Photo of Joe BrennanBy Joe BrennanNovember 01 2016
Business Law

Alberta Joins Others in Allowing Crowdfunding

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Effective October 31, 2016, Alberta has adopted Multi-lateral Instrument 45-108 – Crowdfunding (the Crowdfunding Rule).  This rule provides a prospectus exemption for issuers to raise money via a registered on-line funding portal.  It is intended to leverage the use of the internet and social media to facilitate capital formation primarily for start-ups and small and medium-sized enterprises (SMEs) that foster innovation and to provide new investment opportunities for investors. Crowdfunding may enable issuers to raise capital more effectively and at a lower cost while also providing investors with greater access to investment opportunities.  This Crowdfunding Rule has been in place for about a year in each of Ontario, Quebec, Saskatchewan, Manitoba, New Brunswick and Nova Scotia. BC has also adopted a similar, but not identical, crowdfunding rule.

The requirements to use the Crowdfunding Rule are summarized below:


An issuer to which all of the following apply:

(a)          incorporated or organized in Canada;

(b)          head office in Canada;

(c)          majority of the directors are resident in Canada;

(d)          principal operating subsidiary, if any, is incorporated or organized under:

              (i) the laws of the USA, or any state or territory therein, or the District of Columbia; and

              (ii) the laws of Canada or any jurisdiction of Canada, or

(e)          issuer is not an investment fund.


Only non-complex securities, being: 

(a)          common shares; 

(b)          non-convertible preference shares; 

(c)          a security convertible into common shares or non-convertible preference shares; 

(d)          non-convertible debt securities linked to a fixed or floating interest rate; 

(e)          units of a limited partnership; and/or 

(f)           flow-through shares under the Income Tax Act (Canada).


Total proceeds raised by “issuer group” in reliance on this exemption cannot exceed $1,500,000 within the 12–month period ending on the last day of the distribution period.

For this purpose, “issuer group” means:

(a)          an eligible crowdfunding issuer;

(b)          an affiliate of the eligible crowdfunding issuer; and

(c)          any other issuer:

              (i)            engaged in a common enterprise with the eligible crowdfunding issuer or with an affiliate of the eligible crowdfunding issuer, or

              (ii)           controlled, directly or indirectly, by the same person or company or persons or companies that control, directly or indirectly, the eligible crowdfunding issuer.

The offering document must also specify the minimum gross proceeds to be raised pursuant to the offering.


In Alberta and Ontario, the acquisition cost of the securities acquired by the purchaser is subject to the following limits:

(a)          Purchaser is not an accredited investor -- cannot exceed:

               (i)            $2,500 for the distribution; and

              (ii)           $10,000 for all distributions in reliance on this exemption in the same calendar year.

(b)          Purchaser is an accredited investor but not a “permitted client” -- cannot exceed:

              (i)            $25,000 for the distribution, and

              (ii)           $50,000 for all distributions in reliance on this exemption in the same calendar year, and

(iii)          Purchaser is a “permitted client” – no limits.

Elsewhere, the acquisition cost of the securities acquired by the purchaser is subject to the following limits: 

(a)          Purchaser is not an accredited investor – cannot exceed $2,500 for the distribution, and

(b)          Purchaser is an accredited investor -- cannot exceed $25,000 for the distribution. 


Before the purchaser enters into an agreement to purchase the securities, the issuer must make available to the purchaser, through the funding portal, a crowdfunding offering document in compliance with Form 45-108F1.

The purpose of the offering document is to provide purchasers with all of the information about the issuer and its business that an investor should know before purchasing the issuer’s securities.

In addition to the crowdfunding offering document, an issuer may make available to a purchaser only through the funding portal the following materials:

(a)          a term sheet;

(b)          a video; and

(c)          other materials summarizing the information in the crowdfunding offering document;

provided that such material are consistent with the crowdfunding offering document.


Investors must complete a Risk Acknowledgment Form (Form 45-108F2) requiring them to positively confirm having read and understood the risk warnings and information in the crowdfunding offering document before they can enter into an agreement to purchase securities.


Purchasers will have either statutory or contractual rights to withdraw from any agreement to purchase the security by delivering a notice to the funding portal within 48 hours after the date of the agreement to purchase and any subsequent amendment to the crowdfunding offering document. 


Purchasers will have either statutory or contractual rights against the issuer for rescission and damages if the crowdfunding offering document or other materials made available to the purchaser contain a misrepresentation, without regard to whether the purchaser relied on the misrepresentation.


The distribution period shall end no later than 90 days after the date the issuer first offers its securities to purchasers.

Closing must occur within 30 days after the end of the distribution period. 


No person or company in the issuer group or director or executive officer of an issuer in the issuer group may, directly or indirectly, pay a commission, finder's fee, referral fee or similar payment to any person or company in connection with a distribution in reliance on the crowdfunding prospectus exemption, other than to a funding portal. 


There is a prohibition on advertising and general solicitation.


Non-reporting issuers must make available to investors:

(a)          annual financial statements;

(b)          a notice of use of proceeds; and

(c)          in New Brunswick, Nova Scotia and Ontario:

              (i)            a notice of a discontinuation of the issuer’s business;

              (ii)           a change in the issuer’s industry; or

              (iii)          a change of control of the issuer.

Reporting issuers must continue to comply with all of their disclosure requirements.


Issuers can only distribute securities through a single funding portal that is registered as an investment dealer, exempt market dealer or restricted dealer as outlined in the Crowdfunding Rule. 

Issuers must post the offering document and other permitted materials solely on that funding portal’s online platform.


Funding portals are prohibited from offering securities of a related issuer.

A funding portal must fulfill certain gatekeeper responsibilities prior to allowing an issuer access to its online platform, including reviewing the issuer’s disclosure in the crowdfunding offering document and other permitted materials for completeness, accuracy and any misleading statements.

A funding portal must review information and obtain background checks on the issuer and its directors, executive officers and promoters, and deny an issuer access to the funding portal in certain circumstances.

Invitation for discussion

If you would like to discuss this blog in greater detail, or any other business law matter, please do not hesitate to contact one of the lawyers in the Business Law group at Nerland Lindsey LLP.


The foregoing is for general discussion purposes only and should not be construed as legal advice to any one firm. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice. 

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