use of the internet to attract investors for a variety of purposes. The traditional model generally involves a large number of individuals contributing small sums of money to finance specific ideas or projects. Increasingly, however, equity crowdfunding is emerging as a way for start-ups and early-stage companies that are non-reporting issuers to raise capital at an earlier stage of development through the issuance of securities. Equity crowdfunding has already proven successful in certain foreign jurisdictions, and is expected to make an impact in Canada.
Following a consultation period held early last year, the securities regulators of British Columbia, Manitoba, New Brunswick, Nova Scotia, Québec and Saskatchewan (Jurisdictions) announced on May 14, 2015 that they have implemented, or expect to implement in the near future, changes to their securities legislation to provide for registration and prospectus exemptions for start-ups and early-stage companies that wish to raise capital through crowdfunding. Businesses wishing to rely on the exemptions will be able to conduct crowdfunding distributions in the Jurisdictions.
The start-up crowdfunding exemption actually consists of two distinct exemptions. The first is a prospectus exemption for start-up companies seeking to raise capital. The second is a dealer registration exemption for persons wishing to operate a funding portal, a platform which facilitates start-up crowdfunding distributions.
The Jurisdictions plan to implement these exemptions by way of local blanket orders. The conditions associated with the two exemptions are outlined in Multilateral CSA Notice 45-316 Start-up Crowdfunding Registration and Prospectus Exemptions (CSA 45-316), and are summarized below. The start-up crowdfunding exemptions will be effective in each Jurisdiction concurrently with, or as soon as possible after, the publication of the notice of CSA 45-316. Each exemption order is available, or will be available shortly, on the websites of each Jurisdiction’s securities regulatory authority.
The start-up prospectus exemption
The start-up prospectus exemption permits non-reporting issuers to issue eligible securities, subject to a number of conditions. The key conditions are: