From the Regulators

Exemptions intended to help firms raise capital, while protecting investors

By James Langton |

The Ontario Securities Commission Thursday proposed four new prospectus exemptions, including one for equity crowdfunding.

The OSC has formally released its slate of proposed new exemptions, which would give startup firms several new ways to raise capital. The proposals are out for comment until June 18.

In its proposals, the commission is seeking to:

> bring back the offering memorandum (OM) exemption;

> introduce the OSC's version of an exemption for existing shareholders, similar to one adopted recently by most other provinces;

> create a new exemption to allow firms to raise funds from friends and family; and

> introduce equity crowdfunding, which would allow startups to raise funds from a large number of investors through registered online platforms.

The commission says that the exemptions "are intended to facilitate capital raising by businesses at different stages in their development, while maintaining an appropriate level of investor protection."

The new OM exemption allows firms to raise capital based on an offering memorandum providing upfront disclosure, and imposes ongoing disclosure requirements. For investors that don't qualify as accredited investors, the exemption imposes investment limits of either $10,000 or $30,000 per year depending on their financial circumstances.

Regulators in Alberta, Quebec, New Brunswick, and Saskatchewan, are also proposing to amend their own existing OM exemptions to impose similar requirements.

The so-called friends & family exemption, which allows companies to raise capital from investors that are within their personal networks, is largely harmonized with existing exemptions in other provinces. And, the new exemption to allow firms to raise funds from existing shareholders is also harmonized with an exemption that was adopted earlier this month by most other provinces. It imposes an investment limit of $15,000 where investors don't receive suitability advice, and it requires companies to distribute securities equitably among shareholders.

The proposed new crowdfunding exemption limits companies to raising up to $1.5 million during a 12-month period. It also limits investors to risking $2,500 in a single investment, and up to $10,000 per year. It also imposes registration requirements on online crowdfunding portals and sets some minimum disclosure requirements for issuers.

Separately, regulators in New Brunswick, Manitoba, Nova Scotia, Quebec and Saskatchewan are also proposing their own version of this exemption. The five provinces are also considering a second crowdfunding exemption similar to the one that was adopted by Saskatchewan late last year, which sets lower investment and capital raising limits, but is only available to non-reporting issuers, and doesn't require portals to register. (See Investment Executive, Provinces choose different paths to equity crowdfunding, March 20, 2014.)

British Columbia is only proposing the second of these two exemptions, which is aimed more at startups.

Next: Differences remain between jurisdictions