New regulations allow crowdinvesting in six Canadian Provinces
The Canadian provinces of Manitoba, Quebec, British Columbia, New Brunswick, Saskatchewan and Nova Scotia have stepped forward to provide a way for startups to raise funds via crowdfunding platforms (crowdinvesting).
They have done so by providing exemptions from prospectus and dealer registration, so they are not required to seek funds in expensive stocks exchange companies while benefiting from several auditing and report requirements. The regulations are harmonized among the participating provinces, thus providing a common regulation for businesses inside those jurisdictions.
However, in order to issue securities, there are some regulations that apply to startups, including documenting the risks the business is involved with, as well as requirements for the crowdfunding platforms.
We’ll highlight some key limits and definitions contained in the new regulation:
- Each startup cannot raise more than $250,000 per crowdfunding initiative (distribution)
- Each startup can raise funds no more than twice a year (limiting it to $500,000 per year)
- The startup must have its head office located in one of the participating provinces
- Crowdfund platform must be based in Canada
- Most of Crowdfund platform’s personnel must be Canadian residents
- No individual can contribute with more than $1,500 per offering
- Startup principals cannot be principals of the Crowdfund Portal
- No need for externally audited financial reports conforming to GAAP or IFRS requirements
The regulation effectively kicks in the crowdinvesting process in Canada. It aims to protect investors from fraud, exposing them only to the risk associated with the business venture. At the same time, they significantly lower the costs of raising money, which usually is the key detractor for most startups.
Sounds interesting? Then we encourage you to read the document at Manitoba Securities Commission thoroughly, in order to stay on par with all requirements. Though simplified, there are several details and requirements that every startup should follow in order to crowdfund. The regulations have an expiry date: May 13th 2020.