Friday March 28, 2014

Open for Comment: You Can Help Determine how Crowdfunding will be Regulated

Authored by: Ted R. Sawa Posted in: Legal Updates

Following the lead of Saskatchewan, the security regulators of Nova Scotia, Quebec, Saskatchewan, New Brunswick and Manitoba are seeking feedback on proposed regulations with respect to raising money and issuing securities via the internet (‘Proposed Regulations’).   Ontario and BC have also proposed similar regulations. These Proposed Regulations are only relevant if shares or other securities are issued in exchanged for an investment. Therefore, donation-based crowdfunding, where the donor may receive public recognition or a product (such as a lifetime membership or discount) will not be directly affected by these proposals.

If a company raises capital and issues securities via the internet, security regulators must ensure that  members of the general public are protected from unscrupulous fundraising.  In general, a company must file a prospectus, or a significant disclosure document, before issuing securities to the public unless the company can rely on one of several specific exemptions from this requirement.

The Proposed Regulations create two new exemptions for companies issuing securities via the internet:   the “Start-Up Exemption” for companies in very early stages of development and the “Crowdfunding Exemption” for more established companies.   These exemptions regulate:

  1. the company raising the capital (the “Issuer”);
  2. the member of the general public making the investment (the “Investor”);  and
  3. the intermediary that facilitates this investment (the “Portal”).

 The basic overview of the Proposed Crowdfunding Regulations  is set out below.  


Start-Up Exemption 

  1. Head office must be in Nova Scotia, Quebec, Saskatchewan, New Brunswick or Manitoba;
  2. Can raise up to $150,000 per offering and can make up to two offerings per year;
  3. Must deliver offering materials to securities regulator and can only make offering materials available to potential investors via Portal.
  1. Can invest up to $1,500 in a single investment;
  2. Must read and understand risk warning.
  1. Head office must be in Nova Scotia, Quebec, Saskatchewan, New Brunswick or Manitoba;
  2. Does not have to be registered but must deliver a Portal Information Form;
  3. Must ensure the offering document of the Issuer is available online and that the Investor confirms that they have read and understood the offering document and the risk warning;
  4. Cannot provide investment advice or be related to the Issuer.

Crowdfunding Exemption

  1. Can raise up to $1.5 million per year;
  2. Must make offering materials available on Portal;
  3. Investors can be directed to Portal’s website by paper notice or through social media but marketing materials must be limited to offering document, documents described in offering document and a term sheet or other summary (including a video);
  4. Must provide point of sale disclosure and ongoing disclosure including annual financial statements.
  1. Can invest up to $2,500 in a single investment and a total of $10,000 per year;
  2. Must sign risk acknowledgement form.
  1. Must be registered as a restricted dealer;
  2. Must provide background checks on Issuer, directors, officers, promoters and control persons;
  3. Must understand the security being offered and confirm the information provided by the Issuer;
  4. Must provide investor education materials in plain language;
  5. Must deny access to an issuer if it believes the issuer or its offering is fraudulent;
  6. Must ensure the offering document of the issuer is available online and that the investor confirms that they have read and understood the offering document and the risk warning;
  7. Cannot provide investment advice and cannot hold more than 10% of the securities of the Issuer.

 Comments can be submitted on or before June 18, 2014 to Anne-Marie Beaudoin, Corporate Secretary, Autorité des marches financiers at

For further information about sources of business financing and the regulation of securities in Nova Scotia, please contact a member of our Business Law team:

Claire E. Milton, Q.C.

Ted R. Sawa

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