The Ontario Securities Commission is conducting a broad review of the “exempt market”, in which securities are issued and acquired without the need for a prospectus. The goal of the review is to identify possible new prospectus exemptions that would facilitate capital raising for business enterprises, particularly start-ups and small and medium-sized enterprises.
In a recently published progress report, the OSC summarizes work completed to date and provides a summary of consultations held with various stakeholders. One particularly well-received proposal was the “crowdfunding” exemption, a method of funding a project through small amounts of money raised from a large number of people over the internet via an internet portal intermediary.
The OSC has identified some possible investor protection measures that might accompany a crowdfunding prospectus exemption, including:
- a maximum annual amount that a company may raise by crowdfunding ($1.5 million)
- crowdfunding limits of $2,500 on a single investment and $10,000 in a 12 month period
- a streamlined point of sale disclosure document
- mandatory risk acknowledgment
- a two business day “cooling off” period.
It is still unclear when a crowdfunding prospectus exemption might become available or what form it will eventually take.
Some crowdfunding portals already operate in Canada and offer investors (called “backers”) the opportunity to support a project without the distribution of securities. Instead, backers are promised prizes and other incentives upon successful project completion. The OSC’s exempt market review is only aimed at crowdfunding that would involve the distribution of securities.