Capital Markets Insights

A Guide to Investment Crowdfunding Regulations in Canada

Are you looking to start your own investment crowdfunding platform in Canada? For this webinar we're joined by one of the leading experts in crowdfunding law in Canada to present you with actionable tips on how to navigate the major crowdfunding regulations in Canada.

Some of the topics discussed in this webinar include:

  • Overview of major investment crowdfunding regulations in Canada
  • Differences between equity, debt, and real estate crowdfunding regulations
  • Major differences in regulations across Canadian provinces
  • Future of investment crowdfunding regulations
  • The new regime of crowdfunding exemptions

Read the full webinar transcript here:


Katipult: Welcome everyone. My name is Brian, working in business development in Katipult. Today we are going to cover crowdfunding regulations in Canada. For that purpose I have invited Alixe Cormick from Venture Law Corporation to help and guide all of us to different regulations. Welcome Alixe.

Alixe: Thank you. I am looking forward to answering people’s questions. Feel free to ask your questions. I may not be able to answer all of them, but you can always contact me afterwards. If I respond by email, please understand that unless we have been engaged as a law firm, the responses that I have are not legal advice but just general conversation. You should always check with a legal professional before doing anything in the securities law area. That is my disclaimer.

Katipult: It is a good thing to have that at the start and it is good to have that done. We can jump right into it. As Alixe mentioned, please feel free to ask questions. We are going to do a small QA session in the last 10 minutes or so of the webinar. First of all, we are going to go through this presentation that Alixe created. Alixe, feel free to get started. We are going to start with some regulations in Canada. You can see in your presentation that you made a quick overview, so maybe if you can start presenting?

Alixe: Like I said in the disclaimer before, this is for information purposes only. What Brian had asked me to do when we talked a couple of weeks ago was to provide an overview of major investment crowdfunding regulations in Canada and the major regulation differences across the provinces, because there are nuance differences between them. There also are some differences between equity debt and real  estate crowdfunding regulations. We can talk a little bit more about those, but it really depends on the crowd in terms of what is really going to be beneficial for the people listening in on this webinar. The changes and rumblings of changes coming with the investment crowdfunding regulations here in Canada and a kind of a new regime of crowdfunding exemptions, then some minor closing comments and answering questions is what you should expect from this seminar today.

So the overview, this slide really presents everything that you could possibly use in Canada crowdfund currently. We have the accredited investor exemption, it is available in every single province, you can raise an unlimited amount, but there are restrictions in terms who you can raise from and we will talk about those a little bit more. The offering memorandum , anyone and everyone  in all of the provinces of Canada gain, but it requires you to prepare a document and also to provide an audited financial statements, and they have to be in a certain form and we will talk about that a little bit more. There is an exemption that a lot of people do not know about. It is called the offering memorandum light exemption. Alberta, Saskatchewan and New Brunswick have this exemption in place and they were the only provinces who had this in place last year. Saskatchewan has made it permanent, so has Brunswick. Alberta I’m not sure, so you should check to see if that is still available. They may have decided to replace it with a startup business exemption which they adopted a while back. Then, some of the provinces, but not all of them, have what’s called the startup crowdfunding exemption. This is a true crowdfunding exemption as it allows you to access the crowd, no financial statements are required, but you do have limitations on how much you can raise and how you can raise it, as well as how much investors can put in. another group of provinces, the same of we swap out Ontario, one of these is an integrated crowdfunding exemption. You can raise up to $1.5 million using this exemption in a twelve month period. It is available on Ontario, Saskatchewan, Manitoba, Quebec, Nova Scotia and I believe New Brunswick as well. Alberta adopted their own version of the startup crowdfunding exemption, which they call the startup business exemption. Nunavik thought about adopting that as well, but decided against it. Not that long ago BC decided to recognize that startup business exemption. Alberta has been equal to our startup crowdfunding exemption. However, the other provinces Saskatchewan, Manitoba, Quebec, Nova Scotia and New Brunswick do not recognize that business exemption at this time. Alberta may be in talks to recognize it but right no BC is the only jurisdiction you can use that exemption in, but you have to align it with the startup crowdfunding exemption. We will talk about what that does as well.

The accredited investor exemption is available to everyone and anyone, there is no limit on the amount you can raise, it is available to all of your business issuers, regardless you business sector. Someone has asked if they were a US company or a European company, would they be able to crowdfund in Canada. If you are using the accredited investor exemption the answer is yes, as long as you met the requirements for that exemption and also if you have the corresponding jurisdiction. Let’s back up and talk about how securities regulative kind of review transactions. Securities transactions is considered to occur where mind and management of a company resides, as well as where the investor resides. In theory you can potentially have these transactions occurring in three different jurisdictions. For instance, someone is located in Ontario, the company is located there, the mind and management is located in Ontario, however the raising capital with investors are in British Columbia and they’re using an exempt market dealer in British Columbia. In other words the selling agent is in British Columbia. Sorry, maybe it is the selling agent that is located somewhere else, but all three have to line up at some way, shape or form. Maybe it is a finder from Alberta, so we have something called a Northwest exemption, which is a finder’s exemption which is available in the western province. You can have a finder that is located in Alberta but is not a registered agent, us introducing a company from Ontario… That wouldn’t work since Ontario doesn’t recognize the pungency exemption… Anyway, you do have kind of three potential jurisdictions all in, they all have to align. If you have an Ontario company but the finder was located in Alberta, selling to a BC resident, you probably have a problem because Ontario doesn’t recognize the northwest exemption so that finder wouldn’t be able to be compensated. You have to have the rules aligned in all three jurisdictions. Sometimes there is an exemption out and we will talk about that briefly a bit later, particularly when we are talking about raising capital outside of Canada. We need to make sure that you can out, or you need to find the exemption in the province and all the provinces that have been triggered by your securities transactions. That is very important. With the accredited investors they do cap who can invest and they have to be someone who is a high net individual, so they have an annual income test of about 200 000 or above in income, 300 000 with your spouse if you are investing with your spouse, net financial assets of a million dollars, excluding your home or net assets of five million dollars.

The portal relationship to the issuer can be managed, but it is a little bit different. You can use a portal, you can I theory also sell yourself to accredited investors. If you are using portal, it needs to be registered as an exempt market dealer or as an investment dealer, or restricted dealer. For example, if it is a real estate portal that is located in the US, but you are selling Canadians in your Canadian company, the portal should not be selling to Canadian residents if it is not registered in Canada. They don’t have a proper license to do so and that’s something that we’ve seen and certainly the securities regulators have seen and it is a live issue that you should be aware of. The startup crowdfunding exemption was adopted in May of 2015 and BC, Saskatchewan, Manitoba, Quebec, Nova Scotia and New Brunswick, it has had a lot of use here in British Columbia, not so much in other jurisdictions. Better use in Quebec, some use in New Brunswick, but it has been more of a BC used exemption, partly because people do not understand the exemption or how it works, but an issuer may raise up to half a million dollars in two separate offerings in a twelve month period. Each offering is limited to 250 000 dollars and each investors is limited in terms of how much they can put in. They can put in only 1500 per issuer in a twelve month period. The issuer, the majority of directors and the investors must all reside in one of the participating jurisdictions, in other words BC, Saskatchewan and Manitoba. In BC they can also reside in Alberta because, as I said, BC also recognizes that the startup business exemption that Alberta has adopted. It’s not available to reporting issuers or investment funds. You have to prepare an offering document in a prescribed form. They tried to make it fairly straightforward and simple for you to follow along, it doesn’t need to be a long document and no financial statements are required. Offering can be open for a maximum of 90 days and if you are going to do 2 financings, they have to be a minimum of 90 days apart.

The portal is not required to be registered as an exempt market dealer, a registered dealer or an investment dealer, but it is required to be approved before it starts its operations. The portal must file a notice and related forms 30 days before it starts its operations. The rules are a little bit deceptive insofar as the securities regulators are looking for something more than you just lodging your forms and then starting out. They want to see how you are going to handle all the things that you are required to handle, often times they want to see how you are handling onboarding investors, onboarding companies, how you are making these decisions and what does that user experience look like. Oftentimes they want to see the mock-up and have you run through policies and procedures. The requirements for a portal are quite minimal. Portals operate slightly differently, the ones which are operational right now, which there are approximately 10 or maybe even as many as 12 now. They may charge just a flat fee, some of them may charge an upfront due diligence fee for onboarding you and getting things ready. Some may be on a success fee, in terms of how much cap you end up raising at the end of the day. They all operate slightly differently. There is a number of different choices in the participating jurisdictions for you to choose from. We are going to talk a little bit later about what type of securities, but think simple securities. Think common shares, think non-convertible debt, you can d warrants, if you are a mining company that is used to doing warrants as part of your deal, or that’s something you think you want to do, you can do warrants. You are not able to do more sophisticated type of instruments for securities. The startup business exemptions is, like I said, Alberta’s version. They took a look at startup crowdfunding exemption the other provinces have adopted and said “We really don’t like some aspects of it”. One: the startup crowdfunding allows you to raise half a million per year and you can do that every single year. Alberta said “We think it should be capped at one million”. It is a lifetime limit, once you hit that million you can’t use it again. So, maybe two years in a row, five and five, or under Alberta, if you are just going to use Alberta, one million dollars. Again, the requirement is that you have to be in Alberta or a participating jurisdiction, which is only BC at this point in time, that recognizes the exemption., also similar types of caps on investors, in terms of how much they can put in. The main difference is that you can actually use this exemption without a portal and you can raise the entire million in one shot. It is not split up into separate bits. You do still have to prepare a document that is associated with the offering itself and it is in a specified form and it looks very much like the startup crowdfunding exemption prospectus. So if you are going to do BC and Alberta, you should put that format because it will be recognized in Alberta and it is required in BC.

That brings us to the other part, financial statements are really required to use that exemption. The integrated crowdfunding exemption, it’s not really its name, it just calls itself the crowdfunding exemption. It is a version that has been adopted by Ontario, Saskatchewan, Manitoba, Quebec, Nova Scotia and New Brunswick. It came into force in January 2016. Under that particular crowdfunding exemption you can raise 1.5 million in 12 months. You do have investment caps higher than startup crowdfunding exemption where the caps are 1500. Here it is 2500 dollars. If the investor is accredited, they can invest up to 25 000 under that exemption to a max of 50 000 with more than one issuer. Again, similar to another exemption, the issuer and investor must reside in one of the participating jurisdictions. You can’t pick someone who is in did states, in the UK or that’s in one of the provinces or the territories that are not part of this. The integrated crowdfunding exemption for instance is not available at BC at this time, so you wouldn’t be able to offer to any BC residents and it is an exemption that wouldn’t be available to BC issuers in order to sell. Also it is not available to investment issuers or to unstated business, oftentimes called blank cheque companies. In other words, you are thinking of two or three businesses, you don’t know which one you want to do, you just know you need cash and you’ve got a good group of guys that you want to work with and raise capital, you can’t do it under this exemption. The securities include equity, debt and convertible securities and close to securities but not derivatives or structured financial instruments. Again, you have a crowdfunding offer that you need to prepare in a specified form and they are required to audit it if you are raising 750 000 or more, or if you have raised 750 000 since the start of your company. The directors and officers are required to provide personal information forms, which has detailed information and includes a background check, you agreeing that you are going to have a background check, investors have to sign risk acknowledgment and how many companies they have participated in under this exemption and whether they have exceeded the limit or are they under it. Advertising is not allowed under this exemption, the startup crowdfunding exemption, the credit investor, the offering memorandum exemption you can advertise, but you can’t advertise under this exemption. You can do what is called a tombstone, which essentially says “We are releasing capital” and point people to the portal, but that is about all you can do. If you use this exemption you have continuous disclosure requirements. If you have more than a certain number of investors or you raised a certain amount, then these continuous disclosure requirements kick in permanently for the life of the company. As long as your company is still around and still doing business and you haven’t put it into bankruptcy or retired it, you will be required to file audited financial statements every calendar and unaudited financial statements every six months. You will also have to do material change like report in NB, NS and ON on certain events occurring, one of them being a bankruptcy. Those are ongoing requirements that you are going to have to abide by, if you sue this particular exemption. To use this exemption you have to use a portal, similar to crowdfunding exemption. The portal can’t be related to the issuer of the securities and must be registered either as a restricted dealer or a registered dealer or an exempt market dealer. You can’t get out of these rules.

The offering memorandum exemption has always been a kind of favorite exemption. There is no limit on how much an issuer can raise, it is available to all issuers regardless of business sector or residency. Again, if you are located in the US or the UK, you can use that exemption. We will get to UK later on in terms of those financial statements, there is a bit more cost there. Audited financial statements are required, you are going to create and offering memorandum that is in required form and format. In certain jurisdictions like Ontario, Saskatchewan, Manitoba, Quebec, Nova Scotia, New Brunswick, Nunavik, Yukon and Northwest Territories, they have limits. If someone is investing over 10 000 dollars they have to be an eligible investor. Similar to an accredited investor, they have to meet certain income net worth requirements in order to invest. In some of the provinces, they are capped at 30 000 dollars in terms of how much in total they can do. That would be Ontario, Saskatchewan, Alberta, Quebec, Nova Scotia and New Brunswick. The other jurisdictions like Manitoba, Nunavik, Yukon, Northwest Territories, as long as you meet the eligibility requirement, you can invest an unlimited amount. This changes what that looks like in terms of what the investment amount is. The portal relationship has to be managed similar to the accredited investor. The portal has to be registered either as the exempt market dealer, an investment dealer or a restricted dealer to use a portal. You can use the offering memorandum without a registered dealer or an investment or an exempt market dealer and do it on your own, either online or offline, depending on the jurisdiction that you are located on. We have kind of touched upon what an eligible investor is in terms of what type of person can invest if they are investing over 10 000. This exemption has continuous disclosure requirements in certain jurisdictions. So, New Brunswick, Nova Scotia, Ontario, Saskatchewan…

Katipult: Alixe lost connection. As you can hear, there is a lot of valuable connection here. I will talk to Alixe about being able to share this presentation with you afterwards and you will be sent that with the recording of the webinar.

Alixe: The offering memorandum exemption is similar to accredited investor exemption as it is available in every province in Canada. It is also like the accredited investor exemption available to Canadian and non-Canadian issuers, you don’t need to be located in Canada to use this, as long as you meet the requirements of the offering memorandum circular. There is no limit on the amount that can be raised, it is available regardless of your business sector or your residency. Audited financial statements are required. If you are a Canadian private issuer those have to be IFRS, so mind and management. The fact that you are calling yourself a Nevada company and mind and management and the business is located in BC and you are a private issuer, you will be required to prepare IFRS financial statements. You can’t use US GAAP. We do also have an exemption, let’s say you are located in the UK and mind and management is located in the UK, maybe you sign up for us anyway, but there are some kind of rules that play back and forth in terms what type of financial statements are required. Make sure to confirm that you are using the right kind of financial statements. The provinces that have GAAP are Saskatchewan, Ontario, Nova Scotia, Manitoba, Ontario, Quebec, New Brunswick, PI, Nunavik, Yukon and Northwest territories. They require investors to invest less than 10 000 dollars unless they are considered eligible investors. An eligible investor is similar to an accredited investor, he must meet certain financial requirements before they can invest more than 10 000.some provinces have kind of a leeway where they will allow them do to an unlimited amount as long as they are eligible investors. Some of the other provinces have a cap of 30 000 dollars even as an eligible investors. The requirement to be deemed an eligible investor is 75 000 for an individual or 125 000 with your spouse, or in net assets 400 000 dollars. The threshold is a lot lower than it is for an accredited investor but it is still more than that would be an average Canadian income. The person could also be a close personal friend of a business associate or an accredited investor or obtained advice from an eligible advisor on suitability. The portal relationship, if you are going to use a portal when using this exemption, it has to be managed by the issuer and the portal must be registered either as an exempt market dealer, a restricted dealer or an investment dealer. We have covered all of the accredited investor. They do have a limit of 12 month period under this particular exemption and they also require two different schedules to be provided; their status as an investor and there’s investor limit to date, how much you have invested up to this date. If you use this exemption, it is very similar to the integrated crowdfunding exemption except in two jurisdictions: BC and Newfoundland. Other jurisdictions require you to do continuous  disclosure. If you use the exemption, even for just that one time, you are in Ontario or you used it in Alberta, you are going to be required to provide audited financial statements for the life of the company. You are also going to have to do six months unaudited financial statements and an update on how the funds are spent. You are going to have material change like reports in New Brunswick, Nova Scotia, Ontario, identical to the integrated crowdfunding exemption and you are going to be deemed a market participant in Ontario and New Brunswick. Market participants have to make a filing each year with Ontario and pay a fee to Ontario just for being deemed a market participant.

The offering memorandum has limits in certain provinces. In BC it is unlimited in types of what kind of securities you can offer. You can’t offer derivative like products or structured financial products and it is not available to investment funds in New Brunswick, Ontario or Quebec. However, for Nova Scotia, Saskatchewan, unredeemable fund or mutual fund of a reporting issue, it is available in them. Other major differences in regulations across Canada are, if you are raising capital outside of Canada, there is an exemption that says that as long as you meet the requirements in home jurisdiction of the investor, you can go ahead and raise capital. Other provinces say “That’s great but you still need to abide by our rules here”. As far as foreign markets are concerned, most common one that Canadians use is the US, because we are so close. I’d say that about 50% of the private placements that issuers raise in Canada are probably done in the US and I would say the most popular exemption is the accredited investor exemption. There are a couple of reasons for that. In US they have a Rule 506 which is a reg D exemption and that exemption preempts state regulatory review. It is a misconception to say that the US doesn’t have one securities regulator, they have one federal securities regulator and then they have individual state regulators in every single state. They actually have 52 separate securities regulators for the states and then another federal. You need to have an exemption for both levels. Rule 506 basically preempts state review, meaning the states don’t get to review but you do have a filing that will be required later on. That is the most common one. Their accredited investor exemption aligns with our accredited investor exemption, however there it’s $200 000, it’s $1 000 000 financial assets , $5 000 000 in terms of assets. It is very similar to our accredited investors but just in US dollars and it is the one it is probably the most used. They also have regulation crowdfunding exemption that’s only available to companies that are incorporated in the US. I recently read a paper from the US lawyer who suggested that if you come from anywhere in the world is a recipe for disaster. If you are in one of the jurisdictions in Canada that essentially doesn’t have an exemption for a private issuer to sell securities in foreign jurisdiction without abiding by the securities laws here in Canada, because you are going to find it impossible to line an exemption up between the two of them, in part because here in Canada the memorandum exemption, as I have said before as your correspondent, you are going to need audited financial statements and those statements of mind and management located in Canada are Canadian GAAP financial statements. Be very careful, BC does have an exemption out,  Alberta does have an exemption out, the Alberta exemption is a very recent one. BC amended theirs not a year ago so that private issuers could sell to foreign jurisdictions, but make sure that if that’s something you are proposing to do, that you understand what the laws are what’s required in all of the jurisdictions where the transactions are occurring. The one thing we’ve been talking about most of this conversation are the exemptions for the securities involved.

The securities regulators also require an exemption for the selling agent. Some of them are self-executing, without you even being aware of it, for instance if you are a private issuer, which is not what we are talking about, we are talking about crowdfunding in public, you need to have an exemption for the selling agent. With the startup crowdfunding exemption and integrated crowdfunding exemption, they require you to sell through a portal that is being recognized by a security regulator of a participating jurisdiction. The startup business exemption allows issuers to sell either through portal or directly. In BC, Alberta, Manitoba, they exempt parties not in the business of trading. Here if you are a director and officer, you’re selling securities on behalf of your company, as long as this is not your full time job and you are not in regular business of trading securities and selling securities, nothing really is required of you. It is a self-executing exemption. If however you hired someone to sell securities on your behalf or for the company, that person needs to be registered. If they are not, you are offside of securities laws. I can’t stress that enough. In some instances people will rely on something called Northwest exemption that is available primarily in the western provinces and territories. In that exemption a person is restricted in terms of what they can do and their background is restricted as well. They can’t be a former dealer , so someone who has been an investment dealer or an insurance dealer, or there’s a number of other types categories, a mutual fund salesperson, they can’t rely on the Northwest exemption. Again, if you are looking for someone to sell securities and they are not registered, make sure you get securities law advice. Alberta, BC, Manitoba, New Brunswick, Quebec and Saskatchewan also exempt parties currently selling syndicated mortgages. Ontario does not have that exemption. You need to sell through a dealer. If you don’t sell through someone who is registered then you are going to be in trouble within that province. Make sure that you are abiding by the rules and that you have the exemption in those jurisdictions. Investment funds administered by trust company, there is an exemption for selling those as well. That is often how real estate companies are set up. They would set up as a trust, and in parts they can sell their securities directly. Again, if you hire someone to sell those securities internally on a full time basis, that person will need to be registered. It is more for companies, let’s say that you want to do a real estate development, you want to do an offering memorandum to sell those securities, you can do that management maybe by doing just that one-time sale, in order to get funds in on that particular project. No commissions being paid to management for that and it is not your full time job. Your full time job is running a real estate company that you have. Setting it up as a trust is so that you don’t have to be registered. Be very careful about that.

The other major difference is Quebec. So, Quebec, Quebec, Quebec... Love Quebec, hate Quebec. Everything needs to be in French. I can’t say anything more than that other than if you sue the startup crowdfunding offering circular, the integrated crowdfunding, their offering circular, the offering  memorandum… it all has to be in French. You can’t start selling in that province until it is in French. The ongoing requirements of the integrated exemption and the offering memorandum exemption – French. You need to do your financial statements in French. You need to do your material change reports in French. This is something to keep in mind. Unless you have a large outing of people in that jurisdiction and you are a French speaker yourself, there is going to be considerable cost associated with selling to even just one person in Quebec. Don’t do it unless it makes sense for your company. I know people want to be inclusive but it is a big burden to have things in French. And if a Quebec security regulator is listening I’m really sorry but it is really expensive for a small company to do that.

We are going to briefly touch on the differences between equity, debt and real estate crowdfunding. The rules are essentially the same, except for some things. With a startup funding exemption we can’t sell convertible preferred shares. Pretty much every biotech company and device company, almost all of the capital that those companies tend to raise is through convertible shares, a convertible debt instrument or convertible note. This causes a bit of a problem, if you are one of those type of companies in the tech or biotech industry or some other industry where it is common to do a convertible preferred, this is not allowed. That could cause a problem, because you can only sell common. You can sell a warrant, or generally speaking a stock option. Why you’d sell an option I don’t know, but the regulators were looking at this more like a warrant but convertible preferred, convertible notes, they are just not allowed. You can do a fixed debt instrument. It is allowed, but just not convertible. You can also sell limited partnership units and they are pretty much available for any of the exceptions that we talked about today, so keep that in mind and this affects probably most the tech and biotech companies, as I said before. The offering memorandum exception also is not available to investment funds in certain jurisdictions. This is less of a problem for real estate companies than on first glance. It is a defined term of what an investment fund is and although you are an investment fund you are not a registered investment fund, and that’s what’s it referring to. In all other provinces not mentioned above, all of the securities may be offered, you don’t have to worry. The real estate companies tend to be number one user of the offering memorandum exception, I would say 95% to 98% of the total use of the offering memorandum exception. Even with the changed rules on Ontario and the other jurisdictions, it still makes sense for you to use that particular exception. Some caveats going back, some mortgage investment corps, we mentioned before that in certain provinces they exempt parties selling syndicated mortgages, which is really what a mortgage investment corp is. In all of the jurisdictions you have to be registered to sell through a registered agent. On August 15th this year they revoked and replaced BC instrument 32517 and 32513. That is directly and explicitly related to mortgage investment corps, so you should go visit that. Real estate developers often use a trust structure to avoid registration as a dealer and the need to sell through a dealer. You have very limited wiggle room in Ontario, so be very careful, make sure that when you are looking at your selling jurisdictions, you get advice from a law firm that is located in that jurisdiction, to make sure you get the nuances that are there. You also may need a different form of an offering memorandum, depending on what type of real estate corporation you want. Just briefly touching upon the future crowdfunding regulations, as I mentioned at the very beginning, the startup crowdfunding has been used in a number of different provinces, but primarily in BC up to this date. Industry participants, in other words lawyers and the portals and other people that regularly trade with their companies would like to see higher cap of the amount of capital that is allowed to be raised in one year, but that’s unlikely to happen. The integrated crowdfunding exemption has been used not once, not twice, but zero times. It has been around since January 16th and no one has used it. Part of it is because of the ongoing requirements for two owners for the capital being raised. If you raise 1.5 million and you think how much an audited financial statement is going to cost and how much ongoing compliance is going to cost, that doesn’t really make sense for the companies. The offering memorandum exemption, BC is looking to adopt the Ontario version. That means that our current system here in BC, which is very liberal in how much this exemption applies, so right now in BC, unlimited amount. No such thing as an eligible investor. You find an investor who wants to put 10 000 in, you don’t have to ask “Are you an eligible investor”, nothing more is required. You as an investor can invest 10 000. 20 000, 30 000, there is no 100 000 cap on you because you are an eligible investor and not an accredited investor. We are looking at that possibly changing in the future and we’ll talk about that in a second. Then, mortgage investment corps, every once in a while they take a run at you and you should expect to see some more changes in the next year to two years. Part of this is being driven by the cooperative capital markets regulatory system. If you are reading the Global Mail every once in a while or the National Post, you will see that they lob in that Canada should have a federal securities regulator. We should on the wholesome blah, blah, blah. BC used to be resistant to that, Alberta is still resisting to that, Quebec was resistant to it, in part because they are concerned that the language requirements could disappear and probably other reasons as well. We do have a couple of Quebec specific exemptions and Quebec specific tech rules that do not apply elsewhere. Here in BC it was mainly because we have specialized rules for mining companies, resource companies that do not exist anywhere else. We have taken kind of a more liberal approach towards rules in general, in part because we have more small companies raising capital, so the number of offerings in the private placement sector and the number of companies in the private placement sector are greater than on Ontario, but we do raise less capital that Ontario. The majority of capital raising in the private placement sector is Ontario, but their companies tend to be banks, financial institutions, large investment funds. Think of national corporations. Where as in Alberta, BC and Saskatchewan, out capital raising tends to be around startup, early stage companies and very entrepreneurial type things, which they don’t really have on Ontario. They have “bigger is better” type of view of the world. Unfortunately I think we are going to lose quite a bit once that harmonization comes about. So, BC, New Brunswick, Saskatchewan, Yukon the federal Government of Canada proposed one regulator and one set of regulations as a group. Think of kind of the highest requirement being what’s being proposed. They published the proposed securities registration and exemption rules on May 8th earlier this year and said it was open to comment until August 7th 2018. They’ve been waiting on the Supreme Court of Canada decision , so in March of this year Quebec took an action, saying that the proposed securities act and his market regulatory system was anti-constitutional.

The Supreme Court of Canada expected to rule on at least two items to be anti-constitutional, but they think the other ones will get a pass. We’ll see what occurs, that judgment isn’t out yet and that’s what is everyone waiting on. Under the proposed rules as they pushed forward, BC and Ontario will be adopting each other’s specific crowdfunding exemption. BC will have the startup crowdfunding exemption and Ontario will have the startup crowdfunding exemption. The integrated crowdfunding exemption will also be available in both provinces. BC will be losing its open offering memorandum rules and adopting rules currently in place in Alberta, New Brunswick, Nova Scotia, Ontario, Quebec and Saskatchewan. That means for all BC companies, if you do use that offering memorandum when that change goes about, you will have permanent ongoing requirement to provide audited financial statements on a yearly basis and continual disclosure on yearly basis. That’s the formal part of the presentation, there is a lot of material there, I know. I know some questions were asked earlier in terms of certain things. Brian, do you want to tell me which questions I should be answering?

Katipult: Yes, sure. There was one, I think it was towards the startup crowdfunding exemption. The question is: “Is the maximum an investment fund can raise 500 000 dollars in Ontario? “.

Alixe: So the startup crowdfunding exemption is not available in Ontario at this time. The startup crowdfunding exemption is not available to investment funds either. It is available to active businesses.

Katipult: OK, so it wouldn’t be possible then. There is another question here: “Do you have any summary to amount that is raised across Canada using the crowdfunding exemptions? More specifically the startup and integrated crowdfunding exemptions”.

Alixe: The integrated crowdfunding exemption has been used by exactly 0 people. There have been around 18 companies that have used the startup crowdfunding exemption and most of them have raised around that 200 000 dollar mark. We do have those numbers and I will be happy to provide them.

Katipult: Second part of the question is more towards agreeing that the crowdfunding exemptions are a bit too onerous. The question really is, are they too onerous to be of any practical use and he is really just asking your thoughts about that.

Alixe: In the startup crowdfunding exemption I would have liked to see larger caps, but I understand the regulators perspective. They don’t want any abuse to be there. The big one I would like to change in the startup is to offer convertible preferred. In part because that is the number one currency that biotech and even a lot of junior industrial companies use, in part because it is really hard to figure out what kind of your valuation is. It is easy to do when you have convertible and straight debt doesn’t look the same on your balance sheet when you are going forward. So having that convertible preferred is really an advantage to those companies and it doesn’t really tie you into kind of a specific price for your capitalization. For the integrated crowdfunding exemption the ongoing requirements are too onerous. You raise 1.5 000 000 and you think your audits can be as much as 40 000 dollars a year, or 30 000 a year, you are kind of held hostage. Going back to those financial statements, the financial statements that are required when you use the integrated crowdfunding exemption or the offering memorandum are international financial reporting standards. So not Canadian, PE GAAP, private enterprise GAAP which a lot of small companies use initially, so you need IFRS. That has a cost associated with it and then having it audited. Now, having said that, you are not required to use a CPAB, which is Canadian Public Accountability Board. If you chose not to, you may be able to save some cost but you are adding risk. Where US issuers go wrong if they’re looking up the border here and want to use the offering memorandum exemption, if you are not a US reporting issuer, you need to do Canadian IFRS as well. Going back to integrated crowdfunding exemption, a lot of people who want to use that exemption do not want to rely on lawyers. Lawyers are expensive, they also look at small companies at risk and it is just too costly to use that exemption, in my opinion. If you are going to do something like that and jump to an offering memorandum exemption and if you are in BC, try to raise your capital just in BC or Newfoundland, if you are so lucky to have relatives and friends in that jurisdiction as well. Any other questions Brian?

Katipult: Thank you for that. Can an investment fund to raise using crowdfunding? This is someone from Ontario asking the question here.

Alixe: Yes. You can use the offering memorandum that is available to you and as they said, it depends on how you structured. Not all investment funds are investment funds that aren’t allowed. It is a structural issue, a definitional issue and a securities lawyer in your jurisdiction can run you through of what the structure issues are.

Katipult: He is also wondering if the tokenization platforms will follow the same crowdfunding exemptions or if they have different ones?

Alixe: Which one?

Katipult: Tokenization platforms.

Alixe: OK, I was wondering if anyone would ask a question about ICOs or tokens. The securities laws apply to any and all securities. Here in Canada, much like in the US, there is no such thing as an utility token, very rare. There is one in British Columbia, I can’t remember the name now. They went with an exemption order or with security exemption and they said “We are thinking about making our token look like this and we are looking at offering like this”. So, for them, it was a direct sale, not through portal or anything else, but they also got an exemption order from the Securities Commission to basically offer those securities and also recognize that they were truly a utility and not something more, an investment ICO for instance. Most ICOs fit in with what they would consider a traditional security and that means the traditional securities laws apply. What has occurred is, there have been about three or four exemptions in this area for different parties. One wanting to be selling and trading of those securities out of Ontario, another one out of BC, there are a couple of ICO ones as well. You need to talk to a regulator, talk to someone who is knowledgeable in particular space. For the most part it is very enticing for companies because they see these ICO’s offerings raising huge amounts in a very short period of time and it doesn’t seem to matter what they are raising it for. But, you are going to introduce a cheap load of problems on yourself if you are in this jurisdiction without doing something first. A lot of people don’t realize a lot of things that we talk about actually originate from Canadians and Canadian entrepreneurs. The securities regulators are open to talking with anybody about what they are doing. You may want to talk to a securities lawyer first before you go in there. Particularly if you have done something and you are not sure what you’ve done is onside.

Katipult: Thanks a lot. We’d hit a good hour. I want to thank you for participating here. Were you going to do some edits to the presentation and then I can send it out to everyone participating here?

Alixe: Yes, not a problem. I’ll probably do that in next half hour, just so everyone can get it while it is still fresh in their mind. Okay?

Katipult: For sure, that works. We will be sending that out with the recording of this webinar. Thanks everyone for joining, especially you Alixe. It has been a real pleasure and it has been a lot of useful information going on here. Hopefully we can do another webinar, maybe sewn into a specific topic and cover that a bit more. We can connect about that offline and discuss that a bit.

Alixe: Try to do your research first, people need to reach out to someone who practices securities, preferably in your home province. If you are looking at something crossing a border, whether it is crossing a provincial border or a country border, get securities advice in those other jurisdiction. There are securities laws in pretty much every country in the world so you want to make sure that you are on side before you sell securities in those jurisdictions. Thanks guys.

Katipult: Thanks. I’ll be happy to provide introductions to you Alixe if they don’t already have the information. Otherwise everyone have a good day and hopefully see you soon.