Ontario joins the crowd on crowdfunding exemptions
On July 30, 2020, Ontario adopted a start-up crowdfunding exemption regime substantially similar to that currently in place in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick and Nova Scotia.
The new Ontario blanket order provides:
- an exemption from the prospectus requirement (the crowdfunding prospectus exemption) that allows a non-reporting issuer to distribute certain eligible securities through a funding portal; and
- an exemption from the dealer registration requirement (the crowdfunding registration exemption) for funding portals that facilitate distributions by issuers relying on the crowdfunding prospectus exemption.
A funding portal is an online platform that brokers crowdfunding distributions by acting as an intermediary between crowdfunding issuers and investors.
Conditions for Ontario’s new crowdfunding prospectus exemption regime include:
- the issuer’s head office is located in a participating jurisdiction;
- the issuer’s securities are issued and paid for through a funding portal;
- the business distributes its securities using an offering document that includes basic information about its company, its management and the distribution, including how the business intends to use the funds raised, and the minimum offering amount;
- a maximum of $250,000 is raised per distribution and no more than two crowdfunding distributions in a calendar year;
- no individual investor can invest more than $1,500 per distribution or $5,000 if the purchaser has obtained advice from a registered dealer that the investment is suitable;
- the distribution may remain open to up to a maximum of 90 days.
Conditions for Ontario’s new crowdfunding registration exemption regime include:
- the funding portal does not provide recommendations or advice to a purchaser or otherwise discuss the merits of an investment;
- the funding portal does not receive a commission, fee or any other amount from the investors;
- the funding portal makes available the offering document of the issuer and the risk warnings and requires any investor to confirm that they have read and understood these documents before they can purchase securities;
- the funding portal is not registered under Canadian securities legislation;
- the majority of the funding portal’s directors are Canadian residents.
Earlier this year, the CSA proposed a new National Instrument (National Instrument 45-110 - Start-Up Crowdfunding Registration and Prospectus Exemptions) that would replace and harmonize all local start-up crowdfunding exemptions in the participating provinces and create a single crowdfunding regime across Canada. The OSC says it made its July 30 blanket order to provide interim relief pending adoption of the new National Instrument.
Rather than introducing the crowdfunding registration and prospectus exemptions by way of a new OSC rule which would have been subject to a separate public comment period, the OSC relied instead on its relatively new blanket order powers which allow it, subject to certain sunset provisions, to provide broad class relief with immediate effect in Ontario.
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