This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our cookie notice (http://www2.deloitte.com/ca/en/legal/cookies.html) for more information on the cookies we use and how to delete or block them.
The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox.

Amendments to National Instrument 45-106: Prospectus and Registration Exemptions – Start-up Crowdfunding Exemption [Completed]

Issued: May 14, 2015

Transitional provisions:

Effective May 14, 2015

Last updated:

May 2015

Overview

In a relatively short period of time, crowdfunding has become an important new method of raising capital through the internet for a broad range of purposes. It has been used to raise money for specific projects that do not generally involve the issuance of securities. However, in some foreign jurisdictions, equity crowdfunding is emerging as a way for businesses, particularly start-ups and small issuers, to raise capital. The prospectus exemption is being made by means of a local exemption in each participating province, rather than as an amendment to National Instrument 45-106, Prospectus and Registration Exemptions.

On May 14, 2015, the securities regulators of British Columbia, Saskatchewan, Manitoba, Québec, New Brunswick and Nova Scotia (the six “participating jurisdictions”) announced they have implemented, or expect shortly to implement, registration and prospectus exemptions that will allow start-ups and early-stage companies to raise capital through crowdfunding in these jurisdictions, subject to certain conditions. This exemption (the Start-up Crowdfunding exemption) is comprised of two exemptions: a prospectus exemption for start-ups seeking to raise capital and a dealer registration exemption for persons wishing to operate a funding portal. The conditions associated with these exemptions are outlined in Multilateral CSA Notice 45-316, Start-up Crowdfunding Registration and Prospectus Exemptions. Registered dealers are able to operate funding portals that facilitate start-up crowdfunding distributions, subject to their registration obligations, including suitability.

Under the Start-up Crowdfunding exemption: (i) the issuer may not be a reporting issuer or an investment fund in any jurisdiction of Canada or foreign jurisdiction; (ii) the head office of the issuer must be located in a participating jurisdiction; (iii) the aggregate funds raised in any start-up crowdfunding distribution may not exceed $250,000;  (iv) the issuer is restricted to no more than two start-up crowdfunding distributions in a calendar year; and (v) no person may invest more than $1,500.  The Start-up Crowdfunding exemption orders will expire on May 13, 2020.

The Ontario Securities Commission (OSC) is not yet participating in this new crowdfunding regime. It is currently expected to announce its own rules in the Fall of 2015. In interviews with major media outlets reported in May 2015, the OSC said its decision to not join the six participating provinces was based in part on the lack of a registration requirement for funding portals and its desire to incorporate higher capital raising limits. The OSC also said it expects its own crowdfunding rules will follow the framework which was proposed by it in March 2014. Among other things, this framework would allow companies to raise up to a total of $1.5 million per year and would permit investors to invest up to $2,500 in a single investment, to a maximum of $10,000 a year. The rules would also require funding portals to register with the OSC.

Also absent from the list of participating provinces is Alberta, which to date has not proposed any similar crowdfunding exemptions.

The same provinces are also considering a proposal for an Integrated Crowdfunding prospectus exemption, similar to the one proposed by the OSC.  For further details, refer to this CSA Project.

Other developments

May 2015

On May 14, 2015, the AcSB released the IFRS Discussion Group Report, Definition of a Publicly Accountable Enterprise, where they give a refresher on the factors to consider when assessing whether an entity is a publicly accountable enterprise. They also describe the concept of crowdfunding.

On May 14, 2015, the securities regulators of British Columbia, Saskatchewan, Manitoba, Québec, New Brunswick and Nova Scotia (the “participating jurisdictions”) announced they have implemented, or expect shortly to implement, registration and prospectus exemptions that will allow start-ups and early-stage companies to raise capital through crowdfunding in these jurisdictions, subject to certain conditions. 

March 2014

On March 20, 2014, the CSA issued for public comment proposals for new prospectus exemptions in respect of crowdfunding.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.