ENTREVESTOR: Landscape changes in equity crowdfunding

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The rules governing equity crowdfunding in Canada are evolving and will likely get more confusing before they get clearer.

This isn’t just a Canadian thing. They might be even more complex in the United States, where 22 states and the District of Columbia have individualized rules.

But the framework of regulation outlined by some provinces this year is only the beginning. There will likely be a series of announcements and rulings in several of them as regulators and the market acclimatize to this new type of funding.

Equity crowdfunding is the process of raising money online from a broad range of people. It’s similar to existing forms of crowdfunding for charities or early sales of a product, except it is selling stock and/or debt in a company.

It’s important because young Canadian companies, especially Atlantic Canadian companies, have a hard time raising the capital they need to grow. Crowdfunding, in theory, offers a solution to the lack of capital.

“I think the securities commissions are a pendulum that has swung too far; they’re too restrictive,” Sean Sears, founder of equity crowdfunding portal iCrowdX, said at a seminar Monday in Halifax.

“In Canada, we’ve had 10 years of steep declines in (venture capital funding) and if we don’t reverse it, we will not have a startup community.”

For that reason, regulators in six provinces, including Nova Scotia and New Brunswick, recently approved the practice for companies raising capital. No company can raise more than $250,000 in a single campaign, and investors are limited to maximum investments of $1,500 per company.

The legal term for the rule allowing this is the startup exemption. It’s an exemption to the rule requiring companies to issue a full prospectus when they raise capital.

 

To read the full article, click http://s.coassets.com/ai6

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