ecfa toronto conference equity crowdfunding in canada

Brian Koscak, Partner, Cassels Brock & Blackwell LLP Co-Chair, Equity Crowdfunding Alliance of Canada Chair, Private Capital Markets Association of Canada April 24, 2014 @ Toronto, Ontario

REGULATION OF EQUITY CROWDFUNDING IN CANADA 2014 Annual Canadian Equity Conference

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Disclaimer

The opinions expressed today are provided in my personal capacity and do not necessarily reflect the opinions of Cassels Brock & Blackwell LLP or any of its clients. This presentation is for educational purposes only and should not be construed as legal advice and anyone considering raising capital or becoming a dealer or portal in Canada should consult with a lawyer specializing in Canadian securities law.

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Equity Crowdfunding in Canada

1. Equity Crowdfunding is legal in Canada under existing prospectus exemptions provided securities are sold through a registered dealer (exempt market dealer).

● Two prospectus exemptions

● Accredited investor exemption ● Offering memorandum exemption

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Accredited Investor Exemption

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Offering Memorandum Exemption

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1. SeedUps Canada ● working with an exempt market dealer

2. Optimize Capital

● Registered as an exempt market dealer

Who is doing it today in Canada

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Proposed New Equity Crowdfunding Eco-System of Capital Raising in Canada

● March 20, 2014, various Canadian securities regulators published for comment a new eco-system of capital raising in the private capital markets.

● The proposed new world order has four main silos:

Start-Up Crowdfunding Exemption

Equity Crowdfunding Exemption

Offering Memorandum Exemption

Accredited Investor Exemption

(Comment period ends June 18, 2014)



(Comment period ends May 28, 2014)

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Proposed Equity Crowdfunding Exemption

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Proposed Start-Up Exemption

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Comparison of Equity Crowdfunding Frameworks (Selling securities on the internet to the public)

Offering Memorandum

Exemption

Equity Crowdfunding

Exemption (Proposed)

Start-Up Crowdfunding


Issuer Restrictions

Applicable Jurisdictions All Canada except ON where it is proposed

ON, QB, MB, SK, NB, NS AB – monitoring comments

QB, MB, SK, NB, NS AB – monitoring comments BC – seeking comments

Canadian issuers only No Yes No, but head office requirement

Public and private issuers Both Both Private issuer only

Prohibitions on types of issuers or industries

No, except for ON/NB, investment funds and related issuers excluded

No investment funds, real estate issuer, issuers that do not have a business plan or related issuers

No investment funds or reporting issuers

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Offering Memorandum

Exemption

Equity Crowdfunding Exemption (Proposed)



Distribution Details

Restrictions on offered securities

No, except for ON, no complex securities such as structured finance products or specified derivatives

Simple securities and no derivatives.

Simple securities and no derivatives.

Issuer Caps No $1.5 Million $150,000/$300,000

Investor Caps BC Model – None AB Model - $10,000 unless an eligible investor Proposed OM Model – $10,000 unless an eligible investor then up to $30,000 (AB, SK, QB, ON, NB)

$2,500/$10,000 $1,500

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Offering Memorandum

Exemption

Equity Crowdfunding




Distribution Details - continued Limitation on offering period

No 90 days 90 days except for SK where it is 180 days

Concurrent offerings Yes Yes, on same terms Yes, except for SK

Restrictions on soliciting and advertising

No Yes Yes

Offering document requirement

Yes Yes Yes

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Offering Memorandum

Exemption

Equity Crowdfunding




Investor Protection Measures Financial information requirement

Yes Yes Yes

Audited financial statement requirement

Yes except for local Orders where amounts raised are less than $500,000

Yes, if more than $500,000 raised under any prospectus exemption since its formation AND expended more than $150,000

No

Cooling Off Period Yes Yes No, however under review

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Offering Memorandum

Exemption

Equity Crowdfunding


Start-Up Exemption (Proposed)

Investor Protection Measures - Continued Resale restrictions Yes Yes Yes

Ongoing disclosure requirement

No Proposed (AB, QB, ON, SK, and NB)

Yes

No

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Offering Memorandum

Exemption

Equity Crowdfunding


Start-Up Exemption (Proposed)

Regulation of Portal Intermediary required N/A Yes Yes

Intermediary required to be registered

N/A* * Yes, if the issuer/intermediary is in the “business of trading” securities

Yes No

Prohibited portal activities

N/A Yes Yes

Background checks by portal on individuals involved with issuer

N/A Yes Yes

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1. Accredited Investor Exemption ● Wealthy individuals ● If on-line through a registered exempt market dealer

2. Offering Memorandum Exemption ● The public/crowd ● If on-line through a registered exempt market dealer

3. Proposed Equity Crowdfunding Exemption (for small and medium sized enterprises or SMEs) ● Registered portal (i.e., restricted dealer, MaRS VX)

4. Proposed Start-Up Crowdfunding (for start-ups) ● Unregistered portal

Summary: Four Ways to do Equity Crowdfunding in Canada

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Cross-Border Equity Crowdfunding Opportunities

●U.S. broker-dealer working with a registered exempt market dealer in Canada

●Selling to accredited investors in the U.S. and Canada ●Selling to accredited investors in the U.S. and Canada and/or the public/crowd in Canada under the Offering Memorandum Exemption

●U.S. portal working with exempt market dealer or restricted dealer in Canada ●Note – U.S. portals/broker dealers need to comply with Canadian securities law when selling securities to Canadian investors.

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Questions

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Speaker Bios

Brian Koscak, B.A.(Hon), M.A., CIP, LLB., J.D. and LL.M is a Partner at the law firm of Cassels Brock & Blackwell LLP located in Toronto, Ontario and practices in the area of corporate and securities law. Brian is the Chair of the Private Capital Markets Association of Canada (formerly, the Exempt Market Dealers Association of Canada), a national not-for-profit organization representing exempt market dealers, issuers and compliance professionals across Canada. Brian is also the Chair of the Equity Crowdfunding Alliance of Canada, an alliance of funding portals, issuers, professionals and vendors who seek to promote and advocate for equity crowdfunding in Canada. Brian is a member of the Ontario Securities Commission’s Exempt Market Advisory Committee which is considering new ways to raise capital in Ontario’s private capital markets, including equity crowdfunding. Brian is actively involved in developing a viable crowdfunding framework for Canada. He has been mentioned in the media numerous times, spoken at numerous crowdfunding events and conferences and represents various exempt market dealers and portals involving their equity crowdfunding businesses. Brian can be reached by phone at 416-860-2955, by e-mail at [email protected] or on twitter @briankoscak. Brian also regularly writes about Canadian securities law matters on his personal blog at: www.briankoscak.com

© 2011–2013 CASSELS BROCK & BLACKWELL LLP. ALL RIGHTS RESERVED.

This document and the information in it is for illustration only and does not constitute legal advice. The information is subject to changes in the law and the interpretation thereof. This document is not a substitute for legal or other professional advice. Users should consult legal counsel for advice regarding the matters discussed herein.

Cassels Brock & Blackwell LLP

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ecfa toronto conference equity crowdfunding in canada

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