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Early Stage Financing and Private Placements

Are private companies subject to securities law?

Are private companies subject to securities law? 150 150 Jiang Hong Wilkin Business Law

Most people think that securities law applies to the public companies only, and private companies do not need to worry about securities law. This is not correct. In Canada, private companies issuing shares must also comply with securities law. Private companies are exempt from prospectus requirement, if certain conditions are met. For example, there should be share transfer restrictions, shares can only be issued to certain permitted people, non-employee shareholders cannot be more than 50, etc. These exemption conditions have to be evidenced in the legal documents.

What are the crowdfunding rules in Canada?

What are the crowdfunding rules in Canada? 150 150 Jiang Hong Wilkin Business Law

Ontario (and QB, MN, NS, SK, NB) Multilateral Instrument 45-108 Crowdfunding became effective on January 25, 2016. The major requirements are the following:

1.    Head office of the issuer is located in Canada and a majority of directors of the issuer reside in Canada.

2.    The issuer provides the standard disclosure on website.

3.    Must use a registered funding portal.

4.    Investment limitation per investor:

  1. For a non-accredited investor, $2,500 per distribution, and $10,000 for all distributions in same calendar year.
  2. For an accredited investor, $25,000 per distribution, and $50,000 for all distributions in same calendar year.
  3. For a permitted client (mainly non-individual investors), no limitation.

5.    The issuer cannot raise fund more than $1,500,000 within 12 months.

6.    The issuer has responsibility to make certain disclosure after distribution.

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