Equity Crowdfunding Information for Businesses

8/13/2019 Equity Crowdfunding Information for Businesses

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Equity CrowdfundingInforma on for Businesses

You may have heard of crowdfunding as a way for small businesses or crea veprojects to raise funds online from the public. Tradi onal crowdfunding usually

raises money through dona ons or the pre-selling of products.

Equity crowdfunding is slightly di erent in that instead of giving a dona on or pre-purchasing a product, individuals are inves ng in a business.

Businesses sell securi es like shares, limited partnership units and promissorynotes investors buy a stake in a small business or start-up.

Crowdfunding vs. Equity Crowdfunding


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When a business in Saskatchewan wants tosell shares, our securi es law asks businessesto prepare a number of legal and nancialdocuments that are usually expensive, com -

plicated and me consuming for small busi-nesses or start-ups to do.

The Saskatchewan Equity Crowdfunding Ex-emp on waives registra ons and prospec-tuses requirements for small businesses andstart-ups so that they can raise the funds theyneed in a cost-e ec ve way.

This means that as long as you are not in thebusiness of trading in securi es, you do nothave to be registered with FCAA.It also means you do not have to prepare a

lengthy, costly prospectus to sell shares inyour business.

Large businesses that want to raise more than$300,000 in a year will con nue to go throughthe more detailed process. The more detailedprocess o ers investors more informa on andadvice.

A small business or a start-up has an idea but needs to raise funds tomake it happen. They create a pitch to investors that includes basicinforma on about the business and the o ering, how theyll usethe money, and any risks to the project. Then they set a minimumamount they need to raise to accomplish their goal.

The website asks a lawyer to hold the money the business raisesin trust for investors un l the minimum amount is raised. If thebusiness doesnt raise the money it needs, each investor gets theirmoney back. The website cannot give investment advice.

An investor spots an interes ng business. A er reading all the busi-ness info (which they make sure to understand) and researching thebusiness and the people involved, the investor decides to make aninvestment of any amount up to $1,500. They read and understandthe risk warnings.


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How to Find Out If EquityCrowdfunding is Right for You

Develop a business plan

This plan should include in detail:

1. The basics: Business name Type of legal structure (corpora on or

limited partnership) In which jurisdic on was your business

formed Business and registered o ce address Contact Informa on

2. A history of your business including milestones you have already met

3. The product or service you sell4. What and where your market is5. Who is your compe on6. The risk associated with your business7. A list of your managers, their back grounds, and experience in business8. Your business nancial condi on9. The project you want to crowdfund and its

costs10. A budget that includes sources of funds

to complete the project and how thefunds will be used

11. How much will you need to run your busi ness from day-to-day12. How comple ng the crowdfunded

project will help your business

Step 1

Step 2 Decide if equity crowdfunding isright for you

Other Op ons: Have you considered self-funding, other securi es exemp ons, or bank

nancing?

Time: You will have to devote a signi cantamount of me to pu ng the o er together,mee ng FCAA requirements, and developingand implemen ng the campaign for investors.

Having Investors: If your camapign is success -ful, youll have given up a por on of your busi-ness and you must answer to your investors.

Think about how you will keep investors in theloop a er you raise your money. Investorswill expect periodic reports on your businesssprogress, and they may want to talk to man-agement, a end mee ngs of directors, or visitthe business facili es on a regular basis.

There are some costs to having investors.

Unhappy investors can easily make issuesknown online, ruining your companys repu-ta on, and making it more di cult to raisefunds in the future.

Also, having a large number of investors mightmake it di cult to sell the business shouldyou wish to do so.

Step 3 Planning the ofering

Determine your legal structure: corpora -on, limited partnership, or sole propri-

etorship? Generally, legal structures shouldbe as simple as possible to accomplishyour goals. Simple structures are easier forinvestors to understand.

How much personal liability are you pre -pared to take on?

What are the costs of maintaining thestructure?

What are the tax implica ons of eachstructure?


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WHERE

The o ering must be made through acrowdfunding website

Investors must purchase the securi esonline through the crowdfunding website

GETTING READY

Make sure you arent a repor ng issuerwith the FCAA. (If you have led a pro

spectus with FCAA, then you are probablya repor ng issuer.)

How to Equity Crowdfund

What type of security will be easiest tosell? Will your target investors want to bepaid dividends or interest, will they want toresell?

How much control of your business are youwilling to sell to others and on what termsand condi ons?

How many securi es will you sell and forwhat price?

What do investors get a return for theirinvestment? Can you realis cally expect topay this return?

Have you protected your idea? Your intel-lectual property is valuable -- you shouldtell investors just enough for them to makea reasoned investment decision, but dontdisclose technical details.

How will you promote your o ering? Donot under es mate the me that a goodcampaign will take. Saskatchewans EquityCrowdfunding Exemp on requires that anyadver sing must be balanced and showthe good and the bad and be consistentwith your o ering document.

Check to see whether you, your o cers,directors, promoters, or control personshave any open crowdfunding campaigns.(You cant have more than two o erings ina calendar year.)

If you are already running crowdfundingcampaign for this project, you have towait for it to end before star ng anothercampaign for the same project.

You must be a Saskatchewan resident Understand that the securi es you sell

through equity crowdfunding are subjectto resale restric ons. Your investors mayhave ques ons about this.

WHAT YOU CAN/CANT OFFER

The o ering must be of your ownsecuri es

You cant o er: investment fund securi es (where the

money raised is invested in othersecuri es)

deriva ve securi es (securi es whosevalue is based on the value of anunderlying security, like a mortgage, orcommodi es like grain or currencies)

HOW MUCH

You must set a minimum amount that youwant to raise.

You must tell investors how you are goinguse the money and how you will use any

addi onal money you raise.

You can raise more than the minimum youset, but you cant go over the maximumamount: $150,000 per o ering.


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If you choose, you can set a minimumamount each individual must invest.

No individual can invest more than $1,500

TIMEFRAMES

The o ering cannot be open more thansix months

FEES

No commissions can be paid to sell thesecuri es

The crowdfunding website can chargebusinesses for its services

FCAA does not charge any fees for equitycrowdfunding

HOW TO FILE WITH FCAA

Businesses have to le four forms with FCAA.

Ten business days before you plan to beginselling securi es, you have to submit threeforms.

The Issuer Informa on Form (GO45- 925F1)

An Individual Informa on Form (GO45-925F2) for each o cer, director, promoterand control person

The O ering Document Form (GO45- 925F1)

Ten days a er you submit these forms toFCAA, you can begin trading.

Within 30 days a er comple ng your o ering

you need to le:

Report of Trades Form (GO45-925F4).The website should provide you withthe informa on you need to ll out thisform within 15 days of the end of yourcampaign.

How to Complete the Ofering

Document Please use the full legal name ofthe business and ll in all the

contact informa on requested.

The person named here shouldbe able to answer ques ons

from investors and from FCAA.

You will lose investors if they a empt to con-tact this person for informa on and the per-son is di cult to contact or provides evasive,uninformed, or incomplete answers.

The people named here shouldgive investors con dence that

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If you do provide nancial statements, thereare no rules on how they are to be prepared.Making nancial statements available onlinewould be best.

Discuss your companys current nancialcondi on: what are your debts? Your assets?How are you managing your nances? Are yousolvent?

This is where you set yourminimum amount that must beraised before you can access themoney.

In the next item you will tell investors whatyou will do with the money. Make sure bothsec ons are realis c and doable.

Tell investors how you will usetheir money. Provide enoughdetail to allow investors to make a

reasoned investment decision. Incomplete orunrealis c informa on will lose investors.

Tell investors what you willdo with any addi onal moneyyou raise beyond theminimum amount.

Tell the investors the type ofsecurity you are o ering.

Tell investors the price persecurity.

You can set a minimum andmaximum amount you willaccept from an investor. This

is op onal and you can do one, both, or nei-ther.

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your project can succeed. These peopleshould have a clean, successful history andexperience in managing a business or in yourindustry.

This is the legal structure of yourbusiness.

You need to tell investors wherethey can see your organizing

documents. Its best if you can make thesedocuments available online.

This is a very important part of theform where you describe your

business. Include enough detail so an inves -tor can clearly understand what you do orwant to do.

What makes you special and di erent fromother compe tors in the industry?

What milestones have you already accom -plished?

Where do you see your business in three,ve, and ten years?

What are your future plans and hopes foryour business and how do you plan to getthere?

How much money have you alreadyraised? How did you raise it? How has thatmoney been used?

What is your teams experience running abusiness or in your industry?

You are not required to providenancial statements. Give this

issue some thought: investors willbe a lot more interested in a business thatcan show good accoun ng prac ces and thatis prepared to share their nancial condi on.Would you invest in a business that refused toprovide you with this type of informa on?

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You might set a minimum amount if you wantto limit the number of investors. The maxi -mum cannot be over $1,500.

If you do not wish to impose these restric onson your o ering leave the sec on blank.

Tell investors what rights theyget if they purchase securi esunder your o ering. You can

usually nd this informa on in your organizingdocuments (Item 5).

Tell investors how you willkeep them in the loop aboutyour business and theirinvestment.

We do not require that you report to inves -tors, but investors will want to be kept in-formed. If you fail to do this you will havedisgruntled investors that can damage yourimage and reputa on and make it di cult toraise money in the future for your business.

Se ng out a reasonable repor ng plan isimportant. Make sure your plan is doable andmeaningful. Repor ng doesnt have to becomplex or costly you can report throughnewsle ers, social media sites, email, nancialstatements or similar documents. Rememberto go over the milestones youve met, con rmhow their money was used, and discuss yourfuture plans. Impress your investors withtruthful fair informa on.

Explain the risks to the inves-tor. Be truthful, reasonable,and clear failing to do so

could land you in a law suit.

Investors deserve to be able to make a rea-soned investment decision based on all theinforma on even the downside.

Feel free to tell the investors how you plan tomi gate these risks.

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Documents

Equity Crowdfunding Information for Businesses