The British Columbia Securities Commission (BCSC) issued a notice dated March 20 requesting comments on whether the BCSC should consider adopting an exemption which would allow equity financings of small amounts raised from many individuals (as a form of crowdfunding) through online portals to be exempt from the prospectus requirements.
The notice was released concurrently with proposed startup crowdfunding rules in certain other Canadian jurisdictions (see related posts by our colleagues from the Toronto and Montreal offices of Fasken Martineau DuMoulin LLP) and follows the implementation of a similar prospectus exemption for crowdfunding in Saskatchewan.
If adopted, the startup crowdfunding exemption would join the already existing British Columbia exemptions, which include the private issuer; family, friends and business associates; accredited investor; and offering memorandum exemptions.
In order to use the startup crowdfunding exemption, among various other requirements, an issuer must:
- not be a reporting issuer or an investment fund;
- not raise more than $1,500 from any one investor or exceed gross proceeds of more than $150,000 per offering;
- not make more than two offerings per year;
- complete the offering through a portal; and
- provide a streamlined offering document to investors through the portal.
The startup crowdfunding exemption would permit a portal to operate without being registered under securities legislation provided that the portal:
- does not provide investment advice;
- ensures that investors read and understand the issuer’s offering document and the risk warnings required under the exemption;
- holds funds in trust for the investors until the minimum amount required for closing the financing is met; and
- provides advance notice of its intention to use the Crowdfunding exemption.
Comments on the startup crowdfunding exemption proposal will be accepted by the BCSC until June 18 and the topics on which the BCSC has specifically asked for comments include whether:
- a funding gap exists that prevents small and early stage issuers from raising adequate capital through the Existing Exemptions;
- the Portal requirements are appropriate;
- the investment limits are appropriate; and
- there are any improvements that could be made to the already existing offering memorandum exemption.