Yes, you can crowdfund your en­ergy com­pany. But not all fun­ders should be treated the same

Alberta Oil - - FRONT PAGE - Peter Yates and Melissa Cook are as­so­ci­ates with the En­ergy Group at Field Law


meth­ods of rais­ing cap­i­tal are bor­row­ing or sell­ing eq­uity. Given that lenders are be­com­ing in­creas­ingly re­luc­tant to lend to en­ergy com­pa­nies as their as­set val­ues de­crease, those com­pa­nies are in­creas­ingly turn­ing to eq­uity is­suances to raise cap­i­tal.

Un­der Cana­dian law, any com­pany sell­ing their own se­cu­ri­ties is re­quired to pro­vide the buyer with a prospec­tus. But re­cent amend­ments to the law have pro­vided an ex­emp­tion from the prospec­tus re­quire­ment for “crowd­fund­ing,” or rais­ing small amounts of money from many dis­tinct in­vestors, of­ten through a web­site. While these crowd­fund­ing ex­emp­tions pro­vide in­creased flex­i­bil­ity for en­ergy com­pa­nies look­ing to raise money, dif­fer­ent rules have been put into place in var­i­ous ju­ris­dic­tions such that com­pa­nies hop­ing to use these new ex­emp­tions should be mind­ful of where their in­vestors are lo­cated to en­sure com­pli­ance with the law. This makes it some­what cum­ber­some for com­pa­nies look­ing to raise cap­i­tal as they will need to en­sure that they are com­ply­ing with the rules in each ju­ris­dic­tion where they are is­su­ing se­cu­ri­ties.

The leg­is­la­tion in many Cana­dian prov­inces (in­clud­ing Man­i­toba, On­tario, Québec, New Brunswick and Nova Sco­tia), seems to pro­vide greater flex­i­bil­ity for rais­ing money from wealthy in­di­vid­u­als than oth­ers. They also have a higher life­time cap­i­tal-rais­ing limit, pro­vided there is on­go­ing dis­clo­sure from the is­suer, in­clud­ing po­ten­tially hav­ing to pre­pare au­dited fi­nan­cial state­ments. That can be a time-con­sum­ing and ex­pen­sive process for the is­suer long af­ter the of­fer­ing has con­cluded, and it re­quires the fund­ing por­tal to be reg­is­tered as an ad­viser. Mean­while, pro­posed leg­is­la­tion in Al­berta and Nu­navut pro­vides for lit­tle in the way of on­go­ing dis­clo­sure, but of­fers less fund­ing flex­i­bil­ity and doesn’t ap­pear to rec­og­nize the con­cept of reg­is­ter­ing an on­line fund­ing por­tal as an in­vest­ment ad­vi­sor. Only the leg­is­la­tion in Man­i­toba, On­tario, Québec, New Brunswick, and Nova Sco­tia al­low fundrais­ing by pub­licly listed com­pa­nies. The re­sult is a con­fus­ing patch­work of reg­u­la­tions which cre­ate un­cer­tainty in the market.

There are other prac­ti­cal con­cerns about us­ing crowd­fund­ing as a po­ten­tial source of funds for your busi­ness. Cor­po­rate law pro­vides share­hold­ers with iden­ti­cal rights, re­gard­less of the size of their in­vest­ment. There­fore, be­fore us­ing this ex­emp­tion to raise funds for your busi­ness, it is im­por­tant to con­sider if the risks as­so­ci­ated with in­tro­duc­ing po­ten­tially low net worth and un­so­phis­ti­cated share­hold­ers will un­nec­es­sar­ily com­pli­cate your share­holder re­la­tion­ships. Fur­ther, such in­vestors may not have the risk tol­er­ance for the in­vest­ment, and they may re­quire far more in­for­ma­tion on an on­go­ing ba­sis than high-net worth in­vestors. Lastly, your busi­ness should con­sider whether the on­go­ing dis­clo­sure re­quire­ments im­posed by some ju­ris­dic­tions will be too oner­ous for your busi­ness and, if so, ef­forts should be made to avoid rais­ing funds in those ju­ris­dic­tions.

Is­suers and fund­ing por­tals should seek le­gal ad­vice to de­ter­mine which ju­ris­dic­tions best suit their needs, and where the smart money can be raised. The most pru­dent course of ac­tion for, say, an oil and gas com­pany head­quar­tered in Al­berta may be to wait un­til the leg­is­la­tion is so­lid­i­fied and har­mo­nized with other ju­ris­dic­tions be­fore at­tempt­ing to take ad­van­tage of this new regime.

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