February 16th, 2017
Canadian Resources for Proposed US Equity Crowdfunding Rules
SEC Crowdfunding Approval Meeting Materials
Commissioner Daniel M. Gallagher (Statement at an Open Meeting of the Commission to Consider a Proposal to Implement Title III (“Crowdfunding”) of the JOBS Act)
Commissioner Kara M. Stein (Statement Regarding the Proposing Release on Crowdfunding)
Commissioner Luis A. Aguilar (Harnessing the Internet to Promote Access to Capital for Small Businesses, While Protecting the Interests of Investors)
Commissioner Michael S. Piwowar (Statement at Open Meeting Regarding Crowdfunding)
Chair Mary Jo White (Remarks at Open Meeting)
SEC Proposed Crowdfunding Rules (585 pgs): Download here (Oct. 23, 2013; File No.: S7-09-13)
Submit comments: Submit comments on S7-09-13 here
Comments Due: 90 days from publication in the Federal Register
Job’s Act Title III
Job’s Act Title III equity crowdfunding in the US is not available to non-US resident companies. The rules being proposed in the US are quite complex and are far from ideal. The SEC and FINRA will both be taking comments on the proposed rules until February 3, 2014. The rules may go through a round of changes and further comments. Certainly there will be a deliberation period after the comment period closes before final rules are posted and then declared in force until they have been published for 60 days in the Federal Register. The end of April would be the shortest time period to expect the US to have Federal level crowdfunding. A number of US States have adopted intra-state equity crowdfunding rules which are already in operation.
From a Canadian context, it is unclear what the Ontario Securities Commission or other securities regulators in Canada will do in response to the SEC equity crowdfunding rules or FINRA crowdfunding portal rules.
Alixe Cormick is the founder of Venture Law Corporation in Vancouver, BC. Alixe concentrates her legal practice in the areas of initial public offerings, follow-on offerings, reverse takeovers, capital pool corporations, qualifying transactions, mergers & acquisitions, secondary listings and exempt market financings (more).
Question and Answer
Are Canadian companies able to raise funds on US portals, such as AngelList (see here)?
Reg D - Rule 506 ‘Accredited Investors’
Canadian start-ups are not doing anything offside US securities rules by fundraising on AngelList. Canadians issuers, private and public, have been raising capital with US residents relying on Rule 506 since its adoption in 1982.
Angel List is relying on Rule 506 advertising changes that were implemented on September 23, 22013 to open up their platform to a wider audience of accredited investors. The securities offered on their platform are only available to accredited investors. Issuers anywhere in the world can sell securities in the United States to accredited investors if they comply with the requirements of Rule 506.
US portals that are aimed at matching issuers with “accredited investors” under SEC Regulation D - Rule 506 are open to issuers resident anywhere in the world. Rule 506 is not limited to US resident issuers. See: http://www.sec.gov/answers/rule506.htm
These accredited investor portals must also be registered as broker dealers or have an exemption from registration as a broker dealer. AngelList and FundersClub both operate under a No-Action Letters which provides them an exemption from registration:
- AngelList LLC, March 28, 2013
- FundersClub Inc. and FundersClub Management LLC, March 26, 2013
Using an online portal to sell to accredited investors is a recent phenomenon. Gust, AngelList and other have been acting as introduction and deal portals for some time between private issuer and angels, who are “accredited investors” as defined by Rule 506. Gust and Angel List took no money for this service. This activity has been in the grey zone only in so far it has not been clear if they should be registered as broker dealers in the US.
Proposed US Equity Crowdfunding Rules
The proposed US equity crowdfunding rules, however, are limited to US resident issuers and investors. Canadian resident issuers will be blocked from trading on US equity crowdfunding portals or relying on the US crowdfunding exemption from registration.
The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada crowdfunding hub providing education, advocacy and networking opportunities in the rapidly evolving crowdfunding industry. NCFA Canada is a community-based, membership-driven entity that was formed at the grass roots level to fill a national need in the market place. Join our growing network of industry stakeholders, fundraisers and investors. Increase your organization’s profile and gain access to a dynamic group of industry front runners. Learn more eBrochure | Prezi or contact us at firstname.lastname@example.org.