Ontario's Minister of Finance has approved new rules that will prevent non-accredited investors from putting more than $2,500 into a crowdfunded business.
On Jan. 14 the Ontario Securities Commission (OSC) announced that Ontario Minister of Finance Charles Sousa had approved Multilateral Instrument 45-108 Crowdfunding (MI 45-108). If crowdfunders wish to qualify for a prospectus exemption, the new rules place limits on the distribution period, the total amount of money that may be raised, and the amount that purchasers may buy. Issuers are also required to make their crowdfunding distribution through a single funding portal.
The OSC has determined that a crowdfunding distribution period must end no later than 90 days after the date the issuer first offers its securities. There is a $1,500,000 cap on the aggregate proceeds that can be raised by an issuer group within the twelve months following the last day of the distribution period.
As for the amount of money that members of the public may invest in a crowdfunded enterprise, the OSC says purchasers in all jurisdictions who are not accredited investors are subject to an investment limit of $2,500 per distribution. For non-accredited investors in Ontario, there is also an annual investment limit of $10,000. All accredited investors face an investment limit of $25,000 per crowdfunded distribution, and there is an annual limit of $50,000 for those in Ontario.
In addition, there are restrictions on how crowdfunding issuers may advertise or solicit purchasers. "We anticipate that issuers will want to use social media to harness the 'wisdom of the crowd' in a crowdfunding offering," reads the companion policy document. "Although an issuer cannot advertise the distribution or solicit purchasers, an issuer may participate in communication channels or discussion boards to encourage purchasers to discuss the crowdfunding distribution, if the funding portal establishes one."
Crowdfunding portals are required to obtain a risk acknowledgment form in which the purchaser has positively answered a number of questions, as well as confirmation that the investor is not buying more than permitted under the aforementioned limits. Portals with a blog or chat room need to have detailed written policies and procedures that outline how they will be monitoring purchaser communications.
"If, for example, a purchaser makes an incorrect statement on the blog that the price per share is too high at $50, when the crowdfunding offering document states the price per share is $10, the funding portal would not be required to remove the statement. However, the issuer would be permitted to correct the price through a statement on the blog that the price per share is $10," says the OSC. "If, in another example, an issuer makes a statement on the blog that describes how its product works and that information was not disclosed in the crowdfunding offering document, then the funding portal must remove the statement as it is inconsistent with the crowdfunding offering document."
These are just some of the highlights from the new rules. More details are available in the companion policy on the OSC's web site.