The Autorité des marchés financiers (Québec), the Financial and Consumer Affairs Authority of Saskatchewan, Financial and Consumer Services Commission of New Brunswick, the Manitoba Securities Commission and the Nova Scotia Securities Commission (CSA Participating Jurisdictions) published on March 20, 2014 for a 90-day comment period.
- the integrated Crowdfunding Prospectus Exemption (Crowdfunding Exemption); and
- the draft blanket order relating to the Start-up Crowdfunding Prospectus and Registration Exemption (Start-up Exemption).
In line with the Crowdfunding Exemption and the Start-up Exemption, the CSA Participating Jurisdictions also published proposed registration rules and exemptions applicable to the funding portals participating in crowdfunding (Portal Requirements).
The British Columbia Securities Commission concurrently published a local notice soliciting comments on the Start-up Exemption. The Financial and Consumer Affairs Authority of Saskatchewan implemented an exemption for start-up and small businesses and their portals on December 6, 2013. No portals have yet been established in Saskatchewan. Although the Alberta Securities Commission has not published any material, it will be considering the public comments received in respect of the other published materials.
The Ontario Securities Commission has not yet addressed the Start-up Exemption.
This bulletin focuses on the Start-up Exemption, but you can read our reports on the Crowdfunding Exemption and the Portal Requirements. Both the Crowdfunding Exemption and the Start-up Exemption will coexist as they target issuers at different stages of development.
The Start-up Exemption is aimed at providing an alternative source of capital to non-reporting issuers at a very early stage of development. The requirements for the issuers under the Start-up Exemption are less onerous compared to those under the Crowdfunding Exemption. The requirements under the Start-up Exemption are also less onerous for portals since, unlike portals for the Crowdfunding Exemption, portals for the Start-up Exemption will be exempt from registration. The Start-up Exemption still provides some requirements for the portals used in connection with the Start-up Exemption.
Start-up Exemption Summary
The following is a high-level summary of the proposed Start-up Exemption:
Availability – The Start-up Exemption will be available only to those non-reporting issuers that have their head office located in a CSA Participating Jurisdiction. The offering must be made through a funding portal that complies with the portal requirements for such type of offering. The use of such exemption is limited to twice in a calendar year.
Offering – An issuer may raise up to $150,000 per offering with the Start-up Exemption (i.e. a maximum amount of $300,000 per year). At this stage, there does not appear to be any prohibition relating to combining the offering of securities under the Start-up Exemption with other non-securities rewards or perks within the same crowdfunding campaign. The offering period will be limited to 90 days. The offering must provide for a minimum offering size corresponding to the amount needed to carry out the purpose for which the funds are sought. The minimum offering size will need to be fully subscribed in order for the funds to be released to the issuer.
Investors – Investors will be limited to $1,500 per investment. Each investor will need to provide an acknowledgement of risk in the prescribed form as to their understanding of the materials, the investment and the illiquid nature of the investment.
Offering Document – The offering materials can only be made available to potential investors on the portal's website. Standardized disclosure documents must be provided and must include information about the offering, the issuer and the portal. No financial statements are required.
Offered Securities – The type of securities that issuers will be able to offer under the Start-up Exemption will be limited to common shares, non-convertible preferred shares, securities convertible into common shares or non-convertible preferred shares, non-convertible debt securities linked to a fixed or floating interest rate (e.g. promissory notes) or units of a limited partnership. The securities will be subject to an indefinite hold period and may be resold only under a prospectus or another prospectus exemption.
Reporting – The issuer will need to deliver to the regulator at least 10 business days before the distribution (i) an "Issuer Information Form", (ii) an "Individual Information Form" for each promoter, officer, director and control person of the issuer, and (iii) the offering materials. The issuer must file a "Report of Distribution Form" within 30 days of the closing of the distribution.
Ongoing Disclosure – At this stage, the Start-up Exemption does not provide for any ongoing disclosure above any requirements already provided for in the issuer's corporate governance statute.
Comment Period Open until June 18, 2014
The CSA Participating Jurisdictions welcome all comments on the proposed exemptions on or before June 18, 2014.