Larissa Streu

Date: November 25, 2014

Name: Small Business Council Success Series – Capital raising for your business in the private placement market

Presenters: Peter Brady, and Larissa Streu

Aside from entrepreneurs and traditional funding sources, many small businesses are looking for private investors for their funding resource. British Columbia Securities Commission (BCSC) conducts private placement to help small businesses in British Columbia to raise money in the market. This presentation invites Peter Brady, the Director of Corporate Finance of BCSC, and Larissa Streu, the Senior Legal Counsel of BCSC, to explain how securities law affects small businesses. In addition, this presentation will benefit all small business owners to understand how to raise funding effectively and efficiently.

Brady defines security is any document that allows the holder to profit from the efforts of others. Many people believe securities law only apply to companies in public listing or on stock exchange; however, Streu emphasizes the law will be in effect any time securities are traded.

Two important key principles in securities law that all small business owners need to understand are registration and prospectuses. Brady indicates most trades of securities require registration through dealers. Moreover, most trades of securities also require a prospectus. Prospectus will help owners to review documentation; nevertheless, it might be costly.

Small business can qualify as private issuer exemption is when they have less than 50 security holders. The private issuer exemption only allows small businesses to transfer investors who are in the three main categories.

• Family, friends, and close business associate
• Employee, directors, or officer
• Accredited investor

Brady points out the first category only apply if the investors are someone who they know well enough to assess trustworthiness and capabilities. This also includes a direct relationship. As for the second category, Brady emphasizes only investors who are sufficient prior business dealings to assess capabilities trustworthiness. This also includes direct relationship as well. The last category is for investors who have high net worth without including the investors’ home property. The net assets must be at least 5 million and net income over 200 thousand dollars for the past 2 years.

Other prospectus exemptions

When small businesses are not eligible to be qualifying as private issuer, they can apply for two other exemptions. These are investment exemption and offering memorandum exemption.

The investment exemption is for investors who can invest $150,000 at one trade. This exemption only applies individual investors, not combination of investors. The offering memorandum is a legal document that describes how they will use the money. This requires a form to be delivered to investors and filed within 10 days. Offering memorandum can sell to anyone.

Many small businesses are using crowdfunding to raise money from large. However, Streu emphasizes British Columbia do not consider equity crowdfunding in British Columbia. The rules are different in different provinces in Canada. In addition, there are other exemptions that are similar to crowdfunding in British Columbia.

For reporting sales of securities, Brady suggests all small business owners to ensure thy record in file for verification. Any exemptions for sales to employees, directors or officers are not required to report to BCSC. However, any exemptions other than private issuer are required to file report within 10 days of the sale.

“To have fair and educate help business aware the capital”