Welcome to Equity Crowdfunding !

2015-12-22

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WELCOMETOEQUITYCROWDFUNDING!

VINCENTBERGERONANDMARTINGAUTHIER*
ROBIC,
LLP
L
AWYERS,PATENTANDTRADE-MARKAGENTS

“EquitycrowdfundingisnowallowedinCanadaandadaptedtostart-upcompaniesin
Quebec,BritishColumbia,Saskatchewan,Manitoba,NewBrunswickandNova
Scotia.”
Companieslookingforfinancingoncrowdfundingportalscanquicklybecomethe
darlingsofeagertoinvestinternetuserswithjustafewclicks.Thesnowballeffect
thatsetsincanlaterleadtosignificantand,forsome,unexpectedresults.Moreand
morecompaniesachievesuccess,althoughperhapsmoremodestlybutjustas
effectively,withthehelpofcrowdfunding.Thegrowingimportanceofthismethodof
raisingcapitalontheinternethasledCanadiansecuritiesregulationauthoritiesto
institutemeasurestoprovideaccesstoothersourcesofcapital,byrelaxingthe
registrationrulesandprospectusrequirementsforissuersofsecurities.

ContextoftheProposedandAdoptedMeasures
Astoucheduponinthefirstarticleofourseriesonthesubject,“equity”capital
financingisoneofthreetypesofcrowdfunding,alongwith“pledge”crowdfunding
and“donationandreward”crowdfunding.Itamountstothecollectionoffundsfroma
potentiallyhighnumberofpurchasers,byissuingsharesormarketablesecurities
withareturnoninvestment(ROI),suchasdebtsecurities(bonds)orsecuritiesthat
confertherighttoparticipateinthecompany(shares),throughaninternetportal.To
issuesecuritiestothepublicandreceivecapital,anissuermustnormallyfilea
prospectuswiththeappropriateauthorityinitsprovinceorterritory.However,most
emergingcompaniessimplydonothavetheresourcestofulfilthisobligation,which
canbecostly.Untilrecently,theCanadianlegalframeworkregardingequity
crowdfundingwasnotatalladaptedtothemeansortheneedsofstart-up
companies.
InQuebec,DraftRegulation45-108RespectingCrowdfundingwasfiledonMarch
20th,2014,andisstillawaitingsanctionfromthecompetentfederalbodies/agencies.
Thisregulationproposesasolutiontotheproblemmentionedabove,byputtingin

©CIPS,2015.*FromROBIC,LLP,amultidisciplinaryfirmofLawyers,andPatentandTrade-markAgents.Published
intheFall2015(Vol.19,no.1)Newsletterofthefirm.Publication068.195E.

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placeprospectusexemptionsforcompanieswhowishtousethistypeoffinancing.In
themeantime,itisrathertheMultilateralCSANotice45-316,adoptedonMay14th,
2015,bythesecuritiesregulatoryauthoritiesofBritishColumbia,Saskatchewan,
Manitoba,Quebec,NewBrunswickandNovaScotia,thatintroducedharmonized
registrationandprospectusexemptions,allowingstart-upcompaniestoraisecapital
inthesejurisdictions,undercertainconditions.ThesameNoticealsoestablishes
anothertypeofexemption,applicabletofundingportalsthistime,whichprecludes
themfromhavingtoregisterasaneligibleinvestmentdealer.AsforOntario,itstands
apartandpromisestopublishitsownexemption.Theprovince’sprojectissaidto
drawstronglyfromtheRegulation45-108inordertocoverbothstart-upsandwell
establishedcompanies.It’sadoptionisscheduledforFall2015.

WhatStart-upsNeedtoKnow
InQuebec,theAutoritédesmarchésfinancierssuggestsvalidatingaseriesofpoints
forstart-upcompanieswhowishtotakeadvantageoftheprospectusexemptions
underNotice45-316tolaunchacrowdfundingcampaign.Ideally,thesecompanies
shouldevaluateothersourcesoffinancing,suchasaloanfromafinancialinstitution,
estimatethetimeandeffortrequiredtopreparethecampaign,decideonthetypeof
securitiestobeoffered,aswellastheirquantityandsubscriptionprice,andabove
all,makesurethatitwillbepossibletomanageahighnumberofpurchasers.

Oncetheseelementshavebeenchecked,companieswhowishtogoaheadneedto
complywiththeprospectusexemptionconditions.Theymust:
·Havetheirheadofficeinoneofthesixparticipatingprovinces;
·Beanon-reportingissuer,undertheapplicablesecuritieslegislation;
·Useanonlinefundingportalthatreliesonaregistrationexemptionforstart-up
companies,orwhichisoperatedbyaregisteredinvestmentdealerwhomeets
theconditionsoftheapplicablesecuritieslegislation;
·Provideanofferingdocumentontheportalthatincludesbasicinformationon
thecompany,itsdirectorsandexecutiveofficers,andtheircampaign,including
howtheyintendtousethefundsraisedandtheminimumofferingamount;
·Issueeligiblesecurities,suchascommonshares,non-convertiblepreference
sharesornon-convertibledebtsecuritieslinkedtoaninterestrate;
·Limitpossibleinvestmentsto$1500perpurchaser;

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·Providetoeachpurchaseracontractualrighttowithdrawtheirinvestmentwithin
48hoursofeitherthepurchaser’ssubscriptionornotificationbythefunding
portaltothepurchaserthattheofferingdocumenthasbeenamended;
·Raiseamaximumof$250,000percrowdfundingcampaign.Nomorethantwo
campaignsarepermittedpercalendaryear,foreachcompany;
·Makesurethatnoneofthepromotors,controlpersons,officersordirectorsof
thefundingportalisoneoftheprincipalsoftheissuer;
·Raisetheminimumamountoffundsprojectedintheofferingdocumentwithin
90daysofthedocumentbeingmadeavailabletopurchasersontheportal.The
portalkeepsthefundsintrustuntiltheminimumamountisreached,afterwhich
thesecuritiescanbeissued.Iftheminimumamountisnotmet,theportal
reimbursesthefundstopurchasers.

TheupcomingentryintolawofRegulation45-108RespectingCrowdfundingwill
broadenthescopeofprospectusexemptionsofferedunderthe45-136Noticeto
accommodatethecorporateneedsofwealthiercompaniesorinamoreadvanced
stateofdeveloppment.Forexample,bothreportingandnon-reportingissuerswillbe
eligibletousethem,andtheywillbeabletosecurefundsofupto1.5milliondollars
peryear,comparedto250000$withthe45-316Notice.However,saleswillneedto
bemadethroughaportalthatisoperatedbyaregisteredinvestmentdealer,and
companieswillneedtomeetcertainrequirementsregardingtheircurrentfinancial
status,theuseofthefundedproduct,andotherimportantevents.

Thisconcludesourthirdarticleoncrowdfunding.Inthefirstarticle,wegavean
overviewofthephenomenonitself,tosubsequentlybringtolighttheintellectual
propertyissuesatstakeinthesecondarticle,onlytoconcludeherewithadetailed
analysisofequitycrowdfundingforstart-ups.Wewillissueafourtharticleonthe
subject,onceRegulation45-108RespectingCrowdfundingcomesintoeffect.Until
then,maytheequitycrowdfundingbegin!

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agroupoflawyersandofpatentandtrademarkagentsdedicatedsince1892to
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industrialdesignsandutilitypatents;trademarks,certificationmarksand
indicationsoforigin;copyrightandentertainmentlaw,artistsandperformers,
neighbouringrights;computer,softwareandintegratedcircuits;
biotechnologies,pharmaceuticalsandplantbreeders;tradesecrets,know-
how,competitionandanti-trust;licensing,franchisingandtechnology
transfers;e-commerce,distributionandbusinesslaw;marketing,publicityand
labelling;prosecutionlitigationandarbitration;duediligence.
®/MD

COPYRIGHTER
TM/MC

IDEASLIVEHERE
®/MD

ILATOUTDEMÊMEFALLUL’INVENTER!
®/MD

LAMAÎTRISEDESINTANGIBLES
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LEGERROBICRICHARD
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NOSFENÊTRESGRANDESOUVERTESSURLEMONDEDESAFFAIRES
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PATENTER
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orstylizedR
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