The Corporate Finance Branch of the Ontario Securities Commission (OSC) released its 2014-2015 Annual Report on July 14, 2015.  In it, OSC staff announced plans to finalize and introduce the new Offering Memorandum (OM) exemption from prospectus requirements and the crowdfunding regime in the fall of 2015. The OSC worked closely with multiple jurisdictions in order to collect and review over 916 letters concerning the OM exemption and over 45 letters for the crowdfunding exemption. The two key themes that arose in the comment letters were the need for greater harmonization between jurisdictions and concerns about restrictions on capital raising.

Key elements of the crowdfunding regime:  The Annual Report stated that the key elements of the crowdfunding regime would include the following:

  • streamlined offering document at point of sale
  • limit of $1.5 million on amount an issuer group can raise in a 12-month period
  • all investments must be made through a funding portal that is registered with securities regulators
  • low investment limits for investors who do not qualify as accredited investors ($2,500 in a single investment and $10,000 under the exemption in a calendar year) with higher investment limits for accredited investors and no investment limits for permitted clients
  • risk acknowledgement form signed by investors
  • ongoing disclosure made available to investors, including annual financial statements, annual notice regarding the use of the funds raised and notice of prescribed significant events.

Key elements of the OM exemption:  The Annual Report indicated that the key elements of the OM exemption would include the following:

  • comprehensive disclosure document at point of sale
  • no limit on the amount of capital an issuer can raise
  • investment limits for investors, other than those who would qualify as accredited investors or investors who would qualify to invest under the family, friends and business associates exemption, of between $10,000 and $100,000 depending on whether or not the investor was an eligible investor as defined in applicable legislation and received advice from a portfolio manager or dealer with respect to the suitability of the investment
  • risk acknowledgement form signed by investors
  • issuers are required to provide ongoing disclosure to investors regarding the expenditure of funds and notice of prescribed significant events.

This announcement by the OSC is certainly encouraging for many of the industries that will leverage these categories. For start-up initiatives, these exemptions will provide more alternatives to the traditional capital raising exemptions.

Kai Kramer