After coming to Canada, many people aim to run their own businesses, such as opening restaurants or foreign trade companies, etc. Sometimes, when facing a shortage of funds, it might be necessary to recruit additional investors.

I have a client, for instance, who a few years ago, upon a friend’s recommendation, invested 900,000 Canadian dollars in a clothing design company. The company had some reputation for its clothing designs in New York. Later, for reasons unknown, the company opened a coffee shop. Subsequently, the coffee shop went bankrupt, resulting in a total loss of the invested money.

Hello, everyone. I am Lawyer Geroge Lee. Welcome to the “Talk and Reason” show. Today, we are going to share and discuss legal issues related to crowdfunding and private placement.

In British Columbia (BC), all business operations of a company are regulated by Business Corporations Act. For a private company, its investors, or shareholders, can consist of one person but cannot exceed a maximum of fifty individuals. Surpassing fifty individuals would violate

Securities Act. Additionally, private companies cannot publicly sell their shares to external parties.

If you want to conduct crowdfunding publicly, there are a series of regulations to comply with; otherwise, you may violate Securities Act. There was a similar case in Vancouver a few years ago, where a real estate company used crowdfunding to purchase properties, developed them, and then sold them at a higher price. The company was later dissolved due to suspected violations of Securities Act.

Generally, companies and investors typically sign a Share Subscription Agreement to outline details such as the invested shares and amounts, principles for dividends, and whether there are voting and managerial rights, among other aspects.

For a company considering crowdfunding or issuing shares for fundraising, it must take into account the following key rules and factors:

1. Offering Document: When a private company intends to raise funds through crowdfunding or share issuance, it typically needs to prepare an offering document. This document provides crucial information about the company, investment opportunities, and associated risks.
2. Ensuring Accurate Information: The company still must ensure the provision of accurate information to investors to enable informed investment decisions.
3. Limits on Amount Raised: The amount a company can raise is restricted, and compliance with risk disclosure and reporting requirements is mandatory.
4. Investor Qualifications: The company needs to review whether investors have the necessary experience and financial capacity for the investment.
5. Anti-Fraud and Anti-Misrepresentation Rules: Private companies are prohibited from providing false or misleading statements to investors. They must offer complete and accurate information about financial conditions, business operations, and risks.
6. Ongoing Disclosure: Private companies raising funds through crowdfunding or subscription of shares may need to fulfill ongoing reporting obligations, including financial reporting and providing updates to investors.

Let’s go back to the previous case. In that case, my client invested 900,000, and as a result, the coffee shop went bankrupt, leaving him with a total loss. Consequently, my client initiated a lawsuit against the company. During the recruitment for his investment, the company did not fully disclose that the coffee shop and the clothing factory were part of the same entity, nor did they disclose the investment risks. So, the question is whether my client can recover the 900,000. This case is still ongoing.

Alright, that concludes today’s topic. Please stay tuned, like, and leave comments in the comment section about legal issues you’d like to know more about. Goodbye.