Question of the Week: What are the prospectus exemptions? Part 6: Start-up crowdfunding exemption

Submitted by nsscadmin on Wed, 09/29/2021 - 09:00

We’re getting near the end of our blog series on prospectus exemptions with Part 6. This week’s post looks at the start-up crowdfunding exemption.

Under this exemption an issuer can sell securities to anyone independent of their relationship or wealth

To raise capital by using the start-up crowdfunding exemption and issuer must complete a form of disclosure document known as an offering document [45-110F1 Offering Document] that outlines their idea and business plan to investors. This document must be made available online to potential investors through a funding portal. Once the offering document has been posted to the funding portal the issuer has 90 days to raise funds and complete the offering. The maximum an issuer can raise is $1,500,000 in a twelve-month period. The maximum each investor can purchase is $2,500. If the investor has obtained suitability advice from a registered dealer, they can purchase up to $10,000

If the issuer successfully completes their offering, they must file a report of exempt distribution and the offering document with securities regulators within 30 days. Any investor that purchases securities through a crowdfunding portal must complete a risk acknowledgement form [Form 45-110F2]. By signing this form, the investor acknowledges the risk and confirms they have read the offering document.

You should consult with legal counsel familiar with securities laws if you have any questions about the prospectus exemptions and how to comply with the requirements to rely on the prospectus exemption.

Failure to file annual financial statements.
Failure to file interim financial statements.
Failure to file an annual or interim management’s discussion and analysis (MD&A) or an annual or interim management report of fund performance (MRFP).
Failure to file an Annual Information Form (AIF).
Failure to file a certification of annual or interim filings required by Multilateral Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (MI 52-109).
Failure to file required proxy materials or a required information circular.
Failure to file an issuer profile supplement on the System for Electronic Disclosure by Insiders (SEDI).
Failure to file a material change report.
Failure to provide a written update after filing a confidential report of a material change.
Failure to file a business acquisition report.
Failure to file annual oil and gas disclosure prescribed by National Instrument 51-101 Standards of Disclosure of Oil and Gas Activities (NI 51-101) or technical reports for a mineral project required under NI 43-101 Standards of Disclosure for Mineral Projects (NI 43-101).
Failure to file a mandatory news release.
Failure to file corporate governance disclosure as required by national Instrument 58-101 Disclosure of Corporate Governance Practices (NI 58-101).
Failure to file audit committee disclosure as required by Multilateral Instrument 52-110 Audit Committees (MI 52-110) or BC Instrument 52-509 Audit Committees.
Failure to include disclosure in an issuer’s MD&A relating to disclosure controls and procedures and their direct effectiveness that is referred to in a certificate filed under MI 52-109.
Financial statements of the reporting issuer, or the auditors’ report accompanying the financial statements, do not comply with the requirements of NI 51-102 Continuous Disclosure Obligations (NI 51-102), National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) or National Instrument 52-107 Acceptable Accounting Principles, Auditing Standards and Reporting Currency (NI 52-107).
The reporting issuer has acknowledged that its financial statements, or the auditors’ report accompanying the financial statements, may no longer be relied upon.
The reporting issuer’s AIF, MD&A, MRFP, information circular, or business acquisition reports do not contain information for each of the content items required by NI 51-102 or NI 81-106.
The reporting issuer’s technical disclosure or other reports do not comply with the disclosure requirements of NI 43-101 or 51-101.
Failure to pay a fee required by the Act or the regulations.
Failure to comply with any other requirement related to continuous disclosure.