offering documents they received. If a company must ‘pivot’ and
spend funds differently than stated in the offering documents, it
should seek shareholder approval before doing so. Failing to obtain
shareholder approval for any change in the use of proceeds may
result in shareholder lawsuits and regulatory complaints, which is
extremely costly for all involved.
Minimum and Maximum Offerings under Canada’s Proposed
Equity Crowdfunding Regime
The equity crowdfunding exemption being considered by
Ontario, Quebec, Saskatchewan, Manitoba, New Brunswick and
Nova Scotia (the Canadian ECF proposal), provides a maximum
offering limit and a minimum offering condition.
The maximum offering limit a company may raise under the
Canadian ECF proposal is $1.5 million in any 12-month period.
The minimum offering condition under the Canadian ECF
proposal is as follows:
1. the company must disclose a minimum offering amount in it’s
offering document; and
2. at the time of closing, the company must have sufficient
financial resources to achieve the next milestone set out in
the company’s written business plan, or if the company has
no milestones, it must be able to carry out the activities set
out in its written business plan.
Under the Canadian ECF proposal, a company cannot take
whatever money is raises; rather it must first reach a minimum or
target amount as set out in its written business plan.
A company’s offering document must disclose a minimum
offering size and whether there is a maximum offering size.
A company has 90 days to raise at least the minimum offering
amount and portals must try to confirm that the minimum offering
is achieved before funds are transferred to the company.
The Canadian securities regulators have sought comment on
whether a company should be able to extend the time an offering
could remain open if subscriptions have not been received for the
minimum offering and, if so, whether a minimum percentage of the
minimum offering could have been received to do so.
Companies and investors should understand what the terms
‘minimum’, ‘maximum’, ‘keep-it-all’ or an ‘all-or-nothing’ offering
mean when a company raises capital and when and how much, if
any, of the amount raised the company can keep. Companies and
investors should also know that securities laws may dictate how
much a company can keep and raise, which may depend on the
type of prospectus exemption the company relies on, as discussed
in the example above involving the Canadian ECF proposal.
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