Venture Law Corporation | Alixe Cormick | December 10, 2013

The province of Saskatchewan today joined the league of various state regulators** who have adopted an intra-state equity crowdfunding exemption by adopting a Saskatchewan only intra-province equity crowdfunding exemption: General Order 45-925 Saskatchewan Equity Crowdfunding Exemption.

These trail blazers have forged ahead with adopting equity crowdfunding rules they believe will work for the constituent groups in their state or province now versus waiting for a federal or harmonized rule to be adopted at a later date.  I applaud their initiative.

The province of Saskatchewan has taken a light hand in crafting its equity crowdfunding regulations and filing documents. For starters:

• No complicated private placement memorandum;
• No long disclaimers;
• No mandatory financial statements in offering documents or on an ongoing basis;
• No statutory right of action against the issuer as part of the exemption;
• No certifications by the issuer, directors, officers, promotors, or investors;
• No investor questionnaire;
• No complicated investment formulas for investors;
• No need for a portal to be registered; and
• No “know your client” or “client suitability” rules for portal operators.

Time will tell if the Saskatchewan Financial and Consumer Affairs Authority (FCAA) hit the right note in drafting this legislation.  Will a portal emerge to facilitate Saskatchewan equity crowdfunding trades? Will companies/issuers use it?  Will potential investors invest in issuers using equity crowdfunding to raise capital?  Are there enough potential investors in Saskatchewan to make equity crowdfunding work? Will fraud and business failure run rampant like the naysayers who oppose equity crowdfunding believe is inevitable?

Related:  Saskatchewan Approves Equity Crowdfunding in Canada

Saskatchewan’s equity crowdfunding exemption has a three year sunset clause.  It’s an experiment; and the rules and related filing documents will likely be tweaked as the FCAA gets real world feedback on the exemption and how it is working for issuers, investors and portal operators.

The remainder of this article, in a question and answer format, will discuss how Saskatchewan’s equity crowdfunding exemption works.   A link to the final Saskatchewan crowdfunding rule, related documents and forms can be found at the end of this article.

What Part of the Capital Raising Market is Saskatchewan’s Equity Crowdfunding Rule Aimed At?

The Saskatchewan equity crowdfunding exemption is aimed at private start-up companies and small businesses in the pre-seed, seed and early life cycle of their business.  These entities may be formed as a corporation, partnership, limited partnership or any other legal entity.  The rule is not available to reporting issuers or investment funds.  Only issuers resident with a physical street address in Saskatchewan may use this exemption to raise capital.

How Much Can an Issuer Raise Under the Saskatchewan Crowdfunding Exemption?

Issuers may raise up to $150,000 per offering under this exemption.   Issuers and their promoters, directors, officers and control persons may not use this exemption more than twice in a calendar year. This means they can raise an aggregate total of up to $300,000 in a calendar year utilizing this exemption in two separate offerings for either the same issuer or two separate issuers. There also cannot be any concurrent offering offerings by the issuer or any other issuer for the same project under the exemption.

Please note: Issuers can also rely on other private placement exemptions such as the accredited investor or offering memorandum exemption during the year to raise more capital if needed.

Who Can Invest?

Anyone resident in Saskatchewan and over the age of 18 may invest up to $1,500 in an offering under the Saskatchewan crowdfunding exemption.  There is no limit on the number of equity crowdfunding offerings by different issuers an investor can invest in under the rule.

What Type of Securities Can Issuers Offer Investors Under this Exemption?

Issuers may offer common shares, preferred shares, debentures, convertible debentures, bonds, partnership units, limited partnership units, promissory notes and any other security instrument other than derivative type securities.

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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.  View profile