How to Start a Crowdfunding Portal in Canada

Equity Crowdfunding Portals Are a Hot Business Opportunity

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If you’re looking for a business idea that will put you onto the ground floor of an emerging industry, this could be it. As of writing, equity crowdfunding is just starting to become legal across the country as the Canadian Securities Commissions of each province and territory consider crowdfunding exemptions to their rules. (Read Crowdfunding vs Equity Crowdfunding in Canada for details.)

And the beauty of these crowdfunding exemptions from a startup point of view is that besides legalizing equity crowdfunding so that businesses can offer ownership in their companies in exchange for investment, they also govern the investment transactions – and in all the crowdfunding exemptions passed or under discussion so far (summer 2015), every one states that businesses can only present their equity crowdfunding proposal to the public through an appropriately registered crowdfunding portal.

What makes this such an outstanding business opportunity? At this point, there are none.

That’s right – although the whole plan is contingent on businesses and investors using online crowdfunding portals to fundraise and invest, right now the only place that even has one in the works is Saskatchewan.

Interested? Here’s a look at what you have to do to start a crowdfunding portal.

What Is a Crowdfunding Portal?

A crowdfunding portal facilitates investing in businesses by listing investment opportunities and managing the ensuing investment transactions.

In Canada, there are two types of funding portals that may facilitate start-up crowdfunding under General Order 45-929  which came into effect May 14, 2015:

• funding portals operated by persons relying on the start-up registration exemption, and

• funding portals operated by registered dealer.

This article deals with crowdfunding portals created based on the start-up exemption by people who are not registered securities dealers.

This start-up exemption lets start-up companies raise capital through crowdfunding not just in Saskatchewan but in all the participating jurisdictions of British Columbia, Manitoba, Québec, New Brunswick and Nova Scotia, subject to certain conditions.

To Start a Crowdfunding Portal You Must:

  • have the head office of your funding portal in Canada;
  • have the majority of your portal’s directors be Canadian residents, which means they must be Canadian citizens or landed immigrants;
  • ensure that the head office of each issuer (business offering investment) using your crowdfunding portal be in a participating jurisdiction and that each investor is a resident of a participating jurisdiction;
  • provide a risk warning on your portal website and have investors confirm online, by checking a box, that they have read and understood the offering document and risk warning;
  • provide access to your funding portal only to investors who acknowledge that they are accessing the website of a funding portal that is not registered under Canadian securities legislation and provides no investment advice;
  • disclose on the funding portal’s website the full legal name, municipality and jurisdiction of residence, business mailing and email address and business phone number for each promoter*, director, officer and control person (principal) of the funding portal*;
  • hold investors’ assets separately from the crowdfunding portal’s property in trust for the investor. If these assets are cash, they must be held at a Canadian financial institution;
  • keep your portal’s books and records, including its compliance procedures, at its head office for eight years from the date a record is created.

    *A promoter is a person who founded, organized or significantly reorganized the funding portal.

    ** A control person is a person who holds a sufficient number of voting rights to control the funding portal or who holds 20% or more of the funding portal’s voting rights.

    Your Crowdfunding Portal Must Not:

    • be registered under Canadian securities legislation;
    • provide investors with any kind of investment advice, either telling investors that an investment is suitable for them or otherwise discussing the merits of an investment;
    • receive a commission or fee from an investor.

    Necessary Paperwork

    Assuming that you meet all the requirements above and are keen to go ahead with creating your new funding portal, you must deliver the forms below to regulators at least 30 days before you start operations.

    Form 3 – Start-up Crowdfunding  – Funding Portal Information Form (Form 3)

    Form 4 – Start-up Crowdfunding – Funding Portal - Individual Information Form (Form 4) for each principal of the funding portal

    other documents regulators may request such as your articles of incorporation or partnership agreement, business registration numbers and/or documents that support your procedures for handling funds.

    Note that these forms must be delivered by email to the regulators in each participating jurisdiction where your crowdfunding portal will be operating. So if, for instance, the head office of your crowdfunding portal is in Saskatchewan and you are also offering investment opportunities to investors in BC and Manitoba, you’ll also have to send your documentation package to the regulator in both these provinces as well.

    If all goes smoothly, you’ll be able to start your new portal 30 days after you send in all your documents. However, be aware that regulators will want to question you if the documents are incomplete or may let you know that they need more time to review your documentation.

    How Equity Crowdfunding Works

    Essentially, a business (the issuer) presents an investment opportunity on your crowdfunding portal by preparing an offering document which you display online. (See Form 1 – Start-Up Crowdfunding – Offering Document.)

    Investors may choose to invest in the offering.

    If they do, you need to get their confirmation they have read and understood the offering and the risks. (See Form 2 – Start-Up Crowdfunding – Risk ​Acknowledgement.)

    You also have to get their necessary information (see above) and ensure that they reside in a participating jurisdiction.

    If the issuer doesn’t meet the minimum amount set out in their offering document through their crowdfunding campaign, the deal(s) can’t proceed and all monies collected to that point are returned to the investor(s). The crowdfunding portal must send a notice to each investor as well as the issuer confirming that all funds have been returned to investors.

    But if the issuer does meet the minimum amount set out in their offering document, the distribution closes and the issuer issues shares or other eligible securities to investors. The funding portal will release funds to the issuer once the 48-hour withdrawal period has expired. (Investors have 48 hours after investing to change their minds if they wish.)

    No later than 15 days after closing, the crowdfunding portal must notify investors that the funds have been released to the issuer. At this time, the portal also has to provide to the issuer the following information about each investor:

    • Full name
    • Address
    • Telephone number
    • Email address
    • Number of securities purchased
    • Total purchase price

    For more information about equity crowdfunding and General Order 45-929, which governs Start-Up Crowdfunding Registration and Prospectus Exemptions, see the Government of Saskatchewan’s Financial and Consumer Affairs Authority website.