Crowdfunding – A simplified scheme for start-up companies

Written by Marie Laure Leclercq and Michel G. Beaudin

With its proposed Regulation 45-108 on crowdfunding for developing companies, Quebec is joining a movement that can be seen in most Canadian jurisdictions.

In joining Manitoba, New Brunswick, Nova Scotia and Saskatchewan (the “participating jurisdictions”) and proposing a simplified scheme for start-up firms to supplement the scheme covered by Regulation 45-108, Quebec is taking innovation a step farther. The new system somewhat resembles the prospectus exemption recently adopted by Saskatchewan.

It gives start-up companies access to funding at a stage in their development where venture capital is not usually accessible.

The highlights of this new simplified scheme are summarized below.

Investment limit 

  • An investor cannot invest more than $1,500 in a single offering
  • No annual limit per investor
  • An investor must reside in a participating jurisdiction

Capital that can be raised

  • Limit of $150,000 in a single offering
  • Limit of two exempt offerings per calendar year
  • The minimum offering amount must be equal to the amount needed to carry out the purpose for which the funds are sought

Types of securities

  • Common shares; non-convertible preference shares; securities convertible into common shares or non-convertible preference shares; non-convertible debt securities linked to a fixed or floating interest rate; units of limited partnerships


  • Non-reporting issuers only
  • The exemption is not available to investment funds


  • No registration required for start-ups’ offering activities
  • Offering materials may be made available to potential investors only on the portal’s website
  • All subscription amounts must be deposited with a lawyer, a notary authorized to practise in Quebec, or a trusted third party

Disclosure and ongoing disclosure documents

  • Basic form, easy to complete without assistance from a professional; no formal business plan

Financial statements

  • No financial statements requirement

Personal information

  • Each promoter, officer, director and control person of the issuer must deliver a complete individual information form to the authorities at least 10 business days prior to beginning of trade

Reporting of distribution

  • Within 30 days of the closing the distribution

It is easy to see how this type of low-cost funding can be attractive and fill a critical need for start-up firms, in particular for firms that have little or no tangible assets to offer as collateral because their entire value consists of intangible assets. Examples might be firms whose business is information technology, the Internet, wireless technology, mobile applications, broadcasting, online music services, software development, and video games. From what we can also see elsewhere, in particular the United States, a scheme of this kind can help community groups or associations find funding.

This draft regulation was subject to a public consultation, which ended on June 18, 2014. It is expected that the draft regulation will be quickly adopted.

Like all investments covered by Regulation 45-108, investments will have to be made via a portal. Even though portals according to the simplified scheme and unlike under Regulation 45-108 will not need to be registered, the system will depend on market intelligence for self-regulation. It means that only portals that can meet their investor community’s needs for reliability and information will survive. It is therefore largely up to the crowd intelligence of the investor community that uses these sites to maintain appropriate discipline in order to mitigate the risk of fraud.

Our Business Law Group will be pleased to help you with your projects and provide you with any information you may need in this area.