When the US changed its securities laws to (eventually) enable equity crowdfunding, advocates of the practice to the North started urging Canadian securities administrators to follow suit. Just what reforms are needed to enable equity crowdfunding in Canada? We answer this question by looking at how crowdfunding fits (or more to the point, doesn't fit) within current Canadian securities law.
Legality of Equity Crowdfunding in Canada
No specific rule or law prohibits equity crowdfunding in Canada. However, Canadian issuers may raise capital only by filing a prospectus (a costly proposition) or relying on an exemption from prospectus requirements. In addition, funding portals must probably register under Canada's dealer and investment adviser registration regime. Most issuers that want to crowdfund do not have the resources to prepare a prospectus (or prospectus-like) offering document or to involve a registered dealer or investment adviser. At the same time, equity crowdfunding does not fit comfortably into any of the current array of Canadian prospectus and registration exemptions. As a result, existing rules in Canada are too restrictive to allow for easy adoption and scalability of crowdfunding.
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