The following is a brief summary reviewing crowdfunding and other capital raising prospectus exemptions proposed by the Ontario Securities Commission (OSC).
“Crowdfunding” refers to the process by which many investors of small amounts of funds come together to finance organizations with limited access to conventional sources of capital. To date, North American “crowd financiers” have been limited to receiving rewards other than securities for their contributions.
However, North American regulators are at various stages of enacting rules that would permit such prospectus-exempt issuances of securities. In the U.S., while the JOBS Act calls for the SEC to promulgate crowdfunding rules, such a financing method will only be available to private companies.
In contrast the OSC has proposed, in Staff Consultation Paper 45-710, that crowdfunding be available to reporting and non-reporting issuers alike. The issuer would be limited to raising $1.5 million per year using the exemption. Further, the investor would be limited to investing $2,500 per investment and no more than $10,000 per year using the exemption. While crowdfunding would require the use of a registered dealer/adviser’s online portal, the OSC is concurrently considering an “offering memorandum” exemption, with otherwise similar criteria, that would require no such intermediary.
While the prospective crowdfunding exemption may be of limited use to the mineral exploration and development industry, it is not the only new exemption being proposed by the OSC. Pursuant to the “sophisticated investor” exemption, a non-accredited investor with a year of relevant work experience and a CFA, CIM or MBA could participate in a prospectus-exempt issuance. The OSC is also considering exempting issuances made to an investor who is acting on the advice of an investment dealer.