Canada Welcomes Crowdfunding – Now, How Will We Regulate It?
November 21, 2013
By Jennifer McKenzie
Crowdfunding has quickly become a popular method of raising capital on the Internet, and can lift small and medium-sized companies off the ground. After a long wait, Kickstarter opened to projects from Canadian-based project creators in September 2013. More than $3.2 million CAD was pledged for Canada-based creators in the first month.
Crowdfunding in Canada remains limited to non-equity funding. For example, in Ontario, currently, the sale of equity requires the issuer to file a prospectus or rely on an existing prospectus exemption category. Crowdfunding by issuing securities is prohibited as a result.
The possibility of equity crowdfunding may be on the horizon in Canada. In December 2012, the Ontario Securities Commission (OSC) published a consultation paper outlining possible new capital raising prospectus exemptions in Ontario, including addressing the sale of equity through online crowdfunding platforms. The proposed crowdfunding exemption would allow an organization to raise a total of $1.5 million dollars in any twelve month period, and would limit individuals to invest no more than $2500 in a single investment, and no more than $10,000 in a calendar year. The exemption would only be available to organizations incorporated in Canada with head offices in Canada. Although equity funding has not yet been instituted since the consultation, the OSC released an update in August 2013 (Notice 45-712, Progress Report on Review of Prospectus Exemptions to Facilitate Capital Raising (“Report”)), stating it received feedback from stakeholders on the crowdfunding exemption and will continue to develop a crowdfunding regulatory framework.
The British Columbia Securities Commission (BCSC) also recently issued a similar report for public comment. The report, currently closed for comments and under review by the BCSC, proposes similar investor protections but limits organizations to raising $500,000 and limits investors to $2000 in any 12 month period.
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