The evolving world of social finance in Ontario

December 7th, 2012 by Brian Iler and Laura Bowman

Social enterprises can find it difficult to raise capital from community‑minded investors.  Even in the non “social enterprise” sector, most capital for small and startup enterprises is still raised from friends and family rather than banks, wealthy investors or other more traditional sources.


A recent innovation in financing for some social enterprises is “crowdfunding”. What is it?  An online opportunity for individuals to support a project by offering to sell the project’s product or service, when it is ready, in return for pre‑payment.  The money paid is used to develop the product or service, and it is understood that if the project is not successful, the product or service may not be provided. Marketing is directed at the general public (the crowd) via social media platforms. First coined by for charitable purposes, the concept of crowdfunding has been used to raise money for a multitude of non‑profit projects.  Crowdfunding is unregulated, as it is treated as a sale of goods or services for the use of the purchaser.


Crowdfinancing is different, as it offers a return on money investment, rather than a pre‑sale of that product or service. But the marketing is similar to crowdfunding – online, and to the public. Crowdfinancing is strictly regulated, as it is an investment, and the complex laws regulating the sale of securities apply.

However, since April 2, 2012, startups in the US have been able to use crowdfinancing to raise limited amounts of money.  The JOBS Act amended the US Securities Act, providing a crowdfunding registration exemption from securities regulation for transactions involving individual investments that are the lesser of $10,000 or 10% of an investor’s income.

In Ontario, generally, current securities regulations do not permit crowdfinancing, because the public solicitation of funds is prohibited, unless:

  • an exemption is found, or
  • a public offering with full true and plain disclosure of the material facts is provided, through a “prospectus”.

An exemption is available:

  • for wealthy investors, who are considered sufficiently knowledgeable to assess the risks of loss, and are assumed to be able to afford to lose their money.
  • For non‑profits with “benevolent” objectives, and
  • For co‑operatives, which have an entirely separate and distinct regulatory scheme..

Given the U.S. initiative, there’s some interest in opening the door a bit to crowdfinancing in Ontario; on June 7th, 2012, the Ontario Securities Commission (OSC) released a Staff Notice that it would consider “the securities regulatory regime for capital raising in the exempt market in other jurisdictions.”

Translation? The OSC is thinking about what to do about crowdfinancing.  In Ontario, amendments would have to be made to securities legislation as well as to the National Policy 47‑201 on trading securities using the internet as adopted by the OSC.   Certainly interest in Canada is growing.

Community bonds

In the meantime, some social entrepreneurs are not waiting for the OSC.  Using the exemption for non‑profits, Toronto’s Centre for Social Innovation has marketed its  Community Bond concept to finance its recently acquired Annex building.  And it recently launched a website, and published a Guide,  designed to popularize this form of financing.  Community Bonds are loans that may, or may not be secured, and are repayable with interest. If secured against real estate, they can be RRSP eligible.

Co‑operatives like Toronto’s SolarShare, also offer bonds that are used to finance their renewable energy projects.  Co‑ops like SoarShare file an offering statement, analogous to a prospectus, with the Ontario government, and are then able to sell to Ontario investors using the Internet and other marketing strategies.  The regulatory environment is daunting for social enterprise financing and changing rapidly. Make sure you get good legal advice if you are looking for new ways to finance your activities.

Iler Campbell LLP works with a variety of social enterprises to help develop effective financing strategies.

Filed in: Charities, Co-operative Law, Commercial Law, Not for Profit Law

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