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Crowdfunding websites already allow people to make small donations to help companies raise funds, but Canadian companies were not allowed to issue securities that give investors a chance to own part of a company. (milo827/Getty Images/iStockphoto)
Crowdfunding websites already allow people to make small donations to help companies raise funds, but Canadian companies were not allowed to issue securities that give investors a chance to own part of a company. (milo827/Getty Images/iStockphoto)

Six provinces approve crowdfunding, Ontario to develop separate standards Add to ...

Small companies in six provinces will be allowed to raise capital through crowdfunding websites, but Ontario says it will not participate in the new rules and will develop separate standards.

Provincial securities regulators in British Columbia, Saskatchewan, Manitoba, Quebec, New Brunswick and Nova Scotia announced Thursday that they will allow startup and early-stage companies to issue shares to investors through crowdfunding websites, providing a new source of financing.

“Crowdfunding is an attractive way for startups to raise capital,” said Louis Morisset, chair of the Autorité des marchés financiers, Quebec’s securities regulator.

“This regime addresses micro-capitalization needs and issues, which are more local in nature and sometimes industry-specific.”

The rules will allow companies to raise a maximum of $500,000 in a year – but no more than $250,000 in one offering – through approved Internet funding sites. No individual will be allowed to invest more than $1,500 per distribution, and people will have the right to withdraw their investment offer within 48 hours.

Crowdfunding websites already allow people to make small donations to help companies raise funds, but Canadian companies were not allowed to issue securities that give investors a chance to own part of a company.

Securities regulators around the world are facing pressure to allow companies to raise funds from investors through crowdfunding. The U.S. Securities and Exchange Commission adopted rules this year to allow companies to sell as much as $50-million of shares a year through crowdfunding sites.

The new Canadian rules will apply only to small startups and will not allow bigger companies that are already registered to distribute securities – known as reporting issuers – to participate. The six provincial regulators said they are still developing crowdfunding rules for reporting issuers, which they expect to be published separately.

Ontario said Thursday it would not participate in the new crowdfunding regime for startups but will instead continue to develop a broader crowdfunding rule to cover both startups and reporting issuers. The Ontario Securities Commission said it expects to publish a new rule this fall, which will follow the framework of a crowdfunding proposal unveiled last year for public comment.

Under that broader model, companies could raise far more money through crowdfunding – as much as $1.5-million a year – and investors could invest up to $2,500 in a single project, to a maximum of $10,000 a year.

The broader model would also require crowdfunding websites, known as portals, to be registered with securities regulators as a dealer, which is not required under the six other provinces’ crowdfunding model – though their regulators said they will have the right to stop a portal from operating if it is run by people whose past conduct demonstrates “a lack of integrity, financial responsibility or relevant knowledge or expertise.”

Ontario said the lack of a registration requirement for portals was one of the reasons it did not join the other provinces. “In our view, the registration of portals is important for managing risks to investors and the reputation of Ontario’s capital markets,” OSC spokeswoman Kristen Rose said in an e-mailed statement.

Sarah Bradley, chair of the Nova Scotia Securities Commission, said a crowdfunding rule for startups gives small companies “a modern, cost-effective way” to connect with investors.

“This exemption also creates an opportunity for investors to find local investment options,” she said in a statement.

Saskatchewan introduced crowdfunding rules for securities in December, 2013, but said it will adopt the proposal unveiled Thursday to harmonize its standards with other provinces.

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