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Part 5 of a series on Crowdfunding

Entrepreneurs seeking to raise money by selling shares to the public through crowdfunding in Ontario may soon have one obstacle fewer if recommendations contained in the most recent report by the Ontario Securities Commission (“OSC”)  are put into place.

On August 28, 2013, the OSC published OSC Notice 45-712 Progress Report on Review of Prospectus Exemptions to Facilitate Capital Raising.

The report sets outs various exemptions to the prospectus issuance requirement which would result in small and medium-sized enterprises enjoying easier access to new sources of capital.

The exemptions being considered include:

1. crowdfunding exemption
2. family friends and business associates exemption;
3. an offering memorandum exemption; and
4. a streamlined rights offering exemption and possible exemption based on a reporting issuers continuance disclosure and existing security holder base.

By creating these exemptions, the OSC is facilitating the funding process by removing expensive and onerous barriers, especially for small and medium-sized enterprises for whom spending precious resources on a prospectus is less than desirable.

As some general background, when a corporation seeks to raise money by issuing equity to the public, it must issue a prospectus. A prospectus includes specific, detailed disclosure about the corporation, its business, and the securities being offered. Generally, this is long, burdensome and costly to prepare.

There will likely be other forms of protection limiting the above exemptions. For example, the report makes reference to capping the amount that an individual investor can contribute when purchasing equity through crowdfunding.

The next step will be to see what proposal the OSC releases for public consultation.

Visit these links for my earlier posts with a synopsis of crowdfunding and equity crowdfunding:

1. Crowdfunding – the Loonie Train gone Viral
2. Equity Crowdfunding?
3. Ontario Approves an “Equityesque” Crowdfunding Portal
4. Equity Crowdfunding in Saskatchewan – A Step Ahead

Seth B. Abbey, a corporate lawyer at Spiegel Sohmer with a focus on mergers and acquisitions, private equity financing and tax-driven reorganizations, is available to answer your questions about this and other topics.