Law

Crowdfunding: What to know before you get started.

foxtailMoneyMaker / 7 Jan, 17 /

crowdfunding

In recent years, crowdfunding has been seen as a preferred avenue for small and medium size businesses to raise small amounts of money from a large number of people to start or complete a project. Crowdfunding can be through donation, pre-selling of products, or securities (bonds or shares).

Starting and running a crowdfunding campaign can be time consuming and expensive for start-ups and as such, the management of the company should consider various factors including but not limited to, other sources of funding available and the cost associated with them, the time and human resources available to engage in the crowdfunding campaign, the type of crowdfunding campaign suitable for their business, and type and price of securities or products to be sold.

Crowdfunding campaigns are usually run through a funding portal which lists crowdfunding campaigns on its website and facilitate the payments. The funding portals are usually responsible for receiving and holding the funds from investors and providing investors with investment documents and risk acknowledgement forms. In BC, start-ups can choose from two types of funding portals, funding portals that are operated by registered investment dealers or exempt market dealers that must provide advice on suitability of the investment to investors, or funding portals that are operated by persons relying on the start-up registration exemption and that cannot provide suitability advice.

Currently, the maximum amount that can be raised in a start-up crowdfunding is $250,000 per campaign and each start-up can conduct two crowdfunding campaigns per calendar year. Each investor can invest up to $1500 per crowdfunding campaign. This money will be held in trust by the funding portal until the minimum amount of the offering is raised. If the company fails to raise the minimum amount in 90 days, all investors will receive their money back.

For more information about the start-up crowdfunding and related exemptions in Victoria, Vancouver, Surrey, or Richmond, BC, please contact our business law team at Hart Legal.

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