On June 23, 2021, the Canadian Securities Administrators (CSA) harmonized rules for securities crowdfunding. National Instrument 45-110 Start-up Crowdfunding Registration and Prospectus Exemptions (Start-up Crowdfunding Rule) introduces a single, uniform set of rules that replaces and enhances the requirements currently in effect in, British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, and Nova Scotia.
The Start-up Crowdfunding Rule provides a harmonized national framework to facilitate securities crowdfunding for start-ups and early stage issuers. NI 45-110 provides an exemption:
- from the prospectus requirement (the start-up crowdfunding prospectus exemption) that allows an issuer to distribute eligible securities through an online funding portal; and
- from the dealer registration requirement for funding portals that facilitate online distributions by issuers relying on the start-up crowdfunding prospectus exemption.
Eligible securities that can be distributed under the prospectus exemption
Eligible securities include common shares; non-convertible preference shares; securities convertible into common shares or non-convertible; preference shares; non-convertible debt securities; linked to a fixed or floating; interest rate; units of limited partnerships; and shares in the capital of an association.
Maximum aggregate proceeds that can be raised by the issuer group under the prospectus exemption
The maximum total amount that an issuer can raise under the crowdfunding prospectus exemption in a 12-month period has been increased to $1.5 million.
Maximum investment amount per person per distribution under the prospectus exemption
The maximum investment a purchaser can make in an offering to $2,500, with a higher limit of $10,000 if a registered dealer advises that the investment is suitable for the purchaser.
Confirmation by the regulator before a funding portal starts to facilitate distributions
The funding portal must deliver the required forms at least 30 days before facilitating distributions. There is no requirement for the regulator’s written confirmation. However, a funding portal may not rely on the start-up crowdfunding registration exemption if, within 30 days of receiving the funding portal information form, the regulator has notified the funding portal or any of its principals that its process and procedure for handling of purchasers’ funds does not satisfy the conditions of the instrument.
Bad actor disqualification
A funding portal cannot rely on the start-up crowdfunding registration exemption if it or any of its principals is or has been the subject of certain proceedings in the last ten (10) years related to a claim based in whole or in part on various conduct such fraud, theft, breach of trust, or allegations of similar conduct.
Funding portals financial resources certification
On a semi-annual basis, the funding portal must certify that it has, or expects to have, sufficient financial resources to continue its operations for at least the next six (6) months by delivering a completed funding portal information form or Form 45-110F5 Semi-Annual Financial Resources Certification.
Liability in the event the offering document contains misrepresentations
The issuer is subject to statutory liability similar to the offering memorandum exemption under section 2.9 of NI 45-106.
Investment in an unspecified business
The start-up crowdfunding prospectus exemption is not available to issuers who:
- have no operations other than to identify and evaluate assets or a business with a view to completing an investment in, merger with, amalgamation with or acquisition of a business, or a purchase of the securities of one or more other issuers; or
- intend to use the proceeds of the distribution to invest in, merge with or acquire an unspecified business.
Report of exempt distribution form
Issuers must use Form 45-106F1
Provided all necessary ministerial approvals are obtained, the Start-up Crowdfunding Rule and the consequential amendments will come into force September 21, 2021.
For the Notice please see:
For more information, please call Barbara Hendrickson at BAX Securities Law (647) 403-4606.
This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer. BAX does not warrant or guarantee the accuracy or currency or completeness of the publication. No part of this publication may be reproduced without the prior written permission of BAX Securities Law.
