On September 21, 2017, following the results of a stakeholder survey conducted over the course of the year to date, the British Columbia Securities Commission (BCSC) announced changes to the existing equity crowdfunding rules found in British Columbia Instrument 45-535 – Start-up Crowdfunding Registration and Prospectus Exemptions (BCI 45-535) to address two of the most

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:
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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
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