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Canada

In Canada the changes, which are slated to come into effect on Jan. 25 2016, are being adopted in Ontario, Manitoba, Quebec, New Brunswick and Nova Scotia. British Columbia has established rules ahead of these provinces.  The new rules will allow companies in these provinces to raise up to $1.5-million annually, with a $2,500 ceiling for individual investors per deal. Investors in Ontario will face an annual cap of $10,000 a year for total crowdfunding investments.

Accredited investors are those who are wealthy individuals that have liquid assets of over $1,000,000 and earn over $200,000 annually  will be able to invest up to $25,000 per investment, although Ontario will also impose a total annual crowdfunding limit of $50,000 for individuals.

Start-up Crowdfunding Exemption  is open to any resident who may purchase securities from any private company with its head office in British Columbia, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, and Quebec provided that following conditions are satisfied:

  • the individual invests no more than $1,500 per offering;
  • the company raising capital (the Issuer) distributes its securities through an online Funding Portal;
  • the Issuer cannot raise more than $250,000 per offering and is restricted to not more than two start-up crowdfunding offerings in a calendar year (not more than $500,000 per year); and
  • the Issuer distributes securities using the Start-up Crowdfunding Offering Document made available through the online Funding Portal.

Offering Memorandum Exemption – under this exemption, any resident may purchase securities from any issuer provided, before the purchaser signs the agreement to purchase the securities, the issuer:

  • obtains a signed risk acknowledgement form from the purchaser; and
  • delivers an offering memorandum, prepared in the required form, to the purchaser.
  • Accredited Investor Exemption – under this exemption, any resident of British Columbia may purchase securities from any issuer, provided the purchaser satisfies any of the following criteria:
  • earned a net income before taxes exceeds $200,000 (or $300,000 combined income with spouse) in each of the two most recent years and who reasonably expects to exceed that net income in the current year;
  • has alone or with spouse at least $1 million in financial assets (cash and securities) before taxes. (In calculating an individual’s financial assets, any outstanding loans incurred to acquire those assets must be deducted.);
  • holds alone or with spouse at least $5 million in net assets; or
  • is a corporation, limited partnership, trust or estate having net assets of at least $5 million.

Family, Friends & Business Associates Exemption – under this exemption, any resident of British Columbia may purchase securities from any issuer, provided the purchaser satisfies any one of the following criteria:

  • is a spouse, parent, grandparent, brother, sister, child or grandchild of a director, executive officer, founder or control person of the issuer;
  • is a parent, grandparent, brother, sister, child or grandchild of the spouse of a director, executive officer, founder or control person of the issuer;
  • is a close personal friend of a director, executive officer, founder or control person of the issuer; or
  • is close business associated of a director, executive officer, founder or control person of the issuer.

United States

The Securities and Exchange Commission voted 3-1 to adopt the next generation rules for equity crowdfunding this morning for entrepreneurs and small-business owners. Equity crowdfunding is the exchange of a piece of a company for cash. Before today’s ruling, entrepreneurs could only sell pieces of their companies to accredited investors, or those individuals who meet sufficient levels of assets and income. With the passing of this new set of rules, entrepreneurs can sell pieces of their companies to anyone who has the interest and cash to do so.

Funding portals will be able to begin registering with the SEC on Jan. 29.

According to the rules which were just adopted, a start-up is able to raise up to $1 million through online equity crowdfunding from unaccredited investors in a 12-month period.

The rules also put a limit on the amount that these unsophisticated investors can put into start-up’s through these online portals. If a potential investor’s annual income or net worth is less than $100,000, then the investor can invest either 5 percent of his or her combined net worth or a maximum of $2,000 in a 12-month period, whichever is greater.  Meanwhile, if an investor’s annual income and net worth are equal to or more than $100,000, then the individual can invest no more than 10 percent of the lesser of their annual income or net worth. No matter how wealthy an individual is, the maximum amount an investor can put into start-up’s through online equity crowdfunding in any given year is $100,000.