Crowd funding in Ontario’s Future
In December 2012 the Ontario Securities Commission published a Staff Consultation Paper seeking comments on a number of potential new prospectus exemptions. One of the potential exemptions that created a bit of excitement in the startup community was an exemption which would allow Canadian companies to raise equity financing through crowd funding, which is essentially a process of raising financing from a large number of small investors through an online portal.
Borrowing heavily from the concepts established by the US regulators in the JOBS Act approved in early 2012 (most of which has yet to be implemented in practice), the OSC described the following possible crowd funding structure:
- The funding would have to be raised through a registered funding portal that meets certain qualifications.
- A company would not be able to raise more than $1.5 Million in a 12 month period using the crowd funding exemption.
- An investor’s investment in any one company would be limited to $2,500 and the investor’s aggregate investments in a calendar year using the crowd funding exemption would be limited to $10,000.
- Investors would have to sign a form of risk acknowledgement.
- Investors would have a 2 day cooling off period during which they could withdraw.
- The company would be required to provide a pre-defined level of disclosure about the company, the financing and the funding portal.
- The company would have certain ongoing disclosure obligations to investors that came in through the crowd funding exemption.
On August 28, 2013 the OSC released a progress report. The good news for crowd funding fans is that the feedback received by the OSC on the crowd funding proposal has been positive. As a result, the OSC will continue its work to come up with a definitive framework based on the proposed structure. The key area where further deliberation and focus may be required seems to be on the role of the funding portal including the qualifications needed and the processes to be followed by such intermediaries.
The bottom line is that it sounds like Ontario companies and investors can expect to be able to someday take advantage of a crowd funding prospectus exemption for equity financings along the lines described above. Regulators in other Canadian provinces are looking into this issue too and we would hope that any structure ultimately settled on will be rolled out as a harmonized policy across the country.
Author: Shane McLean smclean@lwlaw.com
