On June 23, the CSA announced the final publication of National Instrument 45-110 Start-Up Crowdfunding Registration and Prospectus Exemptions (NI 45-110), along with CSA Staff Notice 45-329 Guidance for using the start-up crowdfunding registration and prospectus exemptions. As previously noted in our February 2020 bulletin, NI 45-110 sets up a national framework to permit securities crowdfunding for start-up and early stage issuers and will replace the blanket orders that had been issued in a number of jurisdictions. A dealer registration exemption will be available for funding portals that facilitate online distributions by issuers that use the prospectus exemption set out in the National Instrument. The prospectus exemption will allow an issuer to distribute eligible securities through an online portal, and both the dealer and prospectus exemptions require the portal (even if already registered as an investment dealer or EMD) and the issuer to satisfy numerous conditions.

NI 45-110 was first published for comment in February 2020, and the final rule has been responsive to comments indicating that the individual investment limits were too low by increasing the limit from $5,000 to $10,000 for a purchaser who has obtained suitability advice from a registered dealer, and also increased the limit on aggregate proceeds raised by the issuer group in the last 12 months from $1 million to $1.5 million. While the CSA noted that numerous commentators had asked for further increases for issuers, in their view it is more appropriate for issuers to utilize the offering memorandum exemption in order to crowdfund larger amounts. The annual working capital certification (renamed to the financial resources certification) has become a semi-annual certification, and the prospectus exemption will not be available for issuers whose only operations are to identify and evaluate assets or a business with a view to completing an investment in, merger with, amalgamation with or acquisition of a business, or purchasing the securities of one or more other issuers. Some local amendments will also be made; for example, in Ontario, OSC Rule 13-502 Fees will be amended to classify an unregistered portal relying on the new exemption as an ‘unregistered capital markets participant’ (the same category as unregistered investment fund managers) and pay fees as such. NI 45-110, the related guides, and consequential amendments to other rules is expected to come into force September 21, 2021.

June 30, 2021