OSC proposes new crowdfunding rules

The Ontario Securities Commission has proposed a set of new rules that would regulatethe popular trend of onlinecrowdfundingfor new businesses.

The proposed regulatory regime would allowstart-ups and small businesses to raise $1.5 million over one year online through a registered crowdfunding platform.

The proposal alsolimits how much an investor can invest in a single project, withamaximum of $2,500 in a single investment and $10,000 per year.

Today we have proposed new tools, which will transform Ontario's exempt market by providing greater access to capital for businesses- Howard Wetston, OSCChair

Crowdfunding siteslike Kickstarter and Indiegogo have already helped to launch thousands of projects and ventures worldwide. On those sites, backers are usuallycontributing to a charity, or receivespecial rewards in return for their contribution.

It's the equity crowdfunding model that the OSC is proposing new rules forwhenpeople are asked to invest in a startup in return for securities. Currently, that is not allowed in any jurisdiction in Canada.

That type of funding could offer small companies access to capital they might not otherwise be able to get.

"Today we have proposed new tools, which will transform Ontario's exempt market by providing greater access to capital for businesses and expanding investment opportunities for investors," OSCChairHoward Wetston said in a statement.

"We have done so in a balanced and responsible manner that is intended to facilitate capital raising while maintaining an appropriate level of investor protection."

The proposed rulesare open for public comment until June 18.

Concern for the regulator

But there are obvious concerns that emerge from crowdfundingarrangements includingfraud and abuse, risk disclosure, difficulties in re-selling investmentsand valuation difficulties.

There are also questions about whether equity crowdfunding would be suitable for some companies.

The provincial regulator began itsinvestigation into allowing equitycrowdfundingin December of 2012.

The regulator has opened the proposed rulesto public comment for a 90-day period.

Regulators in New Brunswick, NovaScotia, Manitoba, Saskatchewan and Quebec are concurrentlypublishing the proposed rules.

Otherchanges proposed by the regulator include one plan to allow a company to raise money based on a comprehensive disclosure document and another that would allow family, friends and business associates to more easily invest in start-ups and early stage businesses.

Another change would allow publicly-traded companies on the TSX, TSX Venture and Canadian Securities Exchange to raise capital from existing investors provided they have demonstrated a good record of public disclosure.