Ontario Securities Commission Updates Rules on Equity Crowdfunding, Startup Capital

In an update released quietly last week, the Ontario Securities Commission (OSC) made important announcements on new rules for how startups can raise capital in Ontario, including equity crowdfunding and the friends and family exemptions.


Friends and Family Exemption

The big news is that the OSC has finally published the Friends and Family prospectus exemption for Ministry of Finance approval. The exemption allows Ontario startups to sell debt or equity to certain family members, close personal friends and close business associates.

Although Ontario startups could already raise from friends and family under the Private Issuer exemption, it imposed resale restrictions on the securities and only applied to companies with no more than 50 shareholders.

“Early stage issuers will benefit from this exemption as it will provide them with greater access to capital at a critical stage,” said Howard Wetston, OSC Chair and Chief Executive Officer.

The OSC expects the Friends and Family exception to take effect on May 1, 2015.


Equity Crowdfunding Exemption

In another release made yesterday, the OSC announced that it plans to publish the much anticipated equity crowdfunding prospectus exemption for Ministry approval in the summer.

This is a pullback from the OSC’s earlier indications that the equity crowdfunding exemption would be published in early 2015.

In a speech to the Private Capital Markets Association of Canada (PCMMA) in June, OSC Chair Howard Wetston announced that the Commission was aiming to finalize the rules in the first quarter of 2015.

The proposed Ontario equity crowdfunding rules would allow startups to raise up to $1.5m per year from non-accredited investors (99% of the Canadians) on registered crowdfunding portals.  I previously wrote a quick backgrounder on equity crowdfunding rules in Canada here.