On December 6, 2013 the Saskatchewan Financial and Consumer Affairs Authority (FCAA) became the first province in Canada to offer small businesses and start-upsincluding companies and limited partnership (“Issuers”) a method to raise funds in a cost effective way through the introduction of General Order 45-925 Saskatchewan Equity Crowdfunding Exemption (“Crowdfunding Exemption”).
Requirements for Companies wishing to raise funds through Crowdfunding:
The offering must be made through a crowdfunding website or “portal” where investors may purchase the securities including debt securities such as promissory notes and equitysuch as shares. As long as the Issuer is not in the business of trading in securities they do not have to be registered with the FCAA to raise funds.
The exemption is not open to Issuers that are reporting issuers or public companies and a company is restricted to two offerings per year. An Issuer cannot run two offerings for the same company at the same time. Issuers and the investors must be Saskatchewan residents.
The offering must be of the Issuer’s own securities and investment fund securities and derivative securities are not eligible for the Exemption.
Issuers can only raise a maximum of $150,000 per offering or $300,000 in a 12 month period under the Crowdfunding Exemption. An investor cannot invest more than $1500 per offering and no offering can last for more than six months. The issuer is required to set a minimum offeringamount and funds raised must be held in trust until the minimum is raised.
No commissions can be paid to sell securities through the Crowdfunding Exemption.
Issuers are required to prepare an Offering Document which informs investors of certain things:
- contact details for the Issuer;
- legal structure of the Issuer’s business;
- where investors can obtain the organizing documents of the Issuer;
- a description of the business including who the Issuer’s competitors are; any milestones accomplished;
- where the business will be in three, five and ten years;
- amount of money raised to date and what that money was used for;
- experience of the Issuer’s management team;
- description of the use of proceeds;
- details of the type and nature of the securities being sold and the price per security;
- description of the rights of investors who purchase the securities;
- how the Issuer intends to report to investors in the future; and
- therisks of the investment and how the Issuer plan to mitigate the risks.
Investors must confirm online that they have read and understood the “Important Risk Warnings”.
Issuers must provide certain contact info and confirmation of trades to investors within 15 minutes of closing of the offering.
There is no requirement for financial statements and if financial statements are provided there are no rules for how they are to be prepared. Issuers will be required to discuss the Issuer’s current financial condition re debts; assets solvency etc. in the Offering Document.
Investors must certify that they have read the offering document and the warnings mandated by the FCAA.
Investors have statutory rights of rescission and to damages under theSaskatchewan Securities Act.
Issuers will be required to file the following forms with the FCAA to rely on the Crowdfunding Exemption:
- Issuer Information Form GO45-925F2;
- Individual Information Form GO45-924F2 for each officer, director, promoter and control person of the Issuer; and
- Offering Document Form GO45-925F1
Ten days after the above forms are filed – selling under the Offering can commence.
Within 30 days of completing the offering aReport of Trade Form (GO 45-925F4) must be filed with the FCAA.
Requirements for Crowd Funding Websites / Portals
There are no registration requirements for websites or “portals” on which the offerings are posted however the FCAA does impose a number of obligations on websites providers. The website provider must ensure that:
- Issuers and investors have Saskatchewan addresses;
- eachIssuer raises no more than $300,000 per year through the Crowdfunding Exemption;
- offerings do not exceed 6 months;
- Issuers only have two offerings per year;
- investors do not invest more than $1500 per offering;
- that the offering documents meet the FCAA requirements;
- investors sign the appropriate certifications;
- the website provider is independent of any Issuers raising money on the website;
- all funds raised are held in trust until the minimum offering is met;
The website provider must provide Issuers with the required investor information (name, address, phone number, email address, details of purchase) within 15 days of the end of the offering.
The website provider can charge a fee for its services.Thirty days before the website goes live the website provider will have to submit the following forms to the FCAA:
- Portal Information Form GO45-925F5
- Portal Individual Information Form GO45-925F6 for each officer, director, promoter and control person of the website provider.
There is no requirement for approval from the FCAA and once the 30 days is up the website can begin to operate. There is no limit on promoting the website but the Portal website provider cannot promote Issuersselling their securities.
Proposed Crowdfunding Exemption in Ontario
On December 14, 2012 the Ontario Securities Commission (“OSC”) discussed a proposal for a crowdfunding exemption in its “OSC Staff Consultation Paper 45-710 Considerations for New Capital Raising Prospectus Exemptions”. Under the OSC model the website providers / portals would require registration with the OSC under an existing category of registration. The OSC will consider providing exemptions from specific dealer and advisor registration requirements.
Some of the highlights of the Ontario model are as follows:
- Issuer could raise $1.5 million in any 12 month period;
- additional restrictions on types of equity and debt to be issued;
- investors can only invest $2500 per company and $10,000 per calendar year;
- open to reporting issuers;
- disclosure must be certified by Issuers;
- limits on Issuer’s advertising to the portals and social media;
- no need for audited financial statements unless the raise is over $500,000 or if the Issuer is reporting issuer. Non audited statements need to be certified by management;
- investors will get a statutory right of rescission and to damages;
- investors will get a two day cooling off period;
- special risk acknowledgement form; and
- Issuer must provide investors with ongoing financial statements and keep prescribed books and records.
On August 28, 2013 the OSC published “OSC Notice 45-712 Progress Report on Review of Prospectus Exemptions to Facilitate Capital Raising” where they reported that they are continuing to consider the crowdfunding concept.
Crowdfunding in the Unites States
On October 23, 2013 the US Securities Exchange Commission announced new crowdfunding rules as required by Title III of the JOBS Act. Those proposals will be discussed in a separate article.