SASKATCHEWAN GETTING READY
By Brian Koscak, Chair, EMDA and Partner, Cassels Brock & Blackwell LLP
On October 7, 2013, the Saskatchewan Financial and
Consumer Affairs Authority (the FCAA) published a framework for
a proposed Saskatchewan-only equity Crowdfunding framework
entitled: General Order 42-925 Saskatchewan Equity Crowdfunding
Exemption (the Proposed Exemption) and requested public
feedback by November 6, 2013. Although the FCAA originally
published a concept equity Crowdfunding proposal on
July 13, 2013, it has now been fine-tuned with the publication of
its Proposed Exemption. The FCAA states that the purpose of the
Proposed Exemption is help bridge the funding gap for start-ups
and entrepreneurs while adequately protecting investors. If
implemented, the FCAA stated the Proposed Exemption would
have a three-year expiration or ‘sunset clause’.
So what are the pros and cons of Saskatchewan moving ahead
with the Proposed Exemption?
The key features of Saskatchewan’s Proposed Exemption are set out below.
Only available to investors who
have an address in Saskatchewan.
Investment limit per
Maximum purchase of
$1,500 per offering.
Annual investment limit: None.
Investors must confirm online that
they have read and understood
a prescribed form of document
called Important Risk Warnings.
Right to sue for a
Subject to certain limitation
periods, investors have a right
to sue for a misrepresentation in
the issuer’s advertising or sales
materials or if a verbal statement
was made in connection with
the investment that contained
a misrepresentation. Investors
also have a right to cancel the
subscription agreement and
recover the purchase price if the
investment is sold in breach of
a decision of the FCAA or the
Saskatchewan Securities Act.
Some of the advantages of the Proposed
Simplicity - The Proposed Exemption
sets out a simple framework for everyone to
understand and use (i.e., investors, issuers and
funding portals) and allows funds to be raised in
an effective and transparent way.
‘Regulatory lite’ approach - The Proposed Exemption
sets out a light regulatory touch for equity Crowdfunding with
minimum conditions and no registration by the portal as a
dealer or adviser (provided it is not providing advice). There is
also no requirement for an issuer or portal to assess whether
the investment is suitable for an investor, presumably because
of small investment sizes.
Small amounts at risk - Investors are capped at $1,500 so
there can be no suggestion that retirement savings are at risk or
significant investment losses could result. Issuers are capped
at $150,000 per issuer (maximum two per year) so it does not
put a lot of investors at risk (assuming 100 investors at $1,500
each) and no more than $300,000 annually per issuer which
limits the extent of any fraud potential.
Some regulatory oversight - The FCAA will undertake
background checks on key personnel involved in the offering
and the funding portal itself. The issuer must also file a simple
and prescribed form of offering document with the FCAA prior
to starting the offering which is also reviewed by the regulator.
Investors should find some comfort that the FCAA has
investigated the people involved in an offering and the offering
document itself before the offering goes live on a portal, although
the FCAA is not passing on the merits of the investment.