It just got a little bit easier for small businesses to raise capital – at least in six Canadian provinces. Regulators in British Columbia, Saskatchewan, Manitoba, Quebec, New Brunswick and Nova Scotia have banded together to create new rules that will allow certain smaller companies to leverage crowdfunding as a way to finance their business operations. What are the changes and, more importantly, what do they mean for your business? Let’s take a closer look.
Crowdfunding websites are certainly nothing new, but the restrictions on Canadian companies made things a little more challenging. Under the new rules, businesses will be able to raise up to $500k a year, provided they use approved crowdfunding sites. Of course, there are certain limits. Companies can’t raise more than $250k in one offering and individuals can’t invest more than $1,500 per offer. Investors will also be allowed to withdraw their offers within 48 hours of issue.
It’s important to note that these new rules only apply to small businesses and startups, at least for now. Larger companies, particularly those that are registered to issue securities, will still not be allowed to participate in crowdfunding, although regulators are said to be working on developing some new rules for these businesses which will be rolled out in the near future.
Despite these six provinces banding together to embrace crowdfunding and promote micro-capitalism, Ontario has decided not to follow suit. They are, however, said to be working on developing their own model, which will be broader in nature. Under Ontario’s proposed rules, businesses will be able to raise up to $1.5 million a year with the cap on investors being set at $2,500 per project up to $10k per year. Crowdfunding websites working with Ontario companies will be required to register as dealers, something not required by the other six provinces.
These changes spell great news for startups and early-stage businesses, providing a more modern and cost-effective way to raise capital. The new crowdfunding rules are also great for investors who are looking for local and/or industry-specific investment opportunities. Overall, it’s a step in the right direction for all involved.