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Canadian Equity Crowdfunding

Key Provisions of the Proposed Crowdfunding Prospectus Exemption

Released March 20, 2014

The Ontario Securities Commission (OSC or the Commission) has a responsibility to examine whether Ontario securities law contributes to the efficient functioning of capital markets, which in turn is necessary for Ontario’s economic growth and prosperity. The exempt market, in which securities are issued and acquired on a prospectus-exempt basis, is an integral part of Ontario’s capital markets. To that end, the OSC have engaged in a broad review of the exempt market (the Exempt Market Review) to consider whether the OSC should introduce new prospectus exemptions that would facilitate capital raising for business enterprises, particularly start-ups and small and medium-sized enterprises (SMEs), while protecting the interests of investors.

 

In connection with our Exempt Market Review, we are publishing for a 90-day comment period proposal for a new capital raising prospectus exemption in Ontario (the Proposed Prospectus Exemption). This Proposed Prospectus Exemption includes the crowdfunding prospectus exemption (the Crowdfunding Prospectus Exemption) and regulatory requirements applicable to a crowdfunding portal (the Crowdfunding Portal Requirements).

 

Download the full Prospectus Exemptions PDF

 

Key Notes from the Prospectus Exemption

–        Investors can be directed to portal’s website by paper notice or through social media

–        An investor cannot invest more than $2,500 in a single investment under the crowdfunding prospectus exemption

–        An investor cannot invest more than $10,000 in total under the crowdfunding prospectus exemption in a calendar year

–        Portals, issuers and their directors and officers cannot lend money to, or arrange financing for, potential investors

 

Canada’s National Crowdfunding Association Applauds Regulators for Setting the Stage for Crowdfunding Success: Press Release

The Importance of Crowdfunding Background Checks

Key Stakeholder Verification

Background checks on issuers, directors, executive officers, promoters and control persons will be performed by the portal to verify the qualifications, reputation and track record of the parties involved in the key aspects of the offering.

–        The following checks will be conducted by the portal either directly or through a third party.

–        Requiring a document similar to a Personal Information Form (PIF) to be filed with the regulator is intended to

  • (i) Act as a deterrent against false statements (since it is an offence to make a false statement in a required filing) and to
  • (ii) Ensure that regulatory authorities have recourse against the person making a false statement in a PIF.

 

Required Key Stakeholder Verification

On Issuers:

–        The existence of the entity and its business registration (incorporation documents would be delivered to the portal)

(i)               Securities enforcement history checks

(ii)              Bankruptcy check

(iii)             Court records, where available.

 

On directors, executive officers, control persons and promoters of the issuer:

–        A document similar to a Personal Information Form (PIF) will be completed by each of these individuals and sent to the portal.

–        The portal will be required to perform the following checks:

(i)               Criminal record

(ii)              Securities enforcement

(iii)             Bankruptcy

(iv)             Court records, where available.

 

Inline Reference Check offers verification packages designed to meet the needs of registered portals raising funds under the proposed Crowdfunding exemption.

For further information contact Inline Reference Check