Ontario Securities Commission proposes new crowdfunding rules, seeks comment

TORONTO – The Ontario Securities Commission is proposing new crowdfunding rules to allow start-ups and other early-stage businesses to raise money through registered online platforms.

Entrepreneurs use crowdfunding to pitch their ideas directly to large numbers of consumers, who then invest typically small amounts in the startup.

The proposed rules would allow businesses to raise up to $1.5 million during a 12-month period through a crowdfunding portal that has been registered with securities regulators.

The rule would also limit how much an investor can invest — a maximum of $2,500 in a single investment and $10,000 per year.

The provincial regulator published the proposed prospectus exemption along with three other changes, which are all now subject to a 90-day public comment period.

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

The fourth change would allow public companies listed on the Toronto Stock Exchange, TSX Venture Exchange and Canadian Stock Exchange to raise money from their existing investors based on the public disclosure.

“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,” OSC chief executive Howard 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 exemptions are open for public comment until June 18.

Websites like Kickstarter have raised the popularity of crowdfunding with projects like the Veronica Mars movie, which was funded by fans of the now defunct TV show.

However, investing in start-up businesses can be extremely risky and critics of crowdfunding have raised concerns about the possibility for fraud.

Last year, the U.S. Securities and Exchange Commission released crowdfunding proposals for how much people could invest and how much companies must disclose.