Crowdfunding has officially been launched in Ontario as of January 28, 2016, enabling Canadian businesses to raise capital at a low cost by reaching out to a large number of investors over the Internet. The new regime, available in Ontario, Québec, Manitoba, New Brunswick and Nova Scotia, is particularly attractive to start-ups and small and medium-sized enterprises in their early stages of development seeking access to sources of capital not otherwise available in the prospectus exempt market. Up to $ 1.5 million in annual total proceeds can be raised under the new exemption.
Although crowdfunding has been available in British Columbia, Saskatchewan, Québec, Manitoba, New Brunswick and Nova Scotia since May 2015 by way of local blanket orders, the new regime differs in that it is available to non-reporting issuers and it provides for higher investment and capital raising limits. The new crowdfunding exemption is available to all Canadian companies, both private and public, issuing non-complex securities with the exception of blind pools and investment funds. Any investor can buy securities under the exemption.
The new regime is regulated by Multilateral Instrument MI 45-108 Crowdfunding, which provides for investor protection by way of registered funding portals and limits on investment.
Limits on investment
Retail investors are limited to $2,500 per investment and are permitted to invest up to $10,000 in any given calendar year. Accredited investors are limited to $25,000 per investment and are permitted to invest up to $50,000 in a calendar year. There are no investment limits for “permitted clients”, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations and including banks, registered dealers, pension funds and governmental institutions.
Securities must be distributed via a single registered funding portal, which acts as a gatekeeper by reviewing the issuer’s disclosure and conducting background checks on the issuer and its directors, officers and promoters. Access to the portal may be denied in certain circumstances.
Businesses wishing to avail themselves of the exemption are required to provide a crowdfunding offering document to investors, setting out certain information about the distribution including a brief overview of the issuer, its management and its business. As with any offering document, issuers may be held liable for misrepresentations or untrue statements. Issuers must also provide their annual financial statements to investors as well as a notice of use of proceeds. Investors are required to complete and sign a risk acknowledgment form. The securities of a public company are subject to a 4-month holding period and, as is always the case in the exempt market, securities of non-public companies can only be resold under another prospectus exemption or under a prospectus.
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