Raising Capital As a Start-Up Or Small Business
One of the biggest challenges to a start-up company is liquidity. Most companies require time to prove a concept and attract a steady stream of paying customers. In the process of developing the business, financial capital is required for research and development, marketing, supply chain, employment, and administrative costs and a variety of other vital functions. It has often been said that a new business is in a race against “money” in that they need to create a sustainable cash flow before their funding runs out. Business financing is key for this. The Lawyers at Kahane Law Office in Calgary, Alberta can help with the legal aspect of financing a business and raising start up capital.
The Canadian Regulatory Regime For Business Financing
The regulatory regime that oversees financing for small and start-up businesses in Canada is complex. There are many rules, local policies, multilateral instruments, national instruments, regulations, blanket orders, rule, court decisions and commission decisions. There is also a Securities Act in each jurisdiction. It is consumer protection driven and looks to protect those investors (the general public) from unscrupulous investment schemes. There are many possible penalties and fines for businesses that contravene these rules. The Alberta Securities Commission deals with some of these potential infractions. The start-up and entrepreneurial lawyers at Kahane Law Office can help you to effectively navigate these rules and find the type of capital that is right for your business.
Main Principles in Canadian Business Financing
There are two main principles in the Canadian business financing regime:
- Registered Dealer: No one may buy or sell shares in a company unless a registered dealer (referred by non-lawyers as an “investment bank”) is involved in the sale; and
- Prospectus Requirement: A prospectus must be used every time a corporation distributes its shares to investors. A prospectus is a long document that provides “true, full and plain disclosure”. It explains the risks to investors for business financing.
Lower Costs For Financing A Business
Unfortunately these requirements are cost prohibitive for most start-ups and small businesses. If it costs too much, a small business cannot access business financing this way. As a result, there are “exceptions” to these main rules that small businesses rely on to raise money from investors. The main exemptions that are used are:
- Private Issuer Exemption;
- Family, Friends and Business Associates Exemption;
- Accredited Investor Exemption;
- Offering Memorandum Exemption;
- Employees, Directors, Senior Officers and Consultants Exemption; and
- Minimum Amount Exemption.
An investor, when investing in a start-up or small business in Canada, typically uses these exemptions. The types of investors are varying and include friends or family (often referred to as “love money”), Angel Investors (professional investors who are experienced in entrepreneurial ventures), employees, consultants and other sophisticated investors such as venture capitalists, private equity investors, pension funds, and other institutions.
Businesses Financing & Capital Lawyers In Calgary, Alberta
The business and corporate lawyers at Kahane Law Office in Calgary, Alberta can help with your business financing or capital raising needs. Contact us today to learn about the ways that you can raise money to ensure that your business is a long-term success. We can be reached toll-free at 1-877-225-8817 (or 403-225-8810 locally in Calgary, Alberta), or email us directly here.