February 16th, 2017
ASC and Nunavut Securities Office Publish Proposed Start-up Business Exemption for Comment
The Alberta Securities Commission (ASC) and the Nunavut Securities Office today published for comment Proposed Multilateral Instrument 45-109 Prospectus Exemption for Start-up Businesses, which sets out a proposed prospectus exemption to facilitate capital raising by start-up and early stage companies. Subject to certain conditions, the proposed exemption would allow a start-up or early stage business to raise up to $1,000,000 using a streamlined offering document together with a bluntly worded risk warning. Investors would be permitted to invest up to $1,500 in a business or $5,000 with the advice of a registered dealer.
Although not limited to crowdfunding, the proposed exemption could be used to raise funds through an online portal. If implemented, the new rule would only create a new prospectus exemption; if a financing occurs through a portal, the portal would still need to comply with the registration requirement -- e.g., be registered as an exempt market dealer or investment dealer.
The proposed exemption is designed to coordinate with the crowdfunding blanket orders adopted by the securities regulators of British Columbia, Saskatchewan, Manitoba, Québec, New Brunswick and Nova Scotia.
The comment period expires December 18, 2015.
SOURCE Alberta Securities Commission
For further information: Alison Trollope, Alberta Securities Commission, 403-297-2664; Shamus Armstrong, Nunavut Securities Office, 867-975-6587
ASC's Request for Comments
We welcome your comments on the Proposed Start-up Business Exemption. In addition to any general comments you may have, we also invite comments on the following specific questions.
- In setting the lifetime limit of $1,000,000 per issuer group, our goal was to set a limit after which an issuer should have sufficient funds to use the OM Exemption. Do you think this is the appropriate threshold? If not, please provide what you would consider acceptable limits given the parameters of the Proposed Start-up Business Exemption.
- The Proposed Start-up Business Exemption would prohibit an issuer from accepting an investment from an investor of more than $1,500 in a single investment under the exemption, and no more than $3,000 in respect of an issuer group in a calendar year if the distribution is conducted without a registered dealer. The Proposed Start-up Business Exemption would prohibit an investor from investing more than $5,000 in a single investment under the exemption, and no more than $10,000 in a calendar year if the distribution is conducted with a registered dealer. Do you agree with these limits? Are investors generally able to withstand the loss of a $1,500 investment? Do you agree with allowing a higher limit when a registered dealer providing suitability advice is involved? Why or why not?
- Given the potential ongoing costs associated with having a large number of security holders, do you think that the Proposed Start-up Business Exemption will be a useful tool to assist very early-stage and start-up businesses with raising capital?
- Should there be some form of ongoing disclosure e.g., financial statements or notice of proceeds, that issuers using the exemption should be required to provide to their security #5205021 -9- holders? If so, what should it be? What do you estimate as the costs of preparing such ongoing disclosure?
- In addition to filing the offering document, should issuers be required to file all other information (e.g., marketing materials) provided in conjunction with the offering with the regulator?
- Does the risk acknowledgement provide warning to investors of the major risks of investing in a very early stage or start-up business? Are there any other warnings that should be considered?
- The Proposed Start-up Business Exemption is only a prospectus exemption. There is no corresponding registration exemption; consequently, if a portal is used it must be registered as an exempt market dealer or investment dealer. Do you think that this will be a significant barrier for access to financing through the Proposed Start-up Business Exemption?
- If an Alberta-based or Nunavut-based issuer were using the Proposed Start-up Business Exemption, in what other jurisdictions would they likely also seek to raise funds?
- Do you think issuers would want to use the Proposed Start-up Business Exemption in Alberta or Nunavut in conjunction with using Multilateral Instrument 45-108 Crowdfunding (MI 45-108) in other jurisdictions? If so, would it be helpful to issuers if they were able to use, and file, the form of offering document available under MI 45-108 in connection with a distribution under MI 45-109? Are there other accommodations that should be considered for the purpose of harmonization?
- Would it be helpful to issuers to be permitted to use and file Form 45-106F2 Offering Memorandum for Non-Qualifying Issuers, the form of offering memorandum required under the OM Exemption, in lieu of Proposed Form 45-109F1 Start-up Business Offering Document in connection with a distribution under MI 45-109?
- In Alberta, we are considering whether ASC Blanket Order 45-515 Exemption from certain financial statement requirements of Form 45-106F2 Offering Memorandum for Non-Qualifying Issuers will be necessary if MI 45-109 is adopted. Do you anticipate issuers would use Blanket Order 45-515 if MI 45-109 is available?
Please submit your comments in writing on or before 18 December 2015. If you are not sending your comments by email, please send a CD containing the submissions (in Microsoft Word format).
Please note that comments received will be made publicly available and posted on the Alberta Securities Commission website (at www.albertasecurities.com). You should not include personal information directly in comments to be published. It is important that you state on whose behalf you are making the submission.
Address your submission as follows:
Alberta Securities Commission Superintendent of Securities, Nunavut
Deliver your comments only to the addresses below. Your comments will be distributed to the other participating jurisdictions.
Alberta Securities Commission
Suite 600, 250 – 5th Street SW
Calgary, AB, T2P 0R4
Attention: Jessie Gill Legal Counsel, Corporate Finance Email: Jessie.email@example.com
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