vanfunding 2016: mechanics of securities crowdfunding regulations
TRANSCRIPT
Securities Crowdfunding Regulations
Elliott Mak Senior Legal Counsel, Corporate FinanceBC Securities Commission
October 18, 2016
• Part 1 : Overview of securities regulations
• Part 2 : Using the start-up crowdfunding exemptions
• Part 3 : Regulations in other jurisdictions
Agenda
Overview of Securities Regulations
BCSC Mission
• Protect investors
• Facilitate efficient capital markets
What Exemptions Do We Need?
• Prospectus requirement
• Registration requirement
Current Regulations in BC
• BCI 45-535 Start-up Crowdfunding
• Offering Memorandum
Regulations Outside BC
• MI 45-108 Crowdfunding
• ASC Rule 45-517 Prospectus exemption for start-up business
• SEC Crowdfunding Regulation
What About Debt Crowdfunding?
• “Security” includes evidence of indebtedness
• Distribution triggers prospectus requirement
Using the Start-up Crowdfunding Exemptions
How Start-up Crowdfunding Works
The Instrument
• BC Instrument 45-535 Start-up Crowdfunding Registration and Prospectus Exemptions
• Form 1 - Offering Document
• Form 2 - Risk Acknowledgement
• Form 3 - Funding Portal Information Form
• Form 4 - Funding Portal Individual Information Form
Start-up Crowdfunding Exemption
• Prospectus Exemption
• Dealer Registration Exemption
Start-up Crowdfunding
• Up to $250,000, two times per year
• Investor limit of $1,500
• Through registered portal or portal using registration exemption
Who Can Participate?
• Not available to reporting issuer or investment fund
• Located in participating jurisdiction
• No common principals with portal
Offering Document
• Details: idea, business and distribution
• No financial statement requirements
• Must be true
Raising the Minimum Amount
• 90 days to raise minimum amount
• Funds held in trust until closing
• Concurrent distributions
How to Invest
• Electronically through portal
• Acknowledge risk warning
• Right of withdrawal
Risk Acknowledgement Form
Post-Closing
• Deliver confirmation to purchaser
• Filings
Offering Document
Exempt Distribution Report
• Restricted period
Using the Prospectus Exemption
• Read published guidance including offering document instructions
• File exempt distribution report
Registration Exemption
• Issuers must use a funding portal
• Who can operate funding portals?
Registered in an appropriate category
Exempt – if they meet all conditions
Registration Exemption
• Key conditions of the registration exemption:
Deliver prescribed filings
No investment advice
Holds investors’ assets in trust
Registration Exemption
• Other key conditions:
Not registered under securities legislation
Head office located in Canada
Exempt portal acknowledgement
Registered Firms
• Registered firms must:
Confirm they meet certain conditions
Registered in an appropriate category
File a Form 33-109F5 Change of Registration Information
Setting Up a Funding Portal
• Read funding portal guide
• Make test environment available
Additional Resources
• CSA Notice 45-316
• Capital Raising for Small Business
• Practice guides
Regulations in Other Jurisdictions
MI 45-108
• $1,500,000 raised by issuer group within 12-month period
• Investment limit of $2,500 (many exceptions)
• Financial statements
Point-of-sale
ongoing
MI 45-108 Funding Portals
• Must be restricted dealer, investment dealer or EMD
• Restricted dealer exempt from KYC and suitability
• Limited due diligence required on issuer
BCI 72-505
• BC company can use MI 45-108 to access investor outside BC
• All conditions of MI 45-108 must be met
Start-Up Business Prospectus (AB)
• Prospectus exemption only – no portal required
• $1,000,000 maximum aggregate raise (lifetime) for issuer group
• Tiered investment limits
Crowdfunding Availability
Exemption Available Jurisdictions
MI 45 – 108 only ON
Start-up crowdfunding only BC
AB start-up business only AB
MI 45-108 and start-up crowdfunding SK, MN, QC, NB, NS
No “crowdfunding” exemption NL, PE, YK, NT, NU
SEC Crowdfunding
• $1 million in a 12-month period with tiered investment limits
• Financial statements
Point-of-sale
Ongoing
• “Intermediary” must be registered as a broker dealer or “Funding portal”
Questions
For More Information
www.bcsc.bc.ca
Elliott Mak
Senior Legal Counsel
Corporate Finance