The British Columbia Securities Commission (BCSC) has proposed a number of exemptions that would affect the way certain organizations could raise funds using crowdfunding.
The exemptions would allow these organizations to distribute securities without a prospectus and without having to register with the securities legislation body. The BCSC is asking for public comment on the proposal.
“We feel that this crowdfunding model could address a gap in the financing needs of start-up and early stage companies in B.C.,” said BCSC chair Brenda Leong.
“We think it could fit well within the existing exempt market regime available to small businesses.”
The exemptions would allow these companies to crowdfund without a prospectus if they follow certain criteria, which are:
- no more than $150,000 can be raised per offering, no more than twice per year;
- no single investor can invest more than $1,500 per offering;
- the offering is made using an online funding portal; and
- the offerer must provide investors with a streamlined offering document through the portal.
Under the exemptions, organizations could conduct crowdfunding without being registered as long as they do not offer investment advice through their portals, confirm that investors understand the offering document and risks involved and hold investors’ funds in trust until a minimum amount is raised as required to close the offering.
B.C. is part of a group of provincial securities organizations considering the proposed exemptions, which are modeled after those adopted by Saskatchewan in December 2013.
Crowdfunding is a method of funding a company by selling small amounts of equity to many investors over the internet. It is considered by some to be high-risk with unlikely returns, and carry a high probability that investors could simply lose their entire investments.
In October 2013, the Canadian Foundation for Advancement of Investor Rights (FAIR Canada) issued a report that argued that most investors have no concept of the risks involved.
The BCSC will be inviting public comment until June 18, 2014. More details can be found at bcsc.bc.ca.
