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Amendments to OSC Rule 45-501: Prospectus and Registration Exemptions - Crowdfunding Exemption [Completed]

Issued: November 5, 2015

Transitional provisions:

Provided all necessary Ministerial approvals are obtained, MI 45-108 will come into force in Ontario (and the other the participating jurisdictions) on January 25, 2016.

Last updated:

November 2015

Overview

On March 20, 2014, the Ontario Securities Commission published for public comment a proposal for a new prospectus exemption in respect of crowdfunding that would allow businesses, particularly start-ups and early stage businesses, to raise capital from a potentially large number of investors through an online platform registered with the securities regulators. Businesses could raise up to $1.5 million during a 12 month period.

The crowdfunding regime incorporates important investor protection measures, including: (i) small investment limits ($2,500 in a single investment and $10,000 under the exemption in a calendar year); (ii) requirements to provide investors with certain limited disclosures at the point of sale and on an ongoing basis; (iii) requirement for investors to be given a risk acknowledgement form highlighting the key risks associated with the investment; and (iv) requirement that all investments be made through a registered crowdfunding portal.

Certain other provinces have also commenced the introduction of prospectus exemptions for crowdfunding. On May 14, 2015, the securities regulators of British Columbia, Saskatchewan, Manitoba, Québec, New Brunswick and Nova Scotia implemented a Start-up Crowdfunding prospectus exemption.  For further details, refer to this CSA Project.  The same securities regulators also considered implementing an Integrated Crowdfunding prospectus exemption as set out in their proposals also dated March 20, 2014, which are similar to the OSC’s proposals.  For further details, refer to this CSA project.

On November 5, 2015, the OSC joined with Manitoba, Quebec, New Brunswick and Nova Scotia in finalizing its proposals under Multilateral Instrument 45-108, Crowdfunding (MI 45-108), instead of as an amendment to Rule 45-501, Prospectus and Registration Exemptions. Of note, the OSC was able to retain its lower annual investment limits, compared to the other provinces, under MI 45-108.  See Background from the OSC.

Other developments

November 2015

On November 5, 2015, the securities regulatory authorities in Manitoba, Ontario, Québec, New Brunswick and Nova Scotia (collectively, the participating jurisdictions) published in final form Multilateral Instrument 45-108, Crowdfunding, which introduces a crowdfunding prospectus exemption for issuers as well as a registration framework for funding portals. The MI 45-108 crowdfunding regime will enable businesses to benefit from greater access to capital from a large number of investors online, through a funding portal operated by a registered dealer. Among the measures adopted to protect investors, issuers will be required to distribute their securities through a registered funding portal. These funding portals will fulfill certain gatekeeper functions that include reviewing the issuer’s disclosure and obtaining background checks on the issuer and its directors, executive officers and promoters. In addition, investment limits based on the investor’s income and financial resources have been adopted as a means of reducing their exposure to a risky investment. Provided all necessary Ministerial approvals are obtained, MI 45-108 will come into force in the participating jurisdictions on January 25, 2016.

February 2015

On February 19, 2015, the OSC issued an update in respect of its prospectus exemption proposals including in respect of its crowdfunding exemption. The OSC is reviewing the comments received and its goal is to publish the crowdfunding regime either in final form or, if warranted, for a second comment period, in summer of 2015.

March 2014

On March 20, 2014, the OSC published for public comment proposals for four prospectus exemptions, including a crowdfunding exemption that would allow businesses, particularly start-ups and early stage businesses, to raise capital from a potentially large number of investors through an online platform registered with the securities regulators.

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