Crowdfunding: a quick recap

We are often asked about crowdfunding, particularly by start-ups that need that extra capital to reach the next stage in their growth, but who simply can’t afford the costly process that public companies are mired with.

As it stands, crowdfunding in Canada already exists in many forms: by donation, rewards, or pre-purchase.  Equity crowdfunding – the sale of securities such as shares – still isn’t allowed in most provinces, except in Saskatchewan.  However, various provinces (notably including British Columbia and Ontario) proposed differing models of equity crowdfunding earlier this year.  (Businesses are required to adhere to the securities laws in both the jurisdiction they are formed and in the jurisdiction where their securities are offered.)

In March 2014, the British Columbia Securities Commission proposed a new equity crowdfunding model, which would allow businesses to raise (through an online portal) up to $150,000 per offering, twice a year (for $300,000 maximum).  Investors would be capped at a $1,500 investment, and must be provided with a streamlined disclosure document through the online portal.

At the same time, the Ontario Securities Commission proposed more details as to their own model of equity crowdfunding.  Under their proposal, businesses would be allowed to raise up to $1.5 million during any given 12 month period, with investors capped at a $2,500 maximum per crowdfunding investment, and $10,000 in crowdfunding investments for any given calendar year.  However, businesses would not be able to access money raised unless a stated minimum amount is reached, and unless the money raised – along with existing cash-in-bank – would allow the business to achieve their next milestone (of, if no milestones, their activities) set out in a business plan to be disclosed to investors.  There would be additional disclosure rules, such as requiring either audited or accountant-reviewed financial statements, depending on the stage of development that the business is at (if the business has already raised $500,000 in private financings since inception and expended $150,000 to date, audited financial statements would be needed – an expensive requirement).

The comment period for both proposals ended in June, and both securities commissions are currently reviewing those comments.  We’ll keep you updated as more details emerge.

In the interim, here’s a reminder from the British Columbia Securities Commission: “today, a form of crowdfunding would already be permitted in BC with the use of an offering memorandum.”  Get in touch if you’re interested.

Joe Chan

Joe Chan

Areas of law include Craft Breweries and Distilleries, Business and Securities and Asia Pacific.

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