Regulation of Equity Crowdfunding in Canada
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REGULATION OF EQUITY CROWDFUNDING IN CANADA
Silicon Valley Meets Crowdfunders Second Annual Conference and Expo
Brian Koscak, Partner, Cassels Brock & Blackwell LLP
Co-Chair, Equity Crowdfunding Alliance of Canada
Chair, Private Capital Markets Association of Canada
April 3-4, 2014 @ Palo Alto, CA
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Disclaimer
The opinions expressed today are provided in my personal capacity and do not necessarily reflect the opinions of Cassels Brock & Blackwell LLP or any of its clients.
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This presentation is for educational purposes only and should not be construed as legal advice and anyone considering raising capital or becoming a dealer or portal in Canada should consult with a lawyer specializing in Canadian securities law.
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Equity Crowdfunding in Canada
1. Equity Crowdfunding is legal in Canada under existing prospectus exemptions provided securities are sold through a registered dealer (exempt market dealer).
● Two prospectus exemptions
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● Two prospectus exemptions
● Accredited investor exemption
● Offering memorandum exemption
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Accredited Investor Exemption
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Offering Memorandum Exemption
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1. SeedUps Canada
● working with an exempt market dealer
Who is doing it today in Canada
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2. Optimize Capital
● Registered as an exempt market dealer
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Proposed New Equity Crowdfunding Eco-System of Capital Raising in Canada
● March 20, 2014, various Canadian securities regulators published for comment a new eco-system of capital raising in the private capital markets.
● The proposed new world order has four main silos:
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Start-Up Crowdfunding Exemption
Equity CrowdfundingExemption
Offering Memorandum Exemption
AccreditedInvestorExemption
(Comment period ends June 18, 2014)
(Comment period ends June 18, 2014)
(Comment period ends June 18, 2014)
(Comment period ends May 28, 2014)
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Proposed Equity Crowdfunding Exemption
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Proposed Start-Up Exemption
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Comparison of Equity Crowdfunding Frameworks (Selling securities on the internet to the public)
OfferingMemorandum
Exemption
Equity Crowdfunding
Exemption (Proposed)
Start-Up Crowdfunding
Exemption(Proposed)
Issuer Restrictions
Applicable Jurisdictions All Canada except ON ON, QB, MB, SK, QB, MB, SK, NB, NS
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Applicable Jurisdictions All Canada except ON
where it is proposed
ON, QB, MB, SK,
NB, NS
AB – monitoring
comments
QB, MB, SK, NB, NS
AB – monitoring
comments
BC – seeking comments
Canadian issuers only No Yes No, but head office
requirement
Public and private issuers Both Both Private issuer only
Prohibitions on types of
issuers or industries
No, except for ON/NB,
investment funds and
related issuers excluded
No investment funds, real
estate issuer, issuers that
do not have a business
plan or related issuers
No investment funds or
reporting issuers
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Comparison of Equity Crowdfunding Frameworks (Selling securities on the internet to the public)
OfferingMemorandum
Exemption
Equity CrowdfundingExemption (Proposed)
Start-Up Crowdfunding
Exemption(Proposed)
Distribution Details
Restrictions on offered
securities
No, except for ON, no
complex securities such
Simple securities and
no derivatives.
Simple securities and
no derivatives.
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securities complex securities such
as structured finance
products or specified
derivatives
no derivatives. no derivatives.
Issuer Caps No $1.5 Million $150,000/$300,000
Investor Caps BC Model – NoneAB Model - $10,000 unless an eligible investorProposed OM Model –$10,000 unless an eligible investor then up to $30,000 (AB, SK, QB, ON, NB)
$2,500/$10,000 $1,500
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Comparison of Equity Crowdfunding Frameworks (Selling securities on the internet to the public)
OfferingMemorandum
Exemption
Equity Crowdfunding
Exemption (Proposed)
Start-Up Crowdfunding
Exemption(Proposed)
Distribution Details - continued
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Limitation on offering
period
No 90 days 90 days except for SK
where it is 180 days
Concurrent offerings Yes Yes, on same terms Yes, except for SK
Restrictions on
soliciting and
advertising
No Yes Yes
Offering document
requirement
Yes Yes Yes
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Comparison of Equity Crowdfunding Frameworks (Selling securities on the internet to the public)
OfferingMemorandum
Exemption
Equity Crowdfunding
Exemption (Proposed)
Start-Up Crowdfunding
Exemption(Proposed)
Investor Protection Measures
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Financial information
requirement
Yes Yes Yes
Audited financial
statement requirement
Yes except for local
Orders where
amounts raised are
less than $500,000
Yes, if amounts raised
exceed $500,000
No
Cooling Off Period Yes Yes No, however under
review
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Comparison of Equity Crowdfunding Frameworks (Selling securities on the internet to the public)
OfferingMemorandum
Exemption
Equity Crowdfunding
Exemption (Proposed)
Start-Up Exemption(Proposed)
Investor Protection Measures - Continued
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Investor Protection Measures - Continued
Resale restrictions Yes Yes Yes
Ongoing disclosure
requirement
No
Proposed (AB, QB,
ON, SK, and NB)
Yes No
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Comparison of Equity Crowdfunding Frameworks (Selling securities on the internet to the public)
OfferingMemorandum
Exemption
Equity Crowdfunding
Exemption (Proposed)
Start-Up Exemption(Proposed)
Regulation of Portal
Intermediary required N/A Yes Yes
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Intermediary required N/A Yes Yes
Intermediary required
to be registered
N/A*
* Yes, if the
issuer/intermediary is
in the “business of
trading” securities
Yes No
Prohibited portal
activities
N/A Yes Yes
Background checks by
portal on individuals
involved with issuer
N/A Yes Yes
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1. Accredited Investor Exemption
● Wealthy individuals
● If on-line through a registered exempt market dealer
2. Offering Memorandum Exemption
Summary: Four Ways to do Equity Crowdfunding in Canada
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● The public/crowd
● If on-line through a registered exempt market dealer
3. Proposed Equity Crowdfunding Exemption (for small and
medium sized enterprises or SMEs)
● Registered portal (i.e., restricted dealer, MaRS VX)
4. Proposed Start-Up Crowdfunding (for start-ups)
● Unregistered portal
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Cross-Border Equity Crowdfunding Opportunities
●U.S. broker-dealer working with a registered exempt market dealer in Canada
●Selling to accredited investors in the U.S. and Canada
●Selling to accredited investors in the U.S. and Canada and/or the public/crowd in Canada under the Offering Memorandum
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the public/crowd in Canada under the Offering Memorandum Exemption
●U.S. portal working with exempt market dealer or restricted dealer in Canada
●Note – U.S. portals/broker dealers need to comply with Canadian securities law when selling securities to Canadian investors.
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Questions
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Speaker Bios
Brian Koscak, B.A.(Hon), M.A., CIP, LLB., J.D. and LL.M is a Partner at the law firm of Cassels Brock & Blackwell LLP located in Toronto, Ontario and practices in the area of corporate and securities law. Brian is the Chair of the Private Capital Markets Association of Canada (formerly, the Exempt Market Dealers Association of Canada), a national not-for-profit organization representing exempt market dealers, issuers and compliance professionals across Canada. Brian is also the Chair of the Equity Crowdfunding Alliance of Canada, an alliance of funding portals, issuers, professionals and vendors who seek to
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of Canada, an alliance of funding portals, issuers, professionals and vendors who seek to promote and advocate for equity crowdfunding in Canada. Brian is a member of the Ontario Securities Commission’s Exempt Market Advisory Committee which is considering new ways to raise capital in Ontario’s private capital markets, including equity crowdfunding. Brian is actively involved in developing a viable crowdfunding framework for Canada. He has been mentioned in the media numerous times, spoken at numerous crowdfunding events and conferences and represents various exempt market dealers and portals involving their equity crowdfunding businesses. Brian can be reached by phone at 416-860-2955, by e-mail at [email protected] or on twitter @briankoscak. Brian also regularly writes about Canadian securities law matters on his personal blog at: www.briankoscak.com
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Cassels Brock & Blackwell LLP
Suite 2100, Scotia Plaza Suite 2200, HSBC Building
40 King Street West 885 West Georgia Street
Toronto, ON Canada M5H 3C2 Vancouver, BC Canada V6C 3E8
Tel: 416 869 5300 Tel: 604 691 6100
Fax: 416 350 8877 Fax: 604 691 6120
10383661 v.1
© 2011–2013 CASSELS BROCK & BLACKWELL LLP. ALL RIGHTS RESERVED.
This document and the information in it is for illustration only and does not constitute legal advice. The information is subject to changes
in the law and the interpretation thereof. This document is not a substitute for legal or other professional advice. Users should consult
legal counsel for advice regarding the matters discussed herein.