Canadian Lawyer

w w w . C A N A D I A N L a w y e r m a g . c o m J u n e 2 0 1 4 39 lEgal rEport/seCuRiTies lAw s mall businesses and start- ups across Canada look set to gain much wider access to capital under proposals to permit equity crowd- funding. In recent months, securities regulators in Ontario, British Columbia, Saskatchewan, Manitoba, Quebec, New Brunswick, and Nova Scotia have all released plans that would allow busi- nesses to raise cash in this way. Unlike traditional crowdfunding mod- els such as Kickstarter, which treat online contributions as donations or offer a tan- gible product in return for financial help, equity crowdfunding allows businesses to solicit cash in return for a stake in the company. "Social technology, the Internet, crowdfunding portals like Kickstarter and IndieGogo have demonstrated the effi- ciency and the power and the sexiness of looking to the crowd for capital to fund any number of initiatives," says Eric Apps, a lawyer at Wildeboer Dellelce LLP. In the United Kingdom, where equity crowdfunding is already allowed, Scottish beer-maker BrewDog raised £4.25 million (Cdn$7.85 million) over six months last year by offering 42,000 shares to inves- tors via an equity crowdfunding platform. The United States plans to allow similar schemes through its Jumpstart Our Busi- ness Startups Act. Canada suffers from a lack of invest- ment in technology, says Apps. "The idea of encouraging any easier means through which people can get access to capital will be well-received in the startup community. The question becomes what's the appropri- ate regulatory environment." The Canadian regulators' proposed rule changes would allow businesses to raise capital through equity crowdfund- ing without having to issue a prospec- tus — the detailed and often costly legal document providing information to inves- tors. Generally, securities cannot be sold without a prospectus. The Ontario Securi- ties Commission released a consultation paper March 20 — the same day regulators in Saskatchewan, Manitoba, Quebec, and New Brunswick published similar propos- als. The three latter provinces, in addition to British Columbia, are proposing a pro- spectus exemption for startups, aimed spe- cifically at small and early-stage businesses, similar to Saskatchewan's existing regime. The consultation papers shed light on how regulators hope to balance the need to appeal to businesses while at the same time protecting inexperienced investors and avoiding scams. The OSC wants to cap the maximum amount that can be raised through a registered portal at $1.5 million a year. Investors would be given an "acknowledgement form" highlighting the key risks associated with the invest- ment, and could contribute $2,500 per investment, to a maximum $10,000 per calendar year. They would receive limited disclosures at the point of sale and on an ongoing basis. Crowdfunding portals must be regis- tered only as a restricted dealer, conduct New money Provinces across the country are looking at ways to regulate equity crowdfunding to give startups access to capital. by charlotte santry PiErrE-Paul ParisEau

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