Two equity crowdfunding models for Canada

April 9, 2014 Equity Crowdfunding, Alternative Funding, Legal Issues, Regulation, Consultation, Voices No comments

MaRS | By Carlos Pinto Lobo | April 9, 2014

On March 20, the Canadian securities landscape radically shifted when seven Canadian securities regulators published requests for comments on two proposed versions of equity crowdfunding models.

The proposed models are from the Ontario Securities Commission and the British Columbia Securities Commission (BCSC). The BCSC proposed adopting the crowdfunding model that was launched on December 6, 2013, by Saskatchewan securities regulator the Financial and Consumer Affairs Authority. The two models highlight two issues.

The Canadian securities landscape has been altered in a revolutionary manner. For the past two years, the calls have been growing louder for securities regulators to democratize the way that the public accesses private equity deals by purchasing them on the Internet. There have been impassioned and principled debates from both sides of the discussion. The announcements from the regulators have changed the status quo of the past 70+ years of the securities industry and firmly state that the way we do business in Canada is about to change. There are a number of changes to the industry laid out in the proposals; however, the most important change is that private equity deals will potentially be accessible to all individuals and no longer simply reserved for those investors who meet the regulators’ definition of wealthy or sophisticated.
The two proposals are significantly different. If left as is, the two significantly different proposals will create a bifurcated crowdfunding regime in Canada. Whatever the arguments for and merits of the two proposals, it is the stakeholders—that is, the public, the ventures, the issuers and the securities industry—that will have to bear the increased costs and confusion of a bifurcated system. This may limit the success of crowdfunding in the country.

	Ontario model	Saskatchewan model
Jurisdictions adopted or proposed	Adopted: None. Proposed: Ontario, Quebec, Manitoba, Nova Scotia, New Brunswick and Saskatchewan	Adopted: Saskatchewan. Proposed: British Columbia, Manitoba, New Brunswick, Nova Scotia and Quebec
Offering size	$1.5 million per year	$150,000 up to twice per year
Limits on the types of securities	All, except derivatives	All, except derivatives
Disclosure	Disclosure document at point of sale	Minimal disclosure
Ongoing disclosure obligations	Annual financial statements, along with proper securities registers and documentation on how funds were spent	Not specified, but presumably as required under corporate legislation.
Audits	Audited if more than $500,000 is raised and/or expenditure exceeds $150,000 or if issuer is a reporting issuer. Statements reviewed if less than $500,000 is raised.	Optional
Investor risk acknowledgement	Yes, signed by each investor	Yes, signed by each investor
Cap per investor	$2,500 per issuer by an investor, $10,000 per rolling year	$1,500 per issuer by an investor, unlimited number of investments with different issuers
Statutory rights of action	48-hour right of withdrawal, statutory right of action against issuer if misrepresentation in offering document, or any document or video made available to the investor	None
Funding portals must be registered with the regulator	Must be registered as a restricted dealer	Portals provide 30 days notice of intent to act as a portal