Crowdfunding Prospectus Exemptions for B.C. Issuers

On May 6, 2016, the B.C. Securities Commission (Commission) adopted BC Instrument 72-505 Exemption from prospectus requirement for crowdfunding distributions to purchasers outside British Columbia (BCI 72-505).  BCI 72-505 creates an exemption from the prospectus requirement for B.C. issuers that distribute securities to purchasers resident outside of B.C. using Multilateral Instrument 45-108 Crowdfunding (MI 45-108), which has not been otherwise adopted in B.C.

To qualify for the prospectus exemption under BCI 72-505, the following conditions must be met:

• the distribution must not be made to a purchaser resident in B.C.;
• the purchaser must purchase the security as principal;
• the purchaser must certify in the subscription agreement that the purchaser is not resident in B.C.;
• the issuer must comply with the requirements of MI 45-108 in the jurisdiction where the purchaser is resident; and
• if the issuer is concurrently offering securities to a purchaser resident in B.C. using British Columbia Instrument 45-535 Start-up Crowdfunding Registration and Prospectus Exemptions (BCI 45-535), the issuer must provide the purchaser resident in B.C. with the same disclosure provided to purchasers in other jurisdictions under MI 45-108.

No later than 10 days after any distribution of securities made pursuant to BCI 72-505, the issuer must file with the Commission a copy of the report of exempt distribution, which is required under MI 45-108, and deliver to the Commission any other offering material the issuer is required to file with or deliver to the securities regulatory authority in the jurisdiction the purchaser is resident in.  The issuer must also deliver to the Commission copies of ongoing disclosure documents and other materials the issuer is required to deliver to the securities regulatory authority in the jurisdiction in which the purchaser is resident, and must make such documents and materials “reasonably available” to all purchasers resident in B.C. acquiring securities from the issuer under the exemption in BCI 45-535.

When considering whether to offer securities under either BCI 45-535 or MI 45-108, or both, issuers should consider the following major differences between these two crowdfunding regimes:

1. Maximum amount that can be invested by a purchaser:
   1. Under BCI 45-535, the maximum amount that can be invested by a purchaser in a single crowdfunding distribution is $1,500.
   2. Under MI 45-108, the maximum amount that can be invested by a purchaser in a single crowdfunding distribution is $2,500, plus in Ontario only, the aggregate maximum for a purchaser for all crowdfunding distributions in a calendar year is $10,000.
2. Maximum aggregate amount raised:
   1. Under BCI 45-535, the maximum aggregate amount that can be raised in a single crowdfunding distribution is $250,000, and there can be no more than two crowdfunding distributions in a calendar year.
   2. Under MI 45-108, the maximum aggregate amount that can be raised within a 12-month period is $1,500,000.
3. Disclosure requirements: MI 45-108 requires more information to be disclosed to crowdfunding investors by the issuer than BCI 45-535 does, including the following ongoing disclosure requirements:
   1. Annual financial statements that have been (i) reviewed or audited if the aggregate amount raised under one or more prospectus exemptions exceeds $250,000 but is less than $750,000, or (ii) audited if the aggregate amount raised under one or more prospectus exemptions is at least $750,000; and
   2. Annual disclosure regarding how the gross proceeds raised from crowdfunding distributions were used by the issuer.